We’re grateful for the clarity, but the new pharmacy contract fails to fix our broken market

The new community pharmacy contractual framework offers pharmacists some hope of a future, but the flawed Category M reimbursement system — which sees only wholesalers cashing in the chips — still needs to go.

Poker chips

With the ink not yet dry on a new community pharmacy contract, I’ve not exactly been deafened by the sound of champagne corks, but it is unfair to completely dismiss it as a failed enterprise.

The Community Pharmacy Contractual Framework for 2019/20 to 2023/24’, published on 22 July 2019, is a curate’s egg — flawed, but with some good parts. I, for one, did breathe a sigh of relief because it looks like community pharmacy might have some hope of longevity, but to receive no increase in funding between 2016 and 2024 seems an impossible ask. Nowhere else in the healthcare system is being asked to do the same; in other settings, such as hospitals, general practice and wider primary care, funding is increasing.

NHS England’s initiative has not reached a scale wide enough to have a meaningful impact on GP workload

First, some good news. Pharmacy has a future, or at least some of it does. In 2015, the government seemed to want a slimmed-down pharmacy service: one that is automated and, if you remove the vague window dressing about clinical services, exists just for the supply of medicines. Through the dark days of 2016 it looked as though the slimming down would press on regardless of its impacts. Eventually, however, NHS England had to come back to community pharmacy because there simply are not enough GPs. And, as wonderful as it thinks GP pharmacists are, NHS England’s initiative has not reached a scale wide enough to have a meaningful impact on GP workload. The Community Pharmacy Consultation Service — launching in October 2019 to combine the Digital Minor Illness Referral Service and the NHS Urgent Medicine Supply Advanced Service into a single service — could become a game-changer in the long run and genuinely shift workload from general practice towards community pharmacy. I do not like to be at the mercy of other providers for work, but hopefully this will be a useful service, providing some meaningful income.

The second piece of good news is that this is a five-year settlement (well, four and a bit once it is all sorted). This is important: with a longer planning horizon we can actually start to make some decisions about which way we are headed. It will be very tough to transform the sector with no funding to support the change, but at least we can see where we are going.

The bad news is that the sector will still be subject to a procurement margin, so even with a five-year deal, we will still have the swings and roundabouts of Category M — the scheme used to set the reimbursement prices of more than 500 medicines — the associated gaming by clinical commissioning groups, and the machinations of the wholesalers. That said, this was probably the best deal we could have hoped for given the sector’s lack of leverage.

At the end of this five-year deal, the value of the pharmacy contract will have reduced by nearly 30% since 2015

However, general inflation is currently running at around 2%, meaning that prices go up by about this amount each year. Over five years this will compound to at least 11% — maybe more if we end up with a messy Brexit. This means that the value of our contract will go down by at least this amount, which, in essence, is another cut.

At the end of this five-year deal, the value of the pharmacy contract will have reduced by nearly 30% since 2015, when we last had an increase. My colleagues and I have not had a pay rise in years and this contract could weigh like a millstone around our necks, particularly if costs spike around Brexit.

The service elements of the new contract feel familiar. The government has promised pilots of all sorts of schemes, from discharge medication reviews to screening for atrial fibrillation. Forgive the cynicism, but we’ve been here before. The names of the services were different, but the 2005 community pharmacy contract promised that a whole new world of services would bloom, but these services were never commissioned. Hopefully, this time, meaningful service commissioning will go ahead. As Mark Lyonette, chief executive of the National Pharmacy Association, said: this funding package “needs to be a floor not a ceiling”.

We should aim to bring in funding from outside this envelope, whether it is public health or work with primary care networks. From this moment forward, new services should equal new money; there is very little room to shoehorn any more services into the core contract.

A missed opportunity in this announcement is that there is no apparent appreciation given to how contractors will fund the transformation of pharmacy services. It is fanciful to think that there is going to be enough money left over after paying the ever-increasing stack of bills. Even staff training is becoming a stretch these days. If you draw a map of where pharmacy is and where it needs to be at the end of this five-year period, it is likely to be much more difficult and more costly than we think. Banks are the only source of capital funding there is, but I have no idea how they are going to view this settlement — they could continue to see pharmacy as a ‘safe’ sector, or they could view this standstill as stagnation. My gut says they may opt towards the latter, but we’ll see what the bank manager says.

The greatest missed opportunity is this settlement’s failure to rid of the system of the retained medicines margin

Perhaps the greatest missed opportunity is this settlement’s failure to rid of the system of the ‘retained medicines margin’. For too long now, we have been under the heel of retrospective funding adjustments because too much or too little money has been delivered in the previous year through the margin. In July 2019, the Pharmaceutical Services Negotiating Committee (PSNC) announced that £15m per month will be added to Category M from August 2019 — around £120m for the rest of the 2019/2020 financial year, or 4.5% of our total funding. It is important that people understand what this means.

During each quarter, we are supposed to receive £200m of retained margin; if the invoice inquiry starts to show the figure is looking like £250m, future margin delivery is adjusted downwards and, if it is looking like £150m, the opposite is done. This is called the ‘run rate’. When Department of Health and Social Care (DHSC) thinks margin is too high, it wants it back yesterday and, when the boot is on the other foot, it often wants to delay, seeking more data or agreeing a lower figure in the interim.

The other great variable in the margin equation is the wholesalers. It may surprise many to learn that Category M prices are calculated by taking the manufacturer’s factory gate price, to which the DHSC applies an ‘uplift’ in order to deliver the target margin. This system worked when wholesale margins were relatively static, but in recent times the wheels have come off. We have seen wholesalers unexpectedly increase their margins, we have seen a lot of suspicious behaviour around supply shortages and we have seen prices increase generally because of all sorts of problems. The problem here is that where wholesalers increase their prices for any reason other than the manufacturers increasing their prices, wholesalers take money that should be destined for pharmacy contractors. The DHSC has indicated that it may reform Category M prices by April 2020, but, put simply, the margin system has to go — it is too volatile for a start, but it also adds to the perception that pharmacy is somehow complicit in this malfunctioning market.

The PSNC deserves some credit for being brave and breaking some conventions with this longer-term settlement, but we need to closely examine the forthcoming details, for example, the approach to technology and service development.

I remain sceptical about future service commissioning and the viability of the funding settlement; however, there is a future in the contract for those who choose to grasp it.

Mike Hewitson is an independent pharmacy contractor based in Dorset.

Last updated
The Pharmaceutical Journal, PJ, August 2019, Vol 303, No 7928;303(7928):DOI:10.1211/PJ.2019.20206870

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