Labour's £500m drug pricing claim is questionable

Tuesday 3rd December 2019 19:00 GMT

In a letter sent by the Labour leader to the US president, Mr Corbyn tells Donald Trump that the "cost of patented drugs in the US is approximately 2.5 times higher than in the UK, and the price of the top 20 medicines is 4.8 times higher than in the UK".

This is, it turns out, incorrect - though not in the direction you might have expected.

Far from exaggerating, Mr Corbyn is actually probably understating the cost gap, since the differential between British and American patented drugs is almost certainly significantly higher than 2.5 times.

He has, it turns out, quoted the difference between the amount spent on ALL UK drugs and the amount spent on ALL American ones - per capita - which is indeed 2.5 times (actually 2.6 times, but let's not split hairs).

The distinction might seem like a minor one, but it is pretty central to the issue of drug pricing given part of the explanation (not all, as we'll get to in a bit) for the fact that drug prices in the US are higher than elsewhere is that patented, branded drugs are much more expensive while generic drugs (eg those compounds which are no longer protected by patents) are not.

That the Labour leader can seemingly conflate the numbers like this underlines a few things, among them the fact that the workings and structure of the National Health Service and its drug procurement are Byzantine in the extreme.

This is an area where it is very easy to get things wrong or misread the numbers - so lesson number one is that every time you hear a big confident number, be very cautious indeed.

A case in point is the figure Labour is pushing with gusto at the moment: that if there is a trade deal with the US then UK drug prices could be £500m a week higher.

This big round number is questionable in all sorts of ways, which becomes clear when you consider how it's calculated.

It is, it turns out, a rough calculation by Andrew Hill, a World Health Organisation expert at the University of Liverpool, who was looking to illustrate the gap between UK and US drug pricing.

In a document shared with Sky News by the Labour party, Dr Hill starts with that 2.5 times ratio of US drug spending vs UK drug spending.

He then writes the following: "The NHS reports that the overall cost of medicines in England was £18bn in 2017/18 (this figure is based on cost at list price and does not include discounts).

"We can thus crudely estimate that if prices of medicines in the UK were equal to prices in the US, NHS England pharmaceutical expenditures in 2017/18 would have been an additional £27bn annually or about £519m per week."

In other words, Dr Hill has simply multiplied UK drug spending by 2.5.

This is problematic in all sorts of ways.

To start with, and apologies if you'd already noticed this, that 2.5 times figure is not about drug PRICING but about drug SPENDING. That's a crucial distinction.

The proportion of people in the US with prescriptions is considerably higher than in the UK.

The country has well-documented problems with obesity and opioids.

In other words it's highly likely that even if we had identical prices, US spending on drugs would still be above the UK spend.

A second issue - more arcane, but no less important - is that Dr Hill is basing the current spend on drugs on something called "list price".

What this means in practice is the recommended retail price of drugs.

However, the NHS rarely if ever pays the list price for drugs.

It invariably secures chunky discounts on pharmaceuticals but since these are commercially sensitive figures we never find out precisely what they are.

As it happens, drugs companies rather like having a high list price, even if they give the NHS a big discount, since those list prices are used as references when other countries around the world set prices for their drugs.

This is worth remembering as you follow the trade talks between the US and the UK: when pharma companies say they want higher UK list prices it doesn't necessarily mean they want UK customers to pay those prices.

None of this is to say the Americans won't push hard for new terms on drugs trade.

They almost certainly will, on the basis both of what they've said and what they've done in previous negotiations.

Pharmaceuticals were a major bone of contention in their deals with South Korea and with Australia, though it's worth saying that while they pushed hard in the direction of higher prices, those countries, especially the former, pushed back with some success.

And you could argue - indeed the Americans do - that with its low drug prices the UK is something of a free rider in the world of drug discovery.

It costs many millions of dollars to develop a new blockbuster drug; much of that cost is borne by American patients, and then, a decade or so later when those patents expire, the rest of the world benefits from lower drug prices.

You could make the case that in much the same way as other countries should be paying more for NATO, that other countries should also be paying more to finance drug research and development.

But that's by the by.

The issue at hand is whether what we know so far about the trade talks between the US and UK implies that the NHS is up for sale, or that drugs prices will rise.

The short answer, I'm afraid, is we don't know.

There were no obvious smoking guns in the leaked documents published last week by the Labour party; indeed they suggested the Americans were well aware of the sensitivities of the NHS.

But there was evidence that American negotiators will push for longer patents on American drugs.

The real question is whether the British side will push back, as the South Koreans did, or whether they decide that this compromise is worth the prize of a US deal.

Boris Johnson insists pharmaceuticals will be excluded.

Jeremy Corbyn insists the deal would eventuate in higher prices.

But given the formal talks haven't even begun yet, the safest answer is that we simply don't know.

Campaign Check scrutinises election claims made by political parties, examining if they are true or false, and the context. Sky News is working with Full Fact - the leading independent fact-checking charity.

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