The government wants to reach a new agreement with drugmakers to ensure taxpayers get value for their money, UK officials said today. As Reuters notes, the move is the latest example of governments around the world studying new ways to rein in the cost of drugs as medical advances and aging populations strain healthcare budgets.

The UK move follows a report by a government consumer watchdog, the Office of Fair Trading (OFT), which called in February for a radical overhaul of the current Pharmaceutical Price Regulation Scheme and a shift to a more value-based approach. The OFT estimated the National Health Service could save around $1 billion a year by scrapping the existing system that regulates profits but gives drugmakers a free hand to set prices.

Instead, the OFT believes the government should adopt a system in which prices are based on therapeutic benefits. “We agree with the OFT that it is time to develop a pricing system which is fit for purpose for the 21st century,” Competitiveness Minister Stephen Timms said in a statement. “We must ensure that any future pricing scheme delivers value, rewards innovation and ensures a fair deal.”

A spokeswoman for the Department of Health, which holds regular meeting with drugmakers, said ensuring taxpayers got value for money and patients received innovative products at a reasonable price had to be the top priority. Britain’s state health service spends around $16 billion annually on branded meds under the 50-year-old PPRS arrangement, which caps company profits. The current PPRS scheme is due to run until 2010.

The government said it would build on the OFT’s work in coming months and would discuss proposals with industry. Measuring value within the PPRS would dovetail with the government’s drive to assess the cost-effectiveness of treatments through the National Institute for Health and Clinical Excellence, which was set up in 1999.

The Association of the British Pharmaceutical Industry said it was ready to discuss changes but warned that a stable, voluntary agreement was crucial to retain pharmaceutical research and development investment in Britain.

GlaxoSmithKline, Europe’s biggest drugmaker, said it supported the government’s goal of improving reward for value and driving out inefficiencies, but argued the challenges facing healthcare were about much more than price. “If discussions focus only on cost-saving and on price, we will not serve the long-term needs of patients, industry and, importantly, UK competitiveness,” Andrew Witty, Glaxo’s head of European pharmaceuticals, said.

Britain is a major centre for drug research, although the local market represents only 3 to 4 percent of global drug sales, making it a relatively minor outlet for firms such as Glaxo and AstraZeneca.