The National Health Service (NHS) of the United Kingdom was founded on the fifth of July, 1948.

It was founded based on three core principles: that it meet the needs of everyone; that it be free at the point of delivery; [and] that it be based on clinical need, not ability to pay.1 The National Health Service was created amid fierce opposition from many organizations representing healthcare professionals (including the British Medical Association (BMA), now a staunch supporter of the NHS) as well as many lawmakers who opposed the proposed government-run and taxpayer-funded healthcare system.2 Now, it is recognized as an excellent national health system, albeit not perfect. The National Health Service also made other key changes and initiatives in its early days, such as allowing parents regular access to their hospitalized children, introducing vaccination programs (notably for polio and diphtheria), and warning the populace about the dangers of smoking.3 The Service was also responsible for many other global and British advancements in healthcare, such as the first anti-AIDS campaign.4 In 2000, the National Health Service made a major change to healthcare in the United Kingdom by introducing NHS Plan, a health service designed around the patient; the Plans major changes involved improvements to hospital and general practitioner (GP) services, increased funding for screening and other preventative care, and making healthcare more convenient, utilizing various means, in general for the patient.5 The NHS has generally charged a flat-rate prescription fee for most of its history (the current charge is 7.40), and certain other categories of medications are dispensed free of charge.6 Prescription drugs have become a major cost for the National Health Service; antidepressant prescriptions alone cost the NHS about 3.3 billion pounds yearly (as of 2009).7 In 2010 the total cost of prescription drugs paid for the by the NHS was over 8.8 billion pounds, with the bulk of this cost made up of drugs affecting the cardiovascular, endocrine, respiratory, and central nervous systems.8 Pharmaceutical regulation in the United Kingdom is generally governed by two agencies, the Pharmaceutical Price Regulation Scheme, or PPRS, and the National Institute for Clinical Excellence, or NICE. The PPRS is described as such by the Department of Health: The National Health Service (NHS) spends about 9 billion a year on branded prescription medicines in the UK. The Pharmaceutical Price Regulation Scheme (PPRS) is the mechanism which the Department of Health (on behalf of the UK health departments) uses to ensure that the NHS has access
"About the NHS." NHS Choices. The National Health Service. Web. 5 July 2011. <http://www.nhs.uk/NHSEngland/thenhs/about/Pages/nhscoreprinciples.aspx>. 2 "A National Health Service." The British Medical Journal 1.4338 (1944): 31-36. JSTOR. Web. 5 July 2011. 3 "NHS History." NHS Choices. The National Health Service. Web. 5 July 2011. <http://www.nhs.uk/NHSEngland/thenhs/nhshistory/Pages/NHShistory1948.aspx>. 4 "NHS History." NHS Choices. The National Health Service. Web. 5 July 2011. <http://www.nhs.uk/NHSEngland/thenhs/nhshistory/Pages/NHShistory1980s.aspx>. 5 The NHS Plan. The Department of Health. <http://www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/@dh/@en/@ps/documents/digitalasset/dh_118522.pdf>. 6 Help with health costs. NHS Choices. The National Health Service. Web. 5 July 2011. <http://www.nhs.uk/NHSEngland/Healthcosts/Pages/Prescriptioncosts.aspx>. 7 Stratton, Allegra. "A Bitter Pill." The Guardian. 26 Feb. 2008. Web. 05 July 2011. <http://www.guardian.co.uk/society/2008/feb/26/ssri.study>. 8 Prescription Cost Analysis, England 2010. The NHS Information Centre. National Statistics. <http://www.ic.nhs.uk/default.asp?sID=1172577414129&sPublicationID=1303803838509&sDocID=6777>.
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to good quality branded medicines at reasonable prices. The scheme seeks to achieve a balance between reasonable prices for the NHS and a fair return for the industry to enable it to research, develop and market new and improved medicines.9 NICE describes itself on its website as follows: The National Institute for Health and Clinical Excellence (NICE) provides guidance, sets quality standards and manages a national database to improve people's health and prevent and treat ill health. NICE makes recommendations to the NHS on: new and existing medicines, treatments and procedures, treating and caring for people with specific diseases and conditions. NICE makes recommendations to the NHS, local authorities and other organisations in the public, private, voluntary and community sectors on: how to improve people's health and prevent illness and disease.10 These two agencies strive to gain the best value for the National Health Services annual prescription budget; they are aided by the fact that the United Kingdom is home to some of them most conservative general practitioners in terms of prescribing, as well as the least-demanding patients in that regard. In fact, only 35% of appointments with general practitioners result in a prescription being written; and only 14% of total drug costs are used on new, innovative drugs released in the past five years. These statistics reflect far lower prescription usage than the United Kingdoms neighbors, Germany and France. Also aiding the goal of maximally utilizing the NHS prescription budget is the Department of Healths encouragement of patients switching from prescription to over-the-counter medications.11 Pharmacy reimbursement is directly affected by the Department of Healths decisions regarding pharmaceutical costs; the government of the UK basically controls the profitability of pharmaceutical companies through their sales to the NHS. The Department of Health utilizes a clawback scheme to ensure that they pay only the cost of drugs, and try to recoup any savings the retail pharmacy received by setting up a discount with the wholesaler.12 In the UK, generally wholesalers receive a 12.5% discount off the list price from manufacturers. The wholesalers in turn pass on 10.5% of the 12.5% discount to retail pharmacies; competition forces them to hand over this large portion (84%) of this discount. Wholesalers then get reimbursed by the NHS based on the manufacturers list price, and the difference between the list price and their remaining discount is their profit. The NHS, however, uses its clawback method to claim excess profits a pharmacy may earn from high discounts. The government, therefore, benefits from a pharmacys purchasing savvy by paying below list price. Adam J. Fein, a USbased expert on pharmaceutical economics contrasts the NHS system with the system prevalent in the US: [b]ut unlike the UK, U.S. pharmacies get to keep any extra profits gained from squeezing the wholesaler. AWP minus reimbursement creates powerful incentives for pharmacies to seek lower drug
"Pharmaceutical Price Regulation Scheme." Department of Health. Web. 05 July 2011. <http://www.dh.gov.uk/en/Healthcare/Medicinespharmacyandindustry/Pharmaceuticalpriceregulationscheme/DH_494>. 10 "About NICE." National Institute for Health and Clinical Excellence. 2011. Web. 05 July 2011. <http://www.nice.org.uk/aboutnice/>. 11 Macarthur, D. "Pharmaceutical Pricing and Reimbursement in the United Kingdom." HEPAC Health Economics in Prevention and Care 1.1 (2000): 47-50. Print. 12 Macarthur, D. "Pharmaceutical Pricing and Reimbursement in the United Kingdom." HEPAC Health Economics in Prevention and Care 1.1 (2000): 47-50. Print.
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prices from their wholesale suppliers. Medicare and Medicaid do not financially benefit from higher spreads at the pharmacy level. In contrast, an AMP Plus model would create a very different dynamic for a payer, who would share in the financial benefit from any reduction in Average Manufacturer Price (AMP). Thus, any manufacturer-led distribution changes that reduced competition for manufacturer discounts from direct buyers (wholesalers or pharmacies) would be opposed by payers.13 Basically, the Department of Health intends to reimburse pharmacies the net acquisition cost for the medications they dispense and provide a separate fee for the professional services provided. From this total sum, the amount the patient paid for the prescription is deducted from the amount paid to the pharmacy. There is a minimum purchase threshold for a pharmacy to receive discounts, which encourages a pharmacy to use one wholesaler as its main supplier. Brand drugs are reimbursed at the manufacturers list prices while generics are reimbursed at government approved Drug Tariff rates. If the pharmacy receives better than average discounts, the NHS will clawback the excess discount to ensure it does not pay more than cost for medications. This process very much benefits the Department of Health and the NHS.14

Fein, Adam J. "U.S. Lessons from Pfizer UK." Drug Channels. Pembroke Consulting, Inc., 12 Dec. 2007. Web. 05 July 2011. <http://www.drugchannels.net/2007/12/us-lessons-from-pfizer-uk.html>. 14 Macarthur, D. "Pharmaceutical Pricing and Reimbursement in the United Kingdom." HEPAC Health Economics in Prevention and Care 1.1 (2000): 47-50. Print.
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