Pharmacy mergers – fold or hold?


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By Noel Wardle
Partner, Charles Russel Speechlys

04 Oct 2019

Partner at Charles Russell Speechlys LLP Noel Wardle goes through the legal considerations of pharmacy mergers, and explains why pharmacists hoping to consolidate would do well to hold their horses

When the Department of Health and Social Care (DHSC) announced the funding cuts three years ago, it seemed inevitable that some pharmacies would be forced to close. Indeed, it was argued in the legal challenge that followed the cuts that pharmacy closures were part of the Department’s aim in cutting funding, because the it believed that there were too many pharmacies and that pharmacies were clustered, most commonly in urban areas.

In order, arguably, to encourage clustered pharmacies to close, in December 2016 the DHSC introduced a change to the market entry regulations in England that would enable pharmacies to apply to NHS England to merge (or consolidate) two pharmacy contracts onto one site.

The principle behind the merger provisions is simple: imagine a small market town that has two pharmacies, both on the High Street either side of the single GP surgery. The pharmacies (which may be owned by the same or different contractors) individually dispense 4,000 items per month, some way below the national average of around 7,000 items per month. Both pharmacies offer broadly the same services and have the same opening hours.

Individually, the two pharmacies are barely viable following the funding cuts. However, merge them and the remaining pharmacy doubles its dispensing overnight to 8,000 items per month, above the national average. This increase in dispensing also improves the viability of the pharmacy, enabling it to invest in a premises refurbishment and to increase its staffing levels to provide additional services.

So, what was stopping the two pharmacies from ‘merging’ by one pharmacy simply giving notice to close? Well, the risk of closing one of these hypothetical pharmacies is that someone then applies for a new contract in the town relying on the fact that where there was once two, there is now one, and that has led to a reduction in patient choice and a gap in service provision.

The 2016 merger regulations were designed to eliminate that fear of a competing application being granted by offering protection in the form of an amendment to the Pharmaceutical Needs Assessment (PNA). The idea is that if NHS England approves the merger (which includes NHS England being satisfied that the merger would not leave any gap), the local Health and Wellbeing Board would amend its PNA to state that the closure does not create a gap in service provision, meaning that a new contract application could not be granted.

The problem with the protection given in the 2016 merger regulations is that the protection only lasts for the lifetime of the current PNA. At most, that would give three years’ protection, since PNAs must be renewed at least every three years. That’s assuming you would apply for a merger just after the new PNA has been published.

The last round of PNAs were published in April 2018, so any merger application granted now would only have protection until April 2021 at the very most – just 18 months from now. However, PNAs also have to be renewed if there have been significant changes in the local area, so a new assessment could, at least in theory, be published the day after the merger goes ahead, and all protection may be lost immediately.

The solution is obvious: to de-couple the protection period from the date of publication of the next PNA and to fix it in time – say for three years. That way, merging pharmacies will have certainty that the protection will last.

The DHSC hinted at a change to the merger provisions to a fixed period of protection when it published the new English pharmacy contract in July 2019, with the expectation that the change will be made at some point next year.

Anyone considering a merger application now would be best advised to sit and wait a few months if they can to see if the change is introduced, because any change in the regulations may not have retrospective effect, meaning that pharmacies which have already merged would not benefit from the fixed term protection.


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