• provides brief background to the scheme and explains why a review is taking place
• sets out the scope of the review and invites interested parties to contribute
• sets out the Government’s proposals for the future of the scheme following the review and invites comments on these
• sets out the timetable for the review and implementation of its conclusions

2. Contributions to the review and comments on the Government’s proposals are invited by Friday 14 September 2001.

3. Lord Hunt also today launched a paper setting out the Government’s options for longer-term arrangements for the supply and reimbursement of generics, for discussion with interested parties. A copy of the discussion paper is enclosed alongside this document.

4. The statutory maximum price scheme came into operation on 3 August 2000 following a period of consultation with interested parties. Its purpose was to protect the NHS from the effect of large increases in the price of many generic medicines in the course of 1999. It applies to certain unbranded generic medicines sold to community pharmacies and dispensing doctors for NHS use. It prohibits the sale of such medicines to community pharmacies and dispensing doctors at more than the maximum price. The maximum prices were set primarily by reference to average prices in the Drug Tariff for November 1998 to January 1999, with certain adjustments made in the light of consultation with interested parties.

5. A copy of the Department’s letter of 18 July 2000, giving full details of the scheme, including a list of maximum prices, is on the internet at www.doh.gov.uk/generics.

6. Under EU Directive 89/105/EEC a review of the scheme is required to begin within twelve months of its coming into operation. An announcement of the outcome of the review is required to be made within 90 days of the start-date – in the case of this review by 21 October 2001.

7. Interested parties are invited to contribute to the review by commenting on any aspect of the statutory maximum price scheme. The areas interested parties may wish to address include -

• whether there continues to be a need for a statutory maximum price scheme
• whether the level of maximum prices should remain the same, be increased or be reduced and whether any increase or reduction should apply to all preparations covered by the scheme or only to certain ones
• whether there should be any changes to the list of preparations covered by the scheme

8. We should be grateful if proposals put forward could be accompanied by a justification.

9. The Government has carried out its own preliminary assessment of the statutory maximum price scheme. The conclusions are as follows.

10. The Government believes that the scheme has met its objectives. It has protected the NHS from the effect of price increases in 1999. Reimbursement prices for generics – the prices paid by the NHS – are now close to their level before the onset of those price increases. Since the introduction of the scheme the supply of generics to community pharmacies and dispensing doctors has remained stable.

11. The Government is determined to ensure the NHS continues to benefit from these achievements. We believe that abolition of the maximum price scheme could put them in doubt. It is questionable whether existing arrangements, without the maximum price scheme, would by themselves protect the position of the NHS. The Government therefore believes that the statutory maximum price scheme needs to remain in place pending decisions about longer-term arrangements for supply and reimbursement. The Government is not aware of any detrimental effects of the scheme which point in favour of its abolition.

12. The Government has considered whether the current level of maximum prices remains appropriate. Economic factors do not, in our view, support the case for an adjustment in the level of maximum prices in either direction. We therefore propose to leave the level of maximum prices unchanged for the time being.

13. The scheme, as implemented on 3 August 2000, also required manufacturers and suppliers to supply certain information in respect of sales of generics for the years ending 31 December 1999 and 31 December 2000. The exercise to collect information for the year ended 31 December 1999 has taken place. We now propose to collect further, broadly similar information as part of the preparatory work for the possible introduction of a reference-based NHS price scheme, one of the longer-term options set out in the discussion paper which you have received with this letter. The proposed new requirements are set out in paragraphs 7.3 – 7.12 of the discussion paper and estimates of their impact on industry in paragraphs 8.4 - 8.7 of Annex C to the paper. We are consulting on the proposals and impact assessment and would welcome comments by Friday 14 September 2001. We do not propose to collect any further information as part of the present statutory maximum price scheme.

14. The Government does not propose any other changes to the scheme.

15. In summary, the Government proposes that -

• the statutory maximum price scheme should be rolled forward for a further period, pending decisions on longer-term arrangements for the supply and reimbursement of generics
• there should be no change in the list of preparations to which the scheme applies or in the level of maximum prices.
• no further information should be required to be submitted as part of the maximum price scheme

16. We would welcome the views of interested parties on these proposals.

17. The proposed timetable for the review and implementation of its outcome is as follows.

18. Interested parties are invited to comment on -

• whether there continues to be a need for a statutory maximum price scheme
• what changes, if any, should be made to the scheme
• the Government’s proposal to roll forward the scheme as described

19. The contents of this consultation document are also available on the internet at www.doh.gov.uk/generics.