Is pharmacy as a business becoming unsustainable, asks Nick Hunter, LPC chief officer, Community Pharmacy Nottinghamshire

Readers will no doubt be aware that the funding cuts to community pharmacy fees are now starting to bite, not least because of the media coverage of LloydsPharmacy’s decision to close 190 pharmacies across its estate. It is not just the cuts to core funding that are causing difficulties for community pharmacies – there are several other factors affecting cash flow which ultimately increase costs, as they generally require some form of additional loan to make ends meet.

Contributors to cash flow problems, aside from the usual such as calendar effects, include no cheaper stock obtainable (NCSO), brand switching and stock shortages.

These issues are so damaging, because the pharmacy will often have to spend more than they are reimbursed for the medication in order to obtain it, or at least get much less discount or margin than the NHS assumes and deducts from their account.

This leads to a higher wholesaler bill and less operating margin in any one month, and due to the lag in NHS payments – although this is balanced out, albeit on an averages basis through margin adjustments via category M products, and it can be many months later – this results in an acute cash flow deficit.

Some pharmacies are also affected by local service decommissioning, although income from such services is usually a fraction of that from dispensing income overall the impact is less.

Domino effect of closures

Perhaps more concerning is the uncertainty of the ‘domino effect’ from a competitor pharmacy closure. If a pharmacy has an acute financial difficulty resulting in closure then, while it might sound attractive that this dispensing business will disperse to surrounding pharmacies (assuming there are some that are accessible to patients to “disperse to”), this business may not be financially attractive, depending on local prescribing, and certainly will cause an acute cash flow challenge.

A pharmacy’s staff costs (to deal with the extra workload) and wholesaler bill will increase immediately, but take time to be recompensed due to the lag in payments mentioned above.

The most concerning aspect of the domino effect is that the financial difficulty that triggers a closure is not usually planned or known about, meaning advanced planning for anyone impacted is impossible.

Unsustainable pressures

On their own the cuts in funding are making life for pharmacy contractors and their staff very challenging – but adding in the other big cost pressures of NCSOs and brand switching, it is simply not sustainable and must be addressed by government ministers with urgency.

The consequences of not doing so could be very high.