Supply of Relevant Veterinary Medicinal Products Order 2005

– in the House of Lords at 3:16 pm on 18 November 2005.

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Photo of Baroness Byford Baroness Byford Spokespersons In the Lords, Environment, Food & Rural Affairs 3:16, 18 November 2005

rose to move, That an humble Address be presented to Her Majesty praying that the order, laid before the House on 7 October, be annulled (S.I. 2005/2751) [11th Report from the Merits Committee].

Photo of Baroness Byford Baroness Byford Spokespersons In the Lords, Environment, Food & Rural Affairs

My Lords, it only shows how diverse this topic is that we now have a change of batting order on the Government Benches because, instead of being a Defra veterinary problem, it now becomes a Defra/Department of Trade and Industry problem. I welcome the noble Lord and am grateful that he will respond to the debate.

Again, I am raising this issue because the Merits Committee brought it to the attention of the House. Its summary stated:

"This order contains DTI's proposals for increasing competition in the market for the supply of prescription-only medicines for veterinary use. The proposals have been subject to consultation with interested parties, but controversy continues to surround certain elements of them, not least because of concerns expressed by a large number of veterinary surgeons".

As the noble Lord was in his place while we debated the previous order, I shall not go on at great length about the financial implications, because that is one of the major problems, of which I am sure he is well aware.

The Explanatory Memorandum states that the order prohibits veterinary surgeons from charging a fee for the issuing of prescriptions for a period of three years. I direct the Minister's attention to paragraph 15 of the Merits Committee report. It states:

"DTI carried out a consultation process on its proposals from February of this year. The EM states that there were 105 responses, of which the majority (75) came from individual veterinary surgeons. In general, veterinary surgeons and some manufacturers opposed the proposals, while those consumer groups who responded were in broad support".

Of those 105 responses, 75 were from vets. How many were manufacturers and how many individuals or consumer groups made up the bulk?

I understand from paragraph 16 of the report that there has been no meeting of minds between the DTI and the veterinary surgeons on the issue. So we know where we stand from the very start. I should like to share with noble Lords the British Veterinary Association's position, on which it has sent us a brief, in case noble Lords have not received it. Veterinary practices have traditionally subsidised the cost of their consultation fees with the income that they receive from the sales of veterinary medicines. If the legislative changes are successful in opening up the market for POMs, it is likely that that practice will have to cease. Inevitably, if that occurs, veterinary surgeons will naturally seek to maintain the same level of income by increasing some of their consultation fees—the Minister is nodding; he must be well aware of that—which will have to be borne by the consumer at the end of the day.

The veterinary profession feels that there is a lack of transparency in the cost of prescriptions to clients that the new order promotes. The Competition Commission was highly critical of the profession for failing to provide itemised invoices to clients. The profession has risen to that challenge, yet its members now find themselves actively encouraged by the Government to hide those very costs of providing a prescription in their overall consultation fees. We seem to be going round in a rather funny circle. The frustration that that has engendered has been further enhanced by the fact that the cost of providing a prescription will have to be borne by all clients, irrespective of whether they require a prescription or indeed veterinary medicine.

My concern, as I explained earlier, is obviously for the health and welfare of animals. If, as a result, we see a fall in medicine sales and fewer consultations, that will have the same effect on farm visits as I described. Any reduction in the number of veterinary surgeons with expertise and experience in farm animal medicine could have serious consequences for the biosecurity of the UK's food production in animals. I wish to reply to the Government's original response to the consultation. I quote:

"The Government also remarks, 'We are sorry that veterinary surgeons see this [measure] as an attack on their professional status, as neither the Competition Commission nor the Government intended it this way'. However"— this is the Government's comment—

"the profession might be forgiven for feeling a little hunted given the way its legitimate concerns have been ignored".

I am very grateful that the noble Baroness, Lady Farrington, is still here. She will be able to share her thoughts with the Minister because the two departments overlap so clearly. The briefing goes on:

"Perhaps one of the most revealing comments is made near the beginning of the response where the Government notes that 'the Competition Commission [was asked to look] at the market for veterinary medicines rather than veterinary services'. Throughout, the Government has failed to take account of the wider picture and that, coupled with its seemingly blind adherence to market dogma, has characterised the whole sorry saga from the start".

I need not add to that, as it is self-explanatory. I beg to move.

Moved, That an Humble Address be presented to Her Majesty praying that the Order, laid before the House on 7th October, be annulled (S.I. 2005/2751) [11th Report from the Merits Committee].—(Baroness Byford.)

Photo of Lord Addington Lord Addington Spokesperson in the Lords (Sport), Culture, Media & Sport, Spokesperson in the Lords (Disability), Work & Pensions, Deputy Chief Whip, People With Disabilities, Non-Departmental & Cross Departmental Responsibilities

My Lords, I feel on slightly firmer ground in my second step along this path, for the simple reason that I heard the subject discussed on "Newsnight" several months ago. On that occasion, a vet shrugged his shoulders and said, "If you do not allow us to charge extra on prescribed drugs, we will have to put it somewhere else to keep our profit margins up". That seemed a situation of zero net gain for the consumer, but a bureaucratic process. Larger-scale users of drugs may well benefit from the changes.

I wish to gain some idea of the Government's thinking. What evidence is there that manufacturers were over-charging? That is the nub of the situation. It has been common currency for a long time among anyone paying even the slightest attention to the issue that certain areas of veterinary practice have been under considerable pressure. If we expect them to keep on functioning and to make their businesses viable, and if the Government do not object to their shifting how they generate their income, should they not have been dealing merely with manufacturers or finding some other way forward there rather than putting vets in the odious position of having to increase the cost of minor, routine surgery on, say, small animals?

A minor cost may have been the drugs. With a larger animal the same thing would apply, but it might put off the treatment of the animal again. It is clearly a danger, which probably will occur in a few cases. I would be interested to know whether there has been a study into how much effect this will have. It seems that on this occasion the vets are piggy in the middle. The obvious way to ameliorate the downside effect is merely to shove the cost to somewhere else. In an itemised bill, some people may economise in certain areas.

Photo of Lord Soulsby of Swaffham Prior Lord Soulsby of Swaffham Prior Conservative 3:30, 18 November 2005

My Lords, again, I thank my noble friend Lady Byford for tabling this Motion. I have declared my interest, so I will not do it again. The Competition Commission's inquiry in 2003, as has been said, concluded that veterinary surgeons had, in effect, a monopoly in the supply of prescription-only medicines—generally known as POMs—for animals. To redress that and to promote competition, the commission recommended that for a period of three years veterinary surgeons should provide prescriptions at no additional cost to the client beyond that of consultation.

Traditionally, veterinary practice has included income from the sale of veterinary medicines, along with consultations. The two go together. The income part of the advice on veterinary surgeon care to an animal or a flock is important in the whole package. Now the profession is asked to issue prescriptions for free after a clinical examination or a consultation. The animal owner receiving such a free prescription can have it filled elsewhere; for example, at the local chemist, the pharmacist, a feed store or even on the Internet—the latter is quite common.

It is possible that a pharmacist will carry only high turnover products with a high margin of profit. If that is the case, it is unlikely that the overall cost to the client of a veterinary package—that is, consultation and medicine—will be reduced because he will not be able to get more specialised prescriptions of POMs elsewhere. He may have to go to a supplier who charges much more than a veterinary surgeon who would carry such products.

Like it or not, there is a cost to veterinary practices for issuing prescriptions. They do not come for free. Veterinary practices are not subsidised, as is the case with the National Health Service. The cost invariably will be incorporated into the consultation fee, which will increase veterinary fees overall. As the noble Baroness pointed out, that is of wider concern, especially in agricultural practices where an increase in fees may deter owners to consult a veterinarian to the detriment of the health and welfare of an animal, flock or herd.

At the same time, farm animal practice is increasingly precarious, as mentioned by other speakers, and uneconomic. If there is a decline in income, either as a result of a fall in medicinal sales or fewer consultations, it may reduce the number of veterinarians with expertise and experience in farm animal medicine even further. That would be to the detriment of the biosecurity of United Kingdom food production animals and their welfare.

As a final comment, perhaps I may mention the concern about the proper use of medicines in farm animals. I am particularly concerned about the use of antibiotics and the development of antibiotic resistance. Within the livestock industry and the veterinary profession, a consortium has been developed called RUMA, the Responsible Use of Medicines in Agriculture. Livestock owners and veterinarians have adopted this important and innovative approach to safeguard not only human health, but also animal health by the responsible use of medicines. It originated in concern about the misuse of antibiotics, but now it has spread over a much wider area. I cannot see that the Competition Commission's recommendations sit helpfully with the aims and objectives of RUMA. I hope that, after the three-year trial period, the progress made by the consortium—and I can assure noble Lords that progress is being made on the more responsible use of medicines in livestock—is acknowledged and the order bringing forward a no-charge policy for prescriptions is acted on favourably. I say that because I believe that RUMA will illuminate the way ahead.

Photo of Lord Kimball Lord Kimball Conservative

My Lords, I can add very little to what has been said by my noble friend Lord Soulsby. We have a difficult situation in treating animals. I am thinking particularly of horses. The charge a veterinary surgeon can make will often depend on the fact that some of the charge can be recovered in the prescription he writes. We do not want to reduce the number of calls a veterinary surgeon may make. He may be treating an animal, but the animal does not respond to that treatment because he has got it wrong. He will need to change the treatment.

I was extremely interested in the "Country File" programme of 7 November, which explained how we can go to Ireland and buy prescriptions at a much reduced cost. If you have a horse that is on Butazolidin, you do not have to go back to your own veterinary surgeon for another prescription. You can go to Ireland, fill your pockets with the drug, and come back and continue the treatment. As with so much in the profession, this is an extremely complicated business. We must proceed with great care.

I would like to see the order withdrawn at this stage in order to allow us to consider it further, particularly in view of the costs involved.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip 3:33, 18 November 2005

My Lords, I start by thanking the noble Baroness, Lady Byford, for giving us the opportunity to discuss this order, the Supply of Relevant Veterinary Medicinal Products Order 2005, laid before Parliament on 7 October. I hope that I can address some of the concerns that have been expressed in the debate.

Noble Lords will be aware that the order is being made under the Fair Trading Act 1973 in response to a report by the Competition Commission published in April 2003. It will improve competition in the market for certain veterinary medicines that can be dispensed only against a prescription. For a long time, the market for these medicines has not been working well for customers. The measures in the order will give customers the freedom to shop around and will encourage pharmacists to enter the market. Ultimately, this increased competition will be good for both consumers and businesses.

For several years now, a strong competition regime has been seen as a crucial element of the UK's economic performance. Effective competition is the best way to ensure that consumers get a fair deal. They benefit from lower prices, increased choice and higher quality. Reflecting this, the Competition Act 1998 and the Enterprise Act 2002 strengthened the entire competition regime. As a result the UK is now regarded as having one of the best competition regimes in the world, according to a 2004 peer review carried out by KPMG for the DTI.

The work of the Competition Commission is thorough and highly regarded. Under the new regime, the commission has the power to implement its own remedies, fully taking politics out of the process. The members of the commission taking decisions are experts drawn from various fields. The commission has shown itself able to draw conclusions which strengthen the protection available to customers and consumers without over-regulating and without ignoring the specific circumstances of particular industries. This is especially important where the decision may have an impact on an organisational group of people with significant lobbying power.

As has been recognised, the commission report looked at the market for prescription-only veterinary medicines following complaints to Ministers and the OFT about the high price of these medicines. A monopoly reference was made in 2001 under the Fair Trading Act, and although this Act has now been replaced, it remains in force in relation to reports completed under it. As your Lordships can imagine, this is a complex subject involving many levels of the supply chain—manufacturers, wholesalers, veterinary surgeons and alternative suppliers. The commission has obtained significant volumes of information and cost data about a range of specific products.

The commission also undertook a series of international comparisons to determine whether prices were higher in the UK than elsewhere, and looked at the comparative prices of non-prescription veterinary medicines.

The findings of the commission were not favourable to the existing regime. It found evidence of three complex monopoly situations involving manufacturers, wholesalers and veterinary surgeons who supply prescription-only veterinary medicines in the UK. Whether or not a particular individual organisation is directly engaged in monopoly conduct—for example, unfair pricing—the combined effect of these situations has been detrimental to the public interest. This has led to a lack of choice of suppliers for animal owners and to medicine prices being higher than they would otherwise have been.

The first complex monopoly involved veterinary surgeons. Indeed, this has been recognised in contributions from noble Lords today. The commission found that they failed to give clients relevant information about the price of veterinary medicines and the option to take prescriptions. By "taking a prescription" I simply mean taking away a piece of paper to buy the medicine from a pharmacist, as happens in most cases involving human medicines. However, they were also involved in pricing practices that inhibited fair competition. In many cases, prescription-only veterinary medicines are priced in a way that cross-subsidises professional fees—again, a point effectively recognised today. Those veterinary surgeons that do this have to put a significant mark-up on the medicines they sell. This removes their incentive to price competitively or to "shop around" between manufacturers for the best deal. It also creates a perverse environment in which they are less able or willing to pass on any benefits they do get from manufacturers directly to clients.

In the second and third monopolies, manufacturers and wholesalers were found to be operating in a manner—either actively or passively—that prevented pharmacies from buying prescription-only veterinary medicines competitively.

The combined result of these activities is a somewhat vicious circle. Clients are not aware of their rights as regards taking a prescription to shop around for veterinary medicines—very few of them do—but, without apparent demand for these products, coupled with higher supply costs, very few pharmacies will see any benefit in taking up shelf space. So those few informed consumers who take a prescription may find that the product they want is unavailable from their local pharmacists. If they have had to pay for a prescription, they may find that the money has been wasted—hardly an incentive even to try.

A few facts and figures illustrate the scale of the problem. In comparison to other countries, the commission found that the prices of most of the best-selling prescription-only veterinary medicines in the UK were substantially higher than in most European countries studied, and were never lower. On average, ex-VAT prices of medicines in other countries varied from 75 per cent of the UK price in France to 86 per cent of the UK price in the Republic of Ireland. At ex-manufacturer level—the price paid by veterinary surgeons—the difference was even greater. Compared to non-prescription veterinary medicines, mark-ups were on average 20 per cent higher, and only 16 per cent of dog and cat owners were even aware they could ask for a prescription.

In order to remedy these problems, the commission made a series of recommendations designed to improve the working of the markets involved. Manufacturers should be required to provide much more transparent information about costs to modify the practice whereby a large rebate was paid at the end of the year, but left veterinary surgeons and pharmacists unable to predict the best value price to be charged to clients. Both manufacturers and wholesalers should be prohibited from discriminating between veterinary surgeons and pharmacists. Veterinary surgeons should provide much better information about practice policies, availability of prescriptions and the prices of veterinary medicines. To give clients the confidence to shop around, prescription charges should be abolished for a period of three years.

The commission also made several recommendations for improvements to the regulatory regime for veterinary medicines, which is operated by Defra. At the time of the report, the regime was subject to discussion at EC level, with wide-ranging changes proposed. These recommendations were also accepted, subject to relevance, once the EC discussions had been concluded, and are now being implemented by Defra.

The changes proposed by the European Commission had knock-on effects in the UK, not least a widening of the definition of "prescription-only veterinary medicine". To ensure clarity, and following better regulation principles, we have waited until those changes have become law before making this order.

We have consulted on the provisions we are discussing today, as was alluded to earlier. There were some concerns from manufacturers and wholesalers about the practical application of the order, which have been addressed by certain changes in the final order.

We recognise that the remedies were unpopular among the veterinary profession for a number of reasons. Nevertheless, in a letter to the Secretary of State of 25 July, the veterinary professional association, the Royal College of Veterinary Surgeons, offered to implement the majority of remedies aimed at veterinary surgeons, for which we are grateful. This has been done through changes to its code of professional conduct, which now requires veterinary surgeons to inform clients upfront about the availability of prescriptions, medicine costs and practice policy as regards repeat prescriptions.

In the light of those changes, the final order has been heavily slimmed down. It contains the recommendations aimed at manufacturers and wholesalers, and one provision on veterinary surgery that the royal college was unable to implement itself—the moratorium on prescription charges. As such, it does not go in any way beyond the original recommendations but is simply aimed at ensuring that they are fully implemented and customers are given greater freedom to avail themselves of best practice.

A number of questions were raised in earlier contributions, and I shall deal with them as fully as I can. The noble Baroness, Lady Byford, asked about the consultation, and the composition of consumer groups which responded. I do not have the exact numbers to hand but it is in the order of 10 manufacturers, five direct consumer groups and five to 10 animal representatives such as dog trusts and so on.

Reference was made to the BVA's position and the fact that that could lead to higher charges. The thrust of the order is to ensure that through the availability of prescription charges without hurdle, real pressure is put on ex-factory prices. All other things being equal, the composition or nature of the charges may change but the overall impact should ultimately be to lower prices for consumers, and that is what this is about.

As the costs of dealing with prescriptions can be recharged but not for three years under a specific charge, so they are effectively likely to be racked up in other components of the charge, it is right that that component for that period reflects a lack of transparency. But that needs to be seen in the context of the wider transparency that the order, and the related implementation via the code of conduct, will bring into effect.

On the impact on the profession, the suggestion that to proceed on the basis of a continual cross-subsidisation and lack of transparency as a means of defending and promoting the profession seems misplaced. It is very important that components of the charge and the true value of the services that have been provided are properly reflected in the charges. That is why bills are itemised. In circumstances where the true cost of a consultancy is effectively being masked because a profit on a medicine can be marked up and netted off against it does not seem to be helpful, neither is it helpful within the profession because not all veterinary surgeons follow that practice to the same extent as others. Therefore, it discriminates against those who seek to be more transparent.

I can give one example. I recently became aware of a veterinary surgeon who believed that he was charging a 65 per cent mark-up on the manufacturer's list price for a particular medicine. On receiving the price list in due course, which is what this order required, he was surprised to discover that he had actually been charging nearer to 450 per cent mark-up on the price that he was actually paying because of the way that discounts flow back into the system. That is not a sustainable basis on which to proceed.

The issue of the impact of changes generally on veterinary practices was debated a little earlier in relation to the other order, but it is an overreaction to suggest that allowing veterinary practices to continue cross-subsidising veterinary fees and overcharging on medicines is in some way essential to maintaining practice viability. Indeed, a change by veterinary surgeons to a more flexible and customer-based service can actually strengthen practices, particularly rural practices. Increasingly, the vet can be seen as the head of a team of farm service providers.

The noble Lord, Lord Addington, asked why we could not just deal with the manufacturers. The way to get to the manufacturers is to ensure that, through the availability of prescription charges, pressure can be put on them to price more competitively. It is not fair to say that veterinary surgeons are piggy in the middle on this matter. They are an integral part of the problems that exist at the moment on these pricing structures. It is right that that is changed for this three-year period.

The noble Lord, Lord Soulsby, raised a point that was covered by the BVA about what happens if pharmacists and others only stock the high turnover types of medicines. If that is what happens, at least that will be reflected in the changed market circumstances. The rest would still pertain as it is. In relation to rumour about the responsible use of medicines, to have a system where one cross-subsidises and there is no incentive to reduce the costs of medicinal products—certainly the price at which they are charged—helps less than a transparent system where the price of a medicine is driven down by these processes. That is transparent and people know what the costs are. There is a risk, although I do not suggest that the practice is widespread, that people have no disincentive to prescribe medicine. That is a clear conclusion from the current arrangements, which persist.

The noble Lord, Lord Kimball, talked about the withdrawal of prescription charges. Other noble Lords have recognised that that does not mean that a charge cannot be made for the work involved, but simply that it is reflected in other components of fees charged. That is acknowledged to have some impact on the transparency in the short term, but this measure is for a three-year period and we believe that this is vital to kickstart the thrust of the emphasis that needs to be given to private competition in these markets to make sure that there are long-term benefits for veterinary practitioners and their customers as well as owners and their animals.

This order should be widely supported by the House and I hope that I have dealt with questions fully. If not, I will certainly seek to follow them up in writing. I hope that the noble Baroness will now feel able to withdraw her Motion.

Photo of Baroness Byford Baroness Byford Spokespersons In the Lords, Environment, Food & Rural Affairs 3:45, 18 November 2005

My Lords, I almost feel tempted to put the matter to a vote, but I will not do that—the noble Baroness's eyes just hit the deck. Quite clearly, there is a problem. Our party of all parties has always been keen on competition, so this Motion must seem slightly strange—the Minister did not draw that to my attention, so I draw it to his. But the whole question is that I do not know whether we are necessarily comparing like with like—and I shall return to that point.

The point made by the noble Lord, Lord Addington, about his concerns that treatment might be put off is very valid. I accept that vets are "piggy in the middle" in that regard; I am more than happy with that.

The noble Lord, Lord Soulsby, touched on several very important issues and particularly referred to the work of RUMA. I should like to return to that because, in human health—as we all know when we are suffering from a cold—one does not get a prescription for an antibiotic very easily at all these days from our doctor; indeed, it is the same with vets. There is a real issue about prescribing drugs too freely, that then animals whether human, bovine or of whatever sort, builds up a resistance. That is a worrying problem. I know that it is only a trial, but it is something that the Government should keep well in mind when it goes ahead, because it is a very valid point.

The point that my noble friend made that you can get prescriptions, or will be able to get them, from anywhere, and particularly from the Internet, is something else that the Government should bear in mind. Some Internet sales on other products—although I am not suggesting that it is the case with the products that we are discussing—have been quite questionable. The need to ensure that the product being sold is the product that is supposed to be sold and that it is up to the standard that should be sold is something that the Government should be aware of—and I hope that they are.

The noble Lord, Lord Kimball, raised an important issue. Having had horses—and my last one unfortunately ended up on Bute—I know that it is easy to go across the water and come back with cheaper prescriptions over there. In fact, the use is more extravagant perhaps than if the drugs were prescribed and the animals were looked after by a veterinary surgeon. That is another important issue that the Government need to address.

On the breakdown of my questions earlier, if the Minister could tell me specifically who responded—the person and the name of the group—I would be grateful. The Minister alluded to the fact that he felt that the measures should reduce the question of the price overall. Yes, I believe that in pure commercial terms, he is right that it will; but I suspect that for the consumer who normally uses a veterinary practice, it may well not do so, because prices will have to be raised in other ways, be it through consultation or whatever, to maintain their practice.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, if one component of the charge goes up but another component of the cost of medicines goes down, especially if it goes down at ex-factory level, does that not support the view that overall consumers are likely to be better, not worse off?

Photo of Baroness Byford Baroness Byford Spokespersons In the Lords, Environment, Food & Rural Affairs

My Lords, I am no expert, and I think I shall wait and see. I accept the noble Lord's logic, but in practice I am not sure necessarily that that logic will prove him right. I hope that it does, because we are here for the interests of everybody.

Finally, I turn to a couple of things that the Minister said. He said that the Competition Commission was asked to look at the matter and quoted figures that in England the costs of medicines are much higher, but did the Competition Commission take the same relevant brief of charges that were made in practices overseas, or was it just of the medicines themselves? The Minister need not answer that now; I am quite happy for him to write to me, because he may want to seek advice on that. In other words, are we comparing like with like, or are we comparing the costs of medicine rather than of the overall service?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, it is not going to be helpful to have a dialogue over this, and I shall write and confirm, but my understanding is that the reference was to the medicines. The purpose of the exercise was to discover just in relation to those products how we compared internationally.

Photo of Baroness Byford Baroness Byford Spokespersons In the Lords, Environment, Food & Rural Affairs

My Lords, if that is the case, there may not be a fair pro quo; that is what I am trying to suggest. I do not expect the Minister to tell me today, but if he could write and confirm that and perhaps to give examples of how the costing goes overseas compared with how our costing has gone in this country, with regard to what we are talking about, that would be enormously helpful. I am sure that the BVA and the RCVS would be pleased to have it.

The Minister also said that not many veterinary practices shop around. I am not a veterinary practising person, but I am surprised, as I would have thought that they did shop around and try to get good prices for the products that they use—but I shall not take him to task on that. However, tempted though I am, bearing in mind the time, I must thank all noble Lords who have taken part in today's important debate. It reflects the intricacies between the various aspects of providing important healthcare for animals, and also that I still believe there is a slight jeopardy of some of those standards slipping because of the steps that have been taken with these statutory instruments. I thank both the Ministers who responded today, and beg leave to withdraw the Motion.

Motion, by leave, withdrawn.

House adjourned at five minutes before four o'clock.