The cash flow issues caused by the increase in discount deduction arrangements could not have come at a worse time for community pharmacies, whose costs have continued to increase with the new financial year, sector experts have told The Pharmacist.

Last week it was announced that the rate of discount deduction for generics would increase from 17.52% to 20%, to be applied at a transitional rate from this month.

The Pharmaceutical Services Negotiating Committee (PSNC) told The Pharmacist that if the rates stay at this level, contractors’ cashflow would be negatively affected by around £500 per month.

Although those impacted will ultimately be accounted for in the margin survey, meaning that contractors would not lose money in the long term, it will put further strain on pharmacy businesses at a ‘critical time’, the negotiator said.

Pharmacy accountant Umesh Modi, a partner at Silver Levene LLP, told The Pharmacist that the hit to community pharmacy’s cash flow has come at ‘the worst time possible’.

He explained that in most pharmacies, NHS dispensing accounts for 90% of a pharmacy’s income, of which around 60-70% is made up of generics, so the increase in discount deduction would be impacting the largest source of revenue.

This comes as pharmacies face rising costs including the price of medicines, the increase in the national living wage from 1 April, energy bills and high locum rates caused by staff shortages, and additional demands on their time such as sourcing medications in short supply.

Community pharmacist Rajan Shah, director of a pharmacy group in London, told The Pharmacist that the timing of the announcement was ‘really poor’.

He said the impact of the changes could be as much as several thousand pounds a month for some contractors, depending on the prescribing mix of their area.

‘It’s an average [but] nobody will gain, some will just lose less,’ he said.

‘You can’t just increase the threshold and reduce the funding for it, there’s a massive impact that follows,’ he added.

He said that while the ‘law allows [the Department of Health and Social Care] to impose the service contract on us’, ‘they should listen to us, they should listen to all the contractors, they should listen to PSNC who are representing us’.

‘It’s just one thing after another. What are they going to come for next?’ he added.

Instead of making clawbacks, he said that the government should be investing in community pharmacy, which he said could save the NHS money on GP and A&E services by seeing patients with minor ailments such as eye infections.

Uncertainty in the sector

Mr Modi said that ‘more pharmacies currently are struggling’.

‘The only reason why some of them have been able to survive in the last couple years is because of the Covid income,’ he said.

And while the impact of the changes remains to be seen, Mr Modi said that the uncertainty of the funding only added to contractors’ difficulties.

Many are curtailing their investing in the business ‘until they see what the what the new funding is going to be’ when the next pharmacy contract is agreed.

While many independent contractors are reducing their staffing costs and working unpaid hours themselves, he added.

Some are investing their own or their family’s savings into the business, increasing their overdraft capacity or taking out additional loans, he said, particularly first-time buyers who would need to provide 30% of the business costs themselves before applying for the rest to be financed by the bank.

A recent survey by the National Pharmacy Association found that 40% of contractors had increased bank borrowing in 2022 and 20% had asked families for financial assistance.

And some pharmacy contractors and group owners were looking to sell branches or get out of the sector altogether, Mr Modi said.

What can pharmacies do?

PSNC’s legal director, Gordon Hockey, said that the negotiating body was urgently requesting regulatory changes to help pharmacy owners cope.

The latest proposals from NHS England in February were rejected by PSNC for being inadequate, and the negotiator has since put forward further proposals such as allowing pharmacies to reduce their core opening hours, implementing unlimited closed door working, and refusing to dispense prescriptions if pressures are such that dispensing could result in professional standards that are below those generally accepted.

‘In the meantime PSNC is continuing to consider other courses of action available, and contractors should be aware that they already have some regulatory options available to them, for example, reducing supplementary opening hours after five weeks’ notice to NHS England,’ Mr Hockey said.

Mr Shah said he was having to ‘cut down on things that aren’t really viable anymore’.

For example, his pharmacy had stopped making up dosette boxes for patients. ‘We don’t get paid to do them, we do them to help support the patient take their medication correctly, but we don’t get reimbursed five times the amount to do the dosette box,’ he said.

While it was a difficult decision for the pharmacy to stop providing this patient service, Mr Shah said that ‘it doesn’t make sense for us [to do them]’.

‘We haven’t got enough resource, we haven’t got enough time to do it. We’re going to have to cut down on things that aren’t really viable anymore, he said.