The government’s proposed reform of NHS drug pricing may not save the service money, the head of the Association of the British Pharmaceutical Industry has warned.

Addressing the coalition’s plans to introduce value based pricing for NHS drugs, ABPI director general Richard Barker told delegates at a London conference: “There is this unrealistic belief in the government’s mind that the result is that prices will fall, but I don’t think we know, actually. Value based pricing is thoroughly logical but not a magic bullet.

The present pharmaceutical price regulation scheme for establishing the cost of drugs to the NHS caps the profit pharmaceutical companies can make from NHS sales at 29.4 per cent.

Under a value based pricing model, drug companies would be allowed to set the initial price. This would be reviewed once the drug had been in use for a while, when its therapeutic benefit would be compared with competitors and its cost effectiveness calculated.

Depending on the outcome of this process, either the NHS or the industry would be reimbursed for the difference.

A spokesman for the Department of Health said the aim of introducing value based pricing was to make effective treatments affordable to the NHS. However, the department is keen to stress that details of how value based pricing would work in the UK are still being drawn up. A consultation document is due in December.

The changes are scheduled for introduction once the present price regulation agreement expires at the end of 2013. At the same time the National Institute for Health and Clinical Excellence will lose its power to decide what drugs should be available on the NHS.

Under the new arrangements NICE will move from a regulatory role to a more advisory one, with GP consortia handed responsibility for deciding whether a patient should be prescribed a drug based on advice prepared by NICE.

Speaking at the same conference, NICE chief executive Sir Andrew Dillon said: “Whoever is going to make a decision about whether the price being offered is fair, they need to have a good basis to make that judgement.

“It’s also going to be important for GPs to be able to go to a very clear description over the economic benefit that [clinical] procedures bring.”

Sir Andrew dismissed claims made by Labour MP David Lammy that the health secretary had “neutered” NICE.

In a statement Sir Andrew said: “We are confident that the government will want to take advantage of NICE’s expertise and experience as it develops value based pricing.”

Health minister Earl Howe confirmed the regulator would still play an important role in assessing new drugs.

He said: “NICE is recognised as an international leader in the evaluation of drugs and health technologies, and it will continue to have an important advisory role, including in assessing the incremental therapeutic benefits of new medicines.

“However, as we implement our plans for value based drug pricing, its role will increasingly focus on authoritative advice to clinicians on how to deliver the most effective treatments, and on the development of quality standards.”