The NHS is spending hundreds of millions of pounds on subsidising the cost of generic medicines that suddenly and unexpectedly increase in price, an investigation by the National Audit Office has found.

The costs of some generic medicines rose sharply and unexpectedly in 2017-18, the NAO report reveals, costing the NHS an extra £315m for the year. The cost of one mental health medication, Quetiapine, rose from its previous set price of £1.59 to £113.10 for a single 100mg dose.

Generic medicines – drugs that are now old enough to be out of patent – are not regulated or paid for in the same way as new drugs. While the NHS buys new medications and agrees prices with the pharmaceutical industry under the Pharmaceutical Price Regulation Scheme (PPRS), the cost of generic drugs is unregulated and the NHS cannot set prices. Where supply is high, competition between generics manufacturers reduces prices – generic ibuprofen is widely available for 2p a tablet – but where supply is limited, manufacturers are free to charge what they want.

Rather than paying directly for generic drugs, the NHS reimburses pharmacies at a set price for them. If pharmacies can’t buy drugs from manufacturers at the set price, they ask the NHS to pay the extra cost - a “concessionary price”. The NAO found that “an unprecedented increase in the number of requests from pharmacies for concessionary prices” occurred last year, with the Department of Health paying the difference on price increases in generic medications more than 700 times. The cost of these “concessionary medicines” to the NHS in 2017-18 was seven times higher than in the previous year.

The total number of concessionary pricing requests from individual pharmacies peaked at 3,000 in a single month in November 2017. Less than six months earlier, these requests had numbered fewer than 150 per month, reflecting a sudden and very significant increase in the number of pharmacies asking the NHS to help them pay for the generic drugs they dispense.

Generic drugs now account for more than 40 per cent of the money spent on drugs in primary care in the UK, a proportion that has been rising in recent years. Sudden increases in the price of generic drugs are not new; last year, a Times investigation found that 32 generic medicines had risen in price by at least 1,000 per cent since 2011, while in 2012, the cost of one generic anti-epilepsy drug suddenly rose by 2,600 per cent in the UK. As their use increases, the difficulty of regulating prices has increasingly become a concern for the government.

The Chair of the Public Accounts Committee, Meg Hillier, said: “The exponential increase in generic drug costs, in some cases tenfold, means money that could have been spent on local healthcare has instead been eaten up in an inflated drugs budget. NHS England needs to make sure this does not happen again.”