• Major cost pressure caused by surge in price of some generic drugs
  • Possible causes include supply constraints and exchange rate shift following Brexit vote
  • Cost may run in to hundreds of millions of pounds
  • DH and NHS England in discussions about “potential mitigations”

Clinical commissioning groups are facing “significant financial risk” this financial year due to supply issues pushing up the prices they have to pay for generic drugs.

The exact reasons remain unclear. Potential causes cited to HSJ include the fall in the value of the pound since the Brexit vote, fewer firms producing the medicines, and the relatively cheap price of generics in the UK.

Estimates of cost pressures also vary. Several commissioning leaders have told HSJ it appears it could run into more than a million per CCG, and therefore hundreds of millions of pounds. However an estimate in NHS England’s November board papers appears to suggest it may be £50m. It will contribute to a wider underlying significant financial risk.

Mike Dent, pharmacy funding director at the Pharmaceutical Services Negotiating Committee, which represents and negotiates for community pharmacies, told HSJ that the UK has “seen an increase in supply issues with generic medicines since June 2017. Higher prices on these lines [of medications] mean CCGs are facing a significant financial risk”.

The PSNC can ask the Department of Health to set a “price concession” for difficult to obtain drugs which allows them to be purchased at a higher rate than the set drug tariff. Drugs on the generic shortage list currently include painkillers, antibiotics and mental health medication, with tariffs set as high as £50 for a pack of 28 tablets, or £69.50 for a pack of 60.

Mr Dent told HSJ: “Generics prices in England are incredibly low compared to most parts of the world. Generics is a global market, so international manufacturers can choose to sell where they will make the best financial return.”

Warwick Smith, director general of British Generics Manufacturers Association, told HSJ: “We are a low cost market. If supplies are short, we are not going to be at the top of the list.” He said, however, that the driver for the current shortages was “principally” regulatory action against four manufacturers that has stopped production of some medication which he said could last for a “small number of months”.

Mr Smith added that: “Exchange rates are a bit of a bugger, as all raw materials are priced in dollars and euros, and the [devaluation] of the pound comes through in the raw material we buy. I’ve given up guessing on the outcome of Brexit, so that [the exchange rate] could be a short, long or medium term issue depending on your view”.

Redditch and Bromsgrove CCG November board papers said that the issue has been “raised nationally” and NHS England and the Department of Health are discussing “potential mitigations” to reduce the risk faced by CCGs. Neither body would confirm if these discussions had taken place or what the expected outcome might be.

Julie Wood, chief executive of NHS Clinical Commissioners, confirmed it was discussing mitigations with NHS England. She said NHSCC was discussing with NHS England whether some savings from another aspect of the medicines budget - known as Category M - should be retained by NHS England, as is currently the plan, or returned to CCGs to mitigate this new cost.

Redditch and Bromsgrove CCG was reporting an in year cost pressure of £1.4m to its own organisation and £5.4m across Worcestershire. Oxfordshire CCG estimates lower costs of £250,000 but said that figure may change in “later months due to the building pressure for ‘No Cheaper Stock Obtainable’”. Several other commissioning leaders also said the cost pressure for them was more than £1m.

NHS England’s November finance paper said there were “further net risks of £550m” to the year-end position of CCGs, including £500m of “underlying deficits”, but indicated that “temporary issues with drug price pressures” at least £50m risk.

Redditch and Bromsgrove CCG said that it was “asked” to include the increased generics cost (£0.6m) in its month seven financial position. It added: “If mitigations are not forthcoming nationally the Governing Body should note, and assuming this risk materialises, this will create a significant financial risk to the CCG”.

NHS England and the Department of Health have been approached for comment.