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Leela Barham looks at the debate around the retained margin and concludes the current system is unlikely to change any time soon

Retained margin is not new, having been in place since 2005. It’s desirable when looked at from a taxpayer’s perspective. Community pharmacies are incentivised to secure the best deal on readily available drugs, set out in category M of the Drug Tariff. 

If contractors can get a price below the reimbursed price – set by the Department of Health and Social Care (DHSC) informed by manufacturer’s supplied information – they can keep the difference, at least up to a cap for the retained margin of the sector as a whole. 

In 2025/26 the value that can be kept within the sector is £900m. Prior to the current financial year, it was £800m a year from 2014. 

The contractor picture

From a contractor’s point of view there’s a challenge in working through the realities of the impact of the retained margin. They have to source drugs to meet prescriptions, yet what they will actually get paid takes time to come through.

That’s because the DHSC needs time to work out, based upon information supplied via the margin survey, if the retained margin collectively is under, or over, for each quarter. 

When it’s over, the amount is clawed back. The claw back is not contractor specific; it’s applied to Category M prices.

Category M prices are also adjusted to smooth the impact of any need to claw back. Add in adjustments to Category M prompted by the market and it is impossible to work from an individual price paid by a contractor for a prescription to what they get reimbursed.

The net result is not just that it’s “difficult for pharmacy owners to predict the impact of any changes on their businesses” as Community Pharmacy England (CPE) put it, but, as Dervis Alkan Gurol, superintendent pharmacist at Sussex Pharmacies Ltd, a member of the Sussex local pharmaceutical committee and the primary care network lead for community pharmacy, wrote on LinkedIn, retained margin and clawbacks are “a black hole”.

Over-delivery happened more often than under-delivery

CPE published new data on margin delivery on 25 April. Over-delivery happened in 12 quarters, under-delivery in seven quarters, from quarter four 2019/20 to quarter two 2024/25.

Clawbacks have been applied – “downward adjustments” in CPE terminology – with the aim of getting back into balance. 

Plus there are market dynamics at play that influence the margin, CPE cites lower generic buying prices and drugs like apixaban and rivaroxaban losing their patents.

The argument CPE is making is clear: contractors would have been worse off if they hadn’t negotiated a write off of £193m as part of the negotiations on CPCF 2024/25 and 2025/26 plus CPE got a bigger allowance for retained margin overall, at £900m versus the previous £800m. 

Margin survey

The over and under delivery amounts for retained margin are estimates, derived from the margin survey, a survey that CPE describes as being filled in by “a sample of independent pharmacies”.

A sample inevitably means uncertainty. A briefing on the margins survey from 2020/21, the most recent available linked to by CPE, says that a census is not feasible.

Instead, 240 independent community pharmacies are surveyed across around 400 products. 

With so much money at stake, it might be cold comfort that the survey was “developed by professional statisticians” according to CPE.

The survey has also been reviewed by “a prestigious university” but CPE doesn’t say which one. When asked, CPE referred to the DHSC as they are the ones who run the survey. 

P3pharmacy understands that Southampton University has given independent advice on the margin survey. Other universities and independent statistical advisors have been used in the past and could be used in the future.

The detail and methodology of the margin survey are kept confidential, and so is any advice given to both CPE and DHSC. 

Known problems

CPE has said that there are still problems with the approach to retained margin. They note that there are “irregularities in access to margin”, ie some contractors get too much, others too little. 

CPE says it is concerned about the mismatch in availability of margin and says that the government is committed to working with them to investigate. Gurol puts it in stronger terms: “Margin system is not fair, it is abusive.” 

Calls for audit

Frustration with the current approach to margin has led to calls for change.

Gurol has called for full independent audits of all margin calculations, contractor-accessible transparency on all future margin management and margin pots that grow proportionately with prescription numbers. 

No change likely

But without fundamental changes to the margin survey – switching to a census and a far greater openness by both DHSC and CPE - it’s hard to see how to ensure that each contractor gets fair reimbursement. 

Whilst the incentive properties of retained margin are attractive in theory, they are diluted in practice. Change is unlikely, at least in the near term.