Pharmacy contractors in England will receive a lower reimbursement for generics following unexpected changes to the discount deduction arrangements announced this week, which pharmacists say could be ‘the straw that breaks the back’ of already fragile pharmacy businesses.

In April’s Drug Tariff, the rate of discount deduction for generics will increase from 17.52% to 20% - but concession lines will be exempt from deductions.

When contractors are reimbursed by the government in line with prices set in the Drug Tariff, a certain amount is deducted from the payment, known as the ‘discount deduction’. This deduction is based on the assumed amount of discount that contractors received on buying the items and is implemented at an agreed rate to avoid pharmacy contractors having to calculate and declare discount received on each item dispensed.

From 1 April 2023 until June 2023, contractors’ discount deductions will be calculated using both the old system, based on volume of items dispensed, and the new system based on dispensing mix, with a 50% weighting towards each.

This will continue to transition towards the new system, with a 70% weighting towards the new system from July 2023 – September 2023 and an 85% weighting towards the new system from October 2023 – December 2023.

By January 2024, the payments will have transitioned entirely to the new system, and contractors will receive a 9.85% deduction on appliances, a 20% deduction on generics and a 5% deduction on branded medicines.

While the generic discount rate will increase, the transition from old system to new system will continue as per the previously outlined timeline but will be subject to review, the Pharmaceutical Services Negotiating Committee (PSNC) reported.

And from 1 April, concession lines will be exempt from the deductions and considered as Group Items for Discount Not Deducted (DND or zero discount (ZD) items).

Changes to ease pressure on NHS cashflow

PSNC said that the increase to the generic discount deduction had been imposed by Department of Health and Social Care (DHSC) following pressure from NHS England.

PSNC’s Director of Pharmacy Funding, Mike Dent, said that the new system agreed by PSNC and the Department of Health and Social Care (DHSC) in August had meant that discount deduction had ‘varied slightly from anticipated levels’, resulting in ‘a short-term impact on central NHS cashflow’.

He described the imposed changes as ‘a knee jerk reaction to a system working as designed’ and said that they were based on ‘a very limited period of analysis’.

‘Once again pharmacy contractors will now be forced to bear the impacts of short-term policy making by central NHS and Government’, he added.

He also said that the proposed review of the changes in a quarter’s time ‘adds to contractors’ uncertainty’.

No regard for pharmacies

Chair of the National Pharmacy Association Andrew Lane, commented: ‘It would appear that money is being siphoned away from pharmacies in order to tidy NHS England’s spreadsheets.’

And he added: ‘In the real world there are real businesses, real bills, real bank accounts and real patients impacted by this untimely development.

‘For some pharmacies, this could be the straw that breaks their back.

‘NHS England is imposing this change with precious little warning and apparently no regard for the impact on pharmacies, for whom this is a painful new blow.’

Changes make it feel ‘pointless running a business’

Contractor Sri Kanaparthy, of Cowards Pharmacy in Cumbria, told The Pharmacist that current dispensing margins were so tight that the additional 2.5% deduction could be the difference between keeping branches open or not.

‘I have four pharmacies, a mixture of busy and quiet ones. The busy ones might be able to cope with it, but not make any profit. But the quieter ones, [this] will definitely have a significant impact’. He said that the extra 2.5% could impact profit so much that it would be ‘pointless running a business’.

He said that he was ‘scared’ about the impact of the changes, explaining that he struggled to get any significant number of generics below tariff price.

He added that the 20% discount deduction imposed by the government was nowhere near comparable to the discounts that contractors were actually receiving when buying medicines.

‘I don’t get a 20% discount from any supplier. And I don’t even get a 10% discount generally, I don’t even get a 5% discount.

‘The whole system is based on a system that was two decades ago, when pharmacies used to get significant discounts from their wholesalers on their generics. But unfortunately, that has changed,’ he said.

‘I don’t know of a single supplier now that actually offers discount on that level. The most I know of a supplier offering a discount on generics is about 3 or 4%.’

‘Unexpected’ changes days before implementation

Mr Kanaparthy said that he was ‘terrified’ of what would happen to his business, with other costs like minimum wages and bank loan interest rates also increasing from 1 April.

He said that following earlier statements from the negotiator that it had informed DHSC that community pharmacy was at its limit, he had expected more support from the government rather than more funding cuts.

‘It’s the biggest shock and I wasn’t expecting anything like that,’ he told The Pharmacist.

Dr Leyla Hannbeck, chief executive of the Association of Independent Multiple Pharmacies (AIMp) said that the statement published this week had ‘landed unexpectedly on everyone’.

PSNC and DHSC have been approached for comment.