Pharmacies to receive ‘fairer access’ to medicine margin under reimbursement reforms, say negotiators 

The new discount deduction scale will use separate discount rates for branded drugs, generics and appliances.
A pharmacist's hand holding medicine box in pharmacy

The Pharmaceutical Services Negotiating Committee (PSNC) has announced that the government is going to phase in a new discount deduction scale from October 2022 to “improve equity of access” to the amount of medicine margin retained by pharmacy contractors.

The discount deduction scale is used by NHS Business Services Authority (NHSBSA) to determine how much money should be deducted from a contractor’s monthly reimbursement for dispensing NHS medicines, based on the assumption that, when buying medicines, pharmacies were able to obtain a level of discount from the wholesaler.

Under the current scale, according to the latest Drug Tariff, the level of deduction is calculated based on a pharmacy’s total monthly reimbursement, with contractors who are owed between £1 and £125 in a month facing a deduction of 5.6%, while those who are owed over £160,001 face a deduction of 11.5%.

However, the new system will use separate discount rates for branded drugs, generics and appliances. These rates will be the same for every contractor, at 5% for branded medicines; generics in categories A and M will be deducted at 17.5%; and appliances will have a 9.9% deduction.

In a statement published on 26 August 2022, the PSNC said the changes were agreed with the Department of Health and Social Care, following a government consultation on a series of drug reimbursement reforms held in July 2019, which proposed splitting the existing deduction scale into separate scales for branded medicines and generic medicines.

In a briefing document published alongside the announcement, the PSNC said the proposal was “intended to recognise that brands do not typically attract the same level of discounts as generics, and that subsequently many brands were dispensed at a loss”.

“A problem with the existing single deduction scale is that it effectively treats all reimbursement the same, not recognising that a pharmacy’s ‘dispensing mix’ of branded and generic medicines has a significant impact on the amount of discount they actually receive.

“As the new system splits medicines into groups, the dispensing mix of each pharmacy will now directly impact how much deduction they experience, resulting in a fairer level of deduction for all pharmacies.”

The Community Pharmacy Contractual Framework caps the amount of margin — or profit pharmacies can earn on dispensing drugs through cost-effective purchasing — at £800m per year.

Fin McCaul, an independent community pharmacy contractor and member of the PSNC, said the discount deduction scale “has been a point of contention for contractors for many years, and PSNC has long been pushing to remedy this”.

“The incoming changes are designed to both improve equity of access to margin and manage the distortions presented by branded medicines, which just don’t have the same level of discount available as generics.”

The new deduction rates will be phased in over six financial quarters from October 2022 until January 2024, the PSNC statement said.

During that time, two calculations will be made, one relying on the old rates and one relying on the new rates, with the discount calculated as a weighted total of those two calculations.

Last updated
The Pharmaceutical Journal, PJ, August 2022, Vol 309, No 7964;309(7964)::DOI:10.1211/PJ.2022.1.155534

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