THE record £84.2m fine handed down to drugs giant Pfizer, after the cost of an anti-epilepsy drugs soared by 2,600 per cent overnight, comes amid a clampdown on rip-off drug prices over fears firms are exploiting an NHS loophole costing taxpayers hundreds of millions of pounds.

The Government and competition watchdogs have launched a crackdown to stop drug firms and distributors from using generic versions of medicines to get around NHS pricing controls. In October the Competition and Markets Authority (CMA) launched an industry-wide probe after being called in by Health Secretary Jeremy Hunt following an investigation by The Times alleging widespread abuse of NHS pricing.

The newspaper revealed companies face limited competition on long-established, off-patent drugs, bought from large pharmaceutical firms.

There are worries the practice is widespread, with firms buying the rights to off-patent drugs, then dropping the name and selling them as an unbranded generic to avoid a profit cap on branded medicines.

The NHS relies on market forces to control prices of such generic medicines, but can be left with no choice when firms are the sole suppliers.

The Times claimed firms were using this loophole to dramatically increase prices, leading to the health service paying an extra £262 million for more than 50 drugs since 2010.

The issue of value for money has hit the headlines again after the Competition and Markets Authority (CMA) fined Pfizer and distributor Flynn Pharma after it accused the pair of overcharging for a vital medicine used by around 48,000 patients in the UK.

Pfizer used to make and sell the drug under the brand name Epanutin, but four years ago it did a deal which saw the UK distribution rights transferred to Flynn. Shortly afterwards it was debranded, a move that meant it neatly dodged NHS price regulations and allowed both firms to ramp up the price.

Shocked NHS officials were powerless as the price of 100mg packs of the drug jump from £2.83 to £67.50. The massive price increase meant the cost leapt from £2m a year in 2012 (the year the Pfizer deal was signed with Flynn Pharma) to nearly £50m a year later.

Despite the knowledge that the drug was cheaper in Europe the NHS had no alternative but to pay up, as epilepsy patients who are already taking the drug should not usually be switched to other products due to the risk of loss of seizure control.

Pfizer claimed the anti-epilepsy drug was loss-making before it was de-branded, but the CMA found any losses would have been recouped within just two months of the price rises.

Philip Marsden, chairman of the case decision group for the CMA's investigation, said: "The companies deliberately exploited the opportunity offered by de-branding to hike up the price for a drug which is relied upon by many thousands of patients. These extraordinary price rises have cost the NHS and the taxpayer tens of millions of pounds.

"This is the highest fine the CMA has imposed and it sends out a clear message to the sector that we are determined to crack down on such behaviour."

Jeremy Hunt has tabled laws to tackle excessive pricing by requiring companies to reveal how much money they make from individual drugs and giving the Government the power to impose lower prices.

The legislation – called the Health Service Medical Supplies (Costs) Bill – is making its way through parliament and is due to be passed by the spring.

There have been a string of drug competition probes in recent years and the CMA said it still had four ongoing investigations in the sector.

In February, GlaxoSmithKline and a number of generic pharmaceuticals were fined £45 million after a "pay-to-delay" scandal surrounding blockbuster anti-depressant drug Seroxat.

Glaxo was found to have made more than £50 million of payments to companies making cheaper generic versions of Seroxat to delay them coming to market.

US pharmaceutical executive Martin Shkreli also came under fire last year after he raised the price of a lifesaving malaria medication by 5,000 per cent.

Meanwhile, Pfizer says it doesn't agree with the latest findings and plans to appeal. It claimed the distribution rights deal with Flynn "represented an opportunity to secure ongoing supply of an important medicine for patients with epilepsy". For his part, David Fakes, chief executive of Flynn Pharma, said the fine "beggars belief".

Of course, if the NHS is overpaying in one area of the drugs budget, patients elsewhere will be going without. Simon Wigglesworth, deputy chief executive at Epilepsy Action, summed it up neatly: "Drug price increases mean that the NHS spends more money on the same patient outcomes. This money could be better spent in other areas of epilepsy care, for example specialist nurse posts."