Contractors will need to reclaim the VAT that they paid for products supplied in accordance with serious shortage protocols (SSPs) from next month, while reimbursement processes could change as early as this summer, a government update has suggested.

In a letter to contractors published on Friday afternoon on the Department of Health and Social Care (DHSC) website, DHSC and NHS England outlined contractual, legislative and financial developments that apply to the final year of the five-year Community Pharmacy Contractual Framework (CPCF).

But the Pharmaceutical Services Negotiating Committee (PSNC) has pushed back on some of the government’s proposals around reimbursement, claiming that they were still under discussion.

Here are 10 things you need to know from last week’s announcement:

  1. Contractors must reclaim VAT on SSPs

HMRC has said that VAT is not applicable on products supplied in accordance with SSPs. Because of this, contractors will need to reclaim VAT on products supplied under SSPs as they already do for medicines dispensed on prescriptions.

  1. Monthly payments could change if services grow

In February 2023, the Transitional Payment – made from any ‘unallocated funding’ within the CPCF funding envelope, designed to support the transition to more clinical services – was reduced to zero. From April 2023, it was replaced by a monthly payment of a flat fee – currently £533.

But in Friday’s letter, DHSC said that this amount was subject to change ‘if clinical service volumes grow beyond our forecasts and all unallocated funding is spent on new services’.

  1. Category A reimbursement could change from the summer – but PSNC has concerns

In Friday’s letter, DHSC said that it was looking to implement proposals to base the reimbursement prices of generic medicines in category A on market sales and volumes data in summer 2023, following feedback from PSNC.

But PSNC has said that category A reimbursement ‘has been the subject of ongoing discussions and no agreement has yet been reached’.

‘DHSC want to improve their approach to setting reimbursement prices for Category A medicines, but PSNC is deeply concerned about any reforms given the instability in medicines supply chains and variability in margin delivery,’ it added.

  1. Concessionary items DND, and end-of-month price concessions could roll over

DHSC said that following the review of the concessionary price process, from April 2023 it would stop deducting 5% from the reimbursement amount paid on items that had been granted a concessionary price for the month or months that they were on concession.

And they said that the concessionary price granted for products requested after the 23rd day of each month could be rolled over to the following month.

  1. Retrospective price concessions could be introduced

DHSC added that it was working with PSNC on how a ‘retrospective increased payment’ may apply, when appropriate.

PSNC said that it was in discussion with DHSC on a package of measures aimed at improving the price concessions process but added that it still believes that ‘more fundamental reform of the reimbursement system is needed’.

  1. Category M adjustments to continue until April 2024

DHSC said that its medicine margin survey – the information it gathers from suppliers and pharmacies on purchase prices and margins – showed that the community pharmacy sector had retained more than its allocated £800m annual margin up to April 2022.

While £100m was written off in September’s agreements, DHSC has adjusted the amount it reimburses pharmacies for category M medicines on a quarterly basis ‘to recoup this over-delivery’, which is projected to continue until April 2024.

PSNC responded that: ‘Over-delivered medicines margin is continuing to be recouped by DHSC despite our warnings that this could not come at a worse time for the sector given the current pressures.’

  1. DHSC could consider ‘tolerance level’ on adjustments to discount rates

As announced 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.

In Friday’s letter, the DHSC said that while the transition to the new arrangements was ‘progressing’, it would ‘continue to monitor the implementation’.

It added that while it intended to rely on the margin survey to adjust for any increased or decreased delivery of margin, ‘we may need to consider other adjustments, for example applying a tolerance level where adjustments to discount rates need to be applied, to reduce the impact on margin delivery’.

In a response published Friday afternoon, PSNC said that it had strongly opposed the imposition of the new arrangements in April, and was ‘in continuing discussions with DHSC about levels of discount deduction and retained margin’.

  1. No clinical audit this year – and maybe never again

NHSE said that for 2023-2024, contractors would not be required to undertake either of the clinical audits ordinarily mandated (on a topic of their choosing and on a topic determined by NHS England). And it also said it would consider the removal of the requirement for a practice-based audit permanently, as well as reviewing the need for practice-based leaflets.

The letter restated that contractors would have to undertake a reduced Pharmacy Quality Scheme (PQS) starting from 1 June 2023, which does include a clinical audit.

Contractors will have to meet at least one of the criteria relating to: reducing harm from anticoagulants, palliative and end-of-life care, respiratory or antimicrobial stewardship, as well as carry out 15 New Medicines Services (NMSs) between 1 April 2023 and the end of 31 December 2023.

The full specification for the PQS can be found within April’s Drug Tariff.

  1. Discussions underway about new primary care recovery plan

Last week, DHSC announced an investment of up to £645m over two years for a Pharmacy First service allowing community pharmacies to treat seven common conditions under a Patient Group Direction (PGD). The money will also go towards the Pharmacy Contraception and NHS Hypertension Case-Finding services, as well as IT updates enabling necessary access to clinical records.

And in Friday’s update, DHSC and NHSE confirmed that negotiations between PSNC, DHSC and NHSE ‘on how we implement the delivery plan’ had begun, and that contractors would be updated ‘in due course’.

  1. Redoubled commitments to no new services without more funding

Within the letter, DHSC and NHSE said that they ‘remain committed’ to not seeking to introduce any further clinical services within the current funding envelope of £2.592bn, beyond those agreed last September.

Among the services agreed in September was the introduction of the Pharmacy Contraception Service, tier 1 of which began on 24 April 2023. NHSE and DHSC said that they remained committed to launching tier 2, which would see community pharmacists initiate oral contraception, on 4 October 2023.

September’s agreement also included the expansion of the Community Pharmacist Consultation Service (CPCS) to include referrals from urgent and emergency care settings, which will come into force from Monday 15 May 2023.

And NHSE and DHSC said that they would update contractors ‘in due course’ on the inclusion of antidepressants within NMS. This was agreed in September and was set to begin on 19 April 2023, but was delayed and a pilot is still ongoing.