Up to 85% of community pharmacies could be in financial deficit by 2024, economic analysis concludes

A report by Ernst and Young has found that between 64% and 85% of community pharmacies in England are heading for a financial deficit under current funding arrangements.

Community pharmacy

Up to 85% of community pharmacies in England will be in financial deficit by 2024 — amounting to a total of almost half a billion pounds across the sector — if the current funding arrangements continue, an economic analysis by Ernst and Young (EY) has found.

The report, which was commissioned by the National Pharmacy Association (NPA) and based on data from 105 community pharmacies, said that persistent deficits of this scale would likely result in businesses having insufficient cash to continue trading and a “contraction of the [community pharmacy] network”.

EY estimated that currently between 28% and 38% of the community pharmacy network is currently in financial deficit, with 52% of owners planning to sell their businesses. It forecasted that by 2024, when the five-year community pharmacy contract ends, between 64% and 85% of the network would be in financial deficit.

“Our base case projection was the average pharmacy premise making a £43k deficit by 2024 (£497m for the network as a whole),” the report said. “This is an estimated average fall of £68,272 [in revenue] per pharmacy between 2019 and 2024.”

Under this scenario, “which assumed revenues stabilise at 2019 levels and costs to increase at inflation rates dependent on the type of cost”, 72% of community pharmacies were forcasted to be in deficit by 2024.

However, the report added: “Across all projections average financial performance projections for 2024 range from £4k surplus to £91k deficit, with 64%–85% of the network in deficit.”

It concluded that, without intervention from NHS England, only the financially strongest pharmacies would survive — limiting access to essential health services in “unprofitable” areas.

Andrew Lane, chair of the NPA, said that the report — published on 4 September 2020 — showed the “precarious” situation facing pharmacies up and down the country.

“Community pharmacies act as a vital lifeline in communities across the land — and there’s a very real threat they could close unless ministers act now,” he said.

“Health secretary Matt Hancock describes community pharmacy as a critical part of the NHS family. He has also said that, if the government asks pharmacies to offer more services, they need to be paid properly for those services. Those words urgently need to be backed by further investment to underpin viability, change and improvement in our sector.”

Responding to the report, Simon Dukes, chief executive of the Pharmaceutical Services Negotiating Committee (PSNC), said that the financial pressures on community pharmacy were becoming “increasingly treacherous”.

“We know that contractors are failing to cover the costs of their capital and replace worn-out assets; others are taking short-term measures, such as reducing services to patients and charging for services; and we are seeing increasing mergers and branch closures in the larger chains,” he explained.

Dukes said that the PSNC welcomed any attempts to “dig further into the detail” of the finances of pharmacies.

“We concur with [EY’s] finding that the position of the NHS as a monopsony purchaser is dangerous for community pharmacy: the sector has been feeling the consequences of only having one customer for the past decade.

“We also agree that community pharmacies are in an incredibly difficult financial situation now, with many of them already making a loss and the situation set to worsen in the next few years.”

The PSNC said in August 2020 that it had written to the Department of Health and Social Care asking for an urgent uplift to the agreed community pharmacy contractual framework funding, following guidance from Dukes that pharmacies should consider charging for services that are not part of their contract on a “cost recovery” basis.

Leyla Hannbeck, chief executive of the Association of Independent Multiple Pharmacies (AIMp), said that the survey was “consistent” with what AIMp had been outlining.

“The sector is underfunded and funding needs to improve to maintain the existing pharmacy network, a network that has shown how vital and valuable it is in the support it can offer to people in their local communities and society at large.”

Last updated
The Pharmaceutical Journal, PJ September 2020, Vol 305, No 7941;305(7941):DOI:10.1211/PJ.2020.20208332

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