Abstract
The Office of Fair Trading (OFT) Report on the UK Pharmaceutical Price Regulation Scheme (PPRS) recommends that when the current five‐year PPRS expires in 2010 it be replaced with ‘value‐based pricing’ which involves pre‐launch centralised government price setting based on a cost‐per‐QALY threshold plus periodic ex post reviews. I examine the validity of the OFTs criticisms of the existing PPRS, review its proposals and propose an alternative way forward. I conclude that PPRS has performed well as a procurement bargain between industry and the UK government. It does not, however, incentivise efficient relative prices. That is not its job. I identify a number of problems with the OFT proposals. I recommend that key elements of a reformed UK pharmaceutical environment for 2010 should include an expanded role for HTA but with companies retaining freedom to set prices at launch; HTA use targeted via a contingent value of information approach; a retained backstop PPRS, perhaps moving to an RPI‐X type control; the use of risk sharing and non‐linear pricing arrangements; measures to ensure more effective therapeutic switching at local level; and measures to improve the take up of cost‐effective treatments. Copyright © 2007 John Wiley & Sons, Ltd.