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Commentary from Westminster

More Pressure on the Profits of thePharmaceutical Industry

WHEN the Health Minister, Mr Kenneth Clarke,announced to the Commons last October a range of Govern-ment measures to cut the level of profit which drugmanufacturers draw from their sales to the NHS, he wasconfident that he had silenced much of the powerful criticismbeing aimed at the DHSS. Now he finds his confidence wasentirely misplaced; the Westminster critics are demandingfurther reductions in drug companies’ profits, and they arestill complaining that the pharmaceutical industry’sarrangements with the DHSS leave a lot to be desired.

It is not the Labour Opposition whose attitude is giving MrClarke so much trouble. Labour have made it absolutely plainthat they believe the drug industry is taking the Governmentfor a ride, and their official policy includes at least partialnationalisation of drug companies, should Labour bereturned to office. But Mr Clarke is under no particularpressure to adapt his policies to Labour’s wishes. He cannot,however, so lightly disregard the stand being taken by the all-party Commons Committee on Public Accounts. Thecommittee not only has a Tory majority but also commandswidespread credence at Westminster when it criticises theway any Government department spends public funds. It waslargely in response to the prompting of the PAC that MrClarke has already announced the reduction of drug companyprofits from NHS contracts. The cut from 25% to 21% returnon capital employed, which is built into such contracts, willsave the NHS f65 million in 1984-85 and more than 100million annually in later years, according to DHSS estimates.As part of the same initiative Mr Clarke also reduced

substantially the sums drug companies are allowed to writeoff from their profits as legitimate promotion and advertisingcosts. He also introduced further restriction on the amounts

by which drug firms are allowed to exceed their profitforecasts before they run into additional financial penalties.The dismay of the drug manufacturers at those reductions

was loud. Yet Mr Clarke had in fact dealt with them more

kindly than the PAC wanted, since the committee originallysuggested the inbuilt profit margin should be reduced not to21% but to 17%. Mr Clarke was in a dilemma. Though he issteward of the NHS, and thus responsible for saving it

money, his Department is also the sponsoring department ofGovernment for the drug industry, with an obligation tosafeguard its commercial fortunes. Mr Clarke and the SocialServices Secretary repeatedly point out that the industry is amajor employer and a major contributor to the Exchequerthrough tax and, more importantly, profitable exports.Now the Health Minister’s balancing act has been made

even more perilous. The PAC is framing another report onthe operation of the Pharmaceutical Price RegulationScheme, and it questioned last week Sir Kenneth Stowe, thePermanent Secretary at the DHSS, in terms less thancharitable. The PAC chairman, Mr Robert Sheldon,produced the biggest shock of the committee session byrevealing that an as yet unpublished Government review ofthe general terms of official contracts is expected to

recommend that the Government offers its suppliers a returnon capital of no more than 15. 5%. That would be a majorembarrassment to the DHSS. If the review board sticks to the

figure in its published report, pressure for another cut in drugprofits will be hard to resist.

Mr Sheldon suggested to Sir Kenneth that the phar-maceutical industry is now "running rings round the

Department". The Permanent Secretary defended the

present arrangements, which he pointed out were agreedbefore the review board fixed on the 15 - 5% figure. Researchand development of drugs was now so expensive, he argued,that the pharmaceutical industry was eligible for considera-tion as a special case. "Very substantial" investment wasrequired. Mr Sheldon was not mollified however. Year afteryear, he complained, people ask why the industry made suchunusually high profits from its NHS dealings. He questionedwhether the Department was really serious about getting areasonable deal for the taxpayer. "I must say I am at a loss tounderstand where the companies’ risk comes from", hedeclared. Sir Kenneth replied that "their risk comes fromhaving to compete in the market place".

Standards in Private Nursing Homes

The Health Minister was on far less controversial groundwhen he announced new moves to safeguard the standards ofcare offered to elderly, mentally handicapped, and mentallyill people in private nursing homes. Since the Department hasbeen calling for more people to be looked after in the

community rather than in hospital, and since the Departmentpays the board-and-lodging costs of most people in privatenursing homes, Mr Clarke wants to ensure that the beststandards are maintained. He has issued guidelines to healthauthorities and other interested bodies, suggesting changes inthe present registration and inspection procedures.The Government proposes to make it a criminal offence to

claim that a home is registered with a local authority as anursing home when it is not. It is also planned that authoritiesshould be obliged to "enter and inspect" any premises whichthey believe to be functioning as a nursing home. "We areconcerned about the welfare of patients receiving nursinghome care which is not subject to the rigorous standardsapplied to unregistered nursing homes", Mr Clarkecontinued. He also proposes creating a, national list of

nursing-home proprietors who have been refused registrationor have had their registration cancelled by the local healthauthority. The provision will also apply to children’s homes.This black list would help authorities to prevent people whohad failed to maintain good standards in a home in one part ofthe country simply moving elsewhere to start again. Wellover 20 000 elderly people are cared for in small privatenursing homes, and Mr Clarke is anxious to ensure thatfurther development should keep pace with growing demand,and at the same time to protect the public by maintaining andimproving standards.

RODNEY DEITCH

International Diary1984

3rd national symposium on Genetics and the Law: Boston, MA, April 2-4(Prof Aubrey Milunsky, Center for Human Genetics, Boston UniversitySchool of Medicine, 80 East Concord Street, Boston, MA 02118, USA).

Internatioinal meeting on Choosing a Computer System for Your OwnDepartment Needs: London, UK, April 6 (Symposium Secretary, Instituteof Obstetrics and Gynaecology, Queen Charlotte’s Maternity Hospital,Goldhawk Road, London W6 OXG).2nd annual ECP symposium on Hormones and Sexual Factors in

Human Cancer Aetiology: Bruges, Belgium, June 22-23 (EuropeanOrganisation for Cooperation in Cancer Prevention Studies, Avenue Lambeau62, B-1200 Brussels, Belgium).