What does England’s long-awaited contract settlement mean for you? P3 asks for views on how this new contract will affect individual pharmacies

This year’s £2.8 billion contract settlement consists of a £300 million increase in Category M funding offset by a reduction in fees and allowances that amounts to an £870 cut in income for the average pharmacy over the second half of this year, according to PSNC. This agreement is intended to smooth out the peaks and troughs in pharmacy funding, but averaging affects will mean that some contractors are worse off than others.

Independent contractors will have to work hard to maintain morale in the face of funding cuts in already difficult times, says Mimi Lau, Numark’s director of pharmacy services. ‘The settlement may have been what was expected in the current climate of NHS cuts, and of doing more for the same or less, nevertheless that doesn’t lessen the blow.’

At a recent Numark English Advisory Board meeting the decision on Category M was ‘generally viewed positively’ while the reduction in fees and allowances was met with ‘concern’. Members were also worried that the announcement could further affect contractor moral, which is already low. It will be very important to not translate any negativity to the rest of the pharmacy team, as this would be damaging to the profession as a whole, says Ms Lau.

£300m now assured

Kirit Patel, chief executive of the Day Lewis Group and PSNC vice-chairman, says that the £300 million extra assured purchase margins has been agreed at a time of national austerity while doctors’ and nurses’ pay remains flat. However, PSNC has taken lengths to point out that this is not new money.

Although this additional Category M funding has been put ‘on the table’ for the first time, pharmacists have actually been benefitting from this ‘regulatory lagging’ since the contract was launched in 2005. While guaranteed purchaseprofits were set at £500 million in 2005, pharmacists’ shrewd buying and the funding mechanism has meant that they have actually been making closer to £800 million each year.

But the problem with the system to date is that the government has been able to take some of this additional money back in large chunks, and at relatively short notice. So in October 2007, for example, it took back £480 million of this overpayment, leaving contractors with a large hole in their balance sheets. Now that this money is no longer ‘under the table’, pharmacists can be more confident about the financial stability of their businesses, says Mr Patel.

Dilip Joshi, proprietor of Boss Pharmacy, Clapham, and former PSNC vice-chairman, acknowledges the difficulties of negotiating with the Department of Health. ‘I know what it’s like when you have a monopoly employer,’ he says. But he is concerned that independents could be worse affected by the settlement than the multiples and believes that there have been‘a couple of missed opportunities’.

One of these is that the ‘averaging’ nature of Category M payments could hit some small independents particularly hard. While the 17p decrease in the dispensing item fee will affect all contractors to a similar extent, the 12p increase through Category M will affect contractors according to their local prescribing patterns. Because Category M only relates to generics, those dispensing a higher proportion of generics will be better off than those dispensing more branded medicines. So some contractors will lose more than the average of 5p an item, while others will lose less. This effect will be evened out for multiples across their geographical spread.

The much larger cap on purchase profits will also result in an insistence on greater transparency and a more rigid clawback, says Mr Joshi. Consolidation among pharmacies shows how independents have been hardest hit by the erosion in funding. ‘It’s more like survival than thriving for those that remain.’ The independentsector has always been renowned for its innovation, but funding cuts may make it more standardised.

Mr Joshi also suggests that the MUR cap could have been raised to 500 because payment works on an averaging system. ‘MURs have demonstrated their worth because they’ve been running for so long. If some pharmacies are offering more value by doing more, why should they be punished?’

Mr Patel admits that he too would have liked to have seen the MUR cap increased. While the upper limit remains at 400 a year, the average number carried out across the country is only around 250. This means that, at £29 per MUR, the average pharmacy is foregoing £4,350 of funding each year, while others should be able to use this to perform more MURs. ‘It would be a pity if they’re taken away. Use it or lose it.’

The Numark Advisory Board feels that MUR funding should have been re-structured akin to the NMS, that is, tiered based on number of items dispensed.

Survival of the fittest

The settlement will cost Day Lewis about £1,000 per shop over the next six months, but Mr Patel believes he can negate that with the increased volume of prescriptions and an efficiency drive. ‘Our aim is to recoup this loss by being more innovative,’ he says.

Numark Advisory Board members estimate that they will be worse off by a similar amount per pharmacy. ‘For those who are not doing NMS, or not up to their maximum number of MURs, this could be a relatively straightforward call to action,’ says Ms Lau. ‘But for those who have maxed out on NHS services funded through the global sum, maybe running private schemes or additional commissioned services could be the answer.’ For others, it will be about scrutinising margins on purchases both OTC and generics and keeping a lid on costs.

The exact impact on the Mr Pickford’s group of six pharmacies in Leicestershire and Northamptonshire, one of which is an internet pharmacy and one is a 100-hour business, won’t be clear until about a year’s time when the accounts have been finalised, says Mukesh Lad, its chief executive. But he believes that pharmacy has been ‘playing cat and mouse’ with the Department of Health for several years in relation to the additional purchase profits and regulatory lag, and hopes that the new settlement will bring a greater stability to his income.

Recent efficiencies have made the Mr Pickford’s business less vulnerable anyway. ‘We knew the austerity measures were coming. We knew that we would have to do more work for less so we needed to become more efficient. Two years ago, I started looking at what we could do better, faster and cheaper.’ Mr Lad has considered the hub and spoke model, using the internet wherever possible, and making pay-roll operations more efficient. He is investing in IT, systems, processes and training.

And Mr Pickford’s is well prepared for the future. ‘The way to survive in business is to be lean and mean. If you’re lean and mean and you have a strategy in place you will be fine. If you are over-stocked and lose focus and service levels drop you will find things difficult.’

The COSE question

The Cost of Service Enquiry (COSE) was expected to be used to inform negotiations, but its results have still not been published. Launched around four years ago in an attempt to put a true figure on the cost of running a pharmacy business, its publication date remains ‘anybody’s guess’, says Mr Patel. But he suspects that it would show that pharmacy is under-funded.

Even if the COSE was published in time for the next round of contract negotiations, PSNC is unlikely to be able to use it as a lever to prise more funds from the DH, as the prevailing economic and political climate is likely to make next year’s negotiations tougher still. ‘I don’t think there will be that much generosity next year.’

The COSE represents ‘a lot of time and resource wasted’, says Mr Joshi. ‘I don’t think it’s helpful to either side. My sense is that the Department of Health have looked at it, but I’m not convinced of the benefits.’

Safety first

Mr Patel believes the extra work involved in the new safety incident reporting requirement is ‘a small price to pay’ for a reasonable settlement, but Mr Lad has concerns. ‘I’m all in favour of putting your hand up and improving practice from your mistakes, but it’s still a criminal offence. You’re wary of this as a professional.’

Only those who are grossly negligent should worry unduly about the safety incident reporting requirement as it stands, says Mr Joshi. ‘But as soon as a precedent is introduced, such as the 20p prescription charge, for example, you can’t then go back. That’s my real concern about any of these matters. How will that information be used – not just now but in the future?’

As for the requirement to encourage GPs to take up repeat dispensing – ‘I’m all for that’, says Mr Lad. Receptionists in busy practices are often reluctant to issue a batch of repeats, whether through lack of time or training. ‘There’s a bottleneck there and this measure is trying to widen that bottleneck. It will sort itself out with EPS if GPs understand how to authorise repeat dispensing in Release 2 and from their perspective it should be a lot easier. Getting GPs on board is a step in the right direction.’

Cutting the cake

In future negotiations with the DH, PSNC should argue that pharmacists are under-used and can be used to filter patients away from GPs and secondary care, says Mr Patel. ‘That kind of case you can justify.’ And he suggests that the committee should present the Department with a ‘tangible package’ on services such as minor ailments, flu vaccination or weight management. ‘There’s a benefit to the NHS in these so they should look at them as an investment rather than a cost.’

Meanwhile, the multiples need to help independents manage the change from dispensing to services. ‘The size of the cake will only get bigger that way. It’s better to worry about the size of the cake than how it’s carved up.’

This is in the multiples’ interest because the NHS wants the whole of pharmacy to work for the benefit of the whole NHS. ‘It will only happen when the whole sector lifts itself up. At Day Lewis we’re very happy to share our knowledge with independents because it’s in the interests of pharmacy as a whole.’

Contract settlement in sumary

  • Average contractor’s income reduced by £870 in the second half of the financial year
  • A one-year settlement worth £2.8 billion, including £2 billion in fees and allowances and £800 million delivered through agreed purchase margin (Category M)
  • Category M price increase equates to an average increase in item value of around 12p
  • Practice payment reduced by around 17p per item
  • New Medicine Service continues, with funding from the overall settlement
  • Targeted MURs increase from 50 to 70 per cent of the total, and a new cardiovascular risk group to be introduced
  • Contractors are also be required to: - Include pharmacy names in reports of patient safety incidents - Give patients appropriate advice about the benefits of the repeat dispensing service - Take part in a national audit next year on the emergency supply of medicines (in place of an area team specified clinical audit).

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