Category A reimbursement prices are set to be updated quarterly, despite protests from the sector's negotiator and concerns raised in a 2019 consultation on reimbursement reform.

A separate change also to be introduced from April will see community pharmacies receiving ‘top-up payments’ when the original price concession has been deemed ‘inappropriately low’.

But Community Pharmacy England (CPE) said this would have a 'relatively small' value and called for wider investment in the sector's funding.

Category A prices to be calculated quarterly

Changes to how Category A reimbursement prices are set were imposed by DHSC against the negotiator’s will due to the current pressures on the sector, CPE has said.

Rather than Category A reimbursement prices being adjusted monthly, they will now transition towards being updated quarterly, as Category M prices already are.

And the government will calculate Category A reimbursement prices using actual purchase, sales and volume information it already obtains in a quarterly collection under the Health Service Products (Provision and Disclosure of Information) Regulations 2018.

When the changes were consulted on in 2019, concerns were raised that quarterly rather than monthly updates would make the Drug Tariff less responsive to changes in the market.

But the government said at the time it believed that using market information instead of list prices to inform Category A reimbursement prices would ensure reimbursement prices respond quicker to pharmacy purchase prices.

And it said it had found that ‘stability in the reimbursement price gives contractors confidence in purchasing’.

It added that ‘should these quarterly adjustments not be responsive enough’, there were still two mitigations of retrospective medicine margin inquiry and concessionary prices in place.

When the changes were announced last week, Mike Dent, CPE director of pharmacy funding, said that given the current ‘long-standing funding pressures’ and ‘the large number of medicines supply issues’, now was ‘not the time to be tampering with established price-setting processes’.

‘As such Community Pharmacy England has not accepted these changes going ahead,’ he said.

‘There is little to be gained and much to lose when we can’t predict how the market may react to these changes,’ Mr Dent added.

Why have changes been made to Category A prices?

For a medicine to be considered for inclusion in Category A, it must be available as a generic from both AAH and Alliance Healthcare (Distribution) Ltd, or from one of those suppliers plus both Teva UK Ltd and Accord Healthcare Ltd.

In 2019, the government proposed changes to drug reimbursement citing concerns that reimbursement prices were ‘significantly higher than actual selling prices’, because of instances such as suppliers having multiple price lists, no price lists, or using the Category A reimbursement price in the Drug Tariff as their list price.

High reimbursement prices led to contractors’ margin exceeding the agreed amount and later downward adjustment of prices that might ‘significantly affect contractor’s cash flow’, the government said.

It suggested that this trend could unfairly advantage pharmacy contractors who dispense more Category A medicines that have a higher margin than others.

And ‘high reimbursement prices that do not reflect actual purchase prices may affect the perceived cost effectiveness of a medicine compared to other medicines and so may affect prescribers’ choice of medicine, potentially to the detriment of a particular patient’, the government added.

The new arrangements, which would include an element of margin that is unlikely to be adjusted, would mean the Drug Tariff would ‘reflect actual selling prices (with an element of medicine margin) nearer to the time of the contractor paying their supplier (there would be some delay from the selling price data to the reimbursement price it informs)’, the government said in its consultation response.

It added: ‘The system would not be so dependent on the retrospective medicine margin survey to find the retained medicine margin or adjust reimbursement prices as needed to deliver the agreed amount of margin, and hence be better for contractors’ cash flow.

‘By using the data from suppliers and applying medicine margin, there will be a more even distribution of medicine margin across all Category A products, so overall there is more equitable distribution of margin to contractors who dispense Category A products and it will not distort the cost-effectiveness of a product to prescribers.’

Top-up payments for 'inappropriately low' price concessions

From April 2024 a new retrospective 'top-up' payment system will also be introduced, having been agreed as part of a different workstream between CPE and DHSC, following the review of the price concession system promised in the CPCF agreements for 2022/23 and 2023/24.

The first payment will apply to price concessions granted between April and September 2023, and while further 'top-ups' will continue each quarter.

It will come into effect when the price concession originally granted is significantly lower than the average purchase price paid by pharmacies for the item during that month.

The first payment will appear in the April Schedule of Payments, which will be paid to contractors in July.

From then, quarterly top-up payments will automatically be paid to eligible pharmacies based on price concessions granted three quarters previously, due to the time taken to collect, process and analyse the Margin Survey data used, CPE said.

It added: ‘These payments will be made for those concession lines where data subsequently identifies that the original concession prices granted were inappropriately low.

‘If the Margin Survey of Independent Pharmacies indicates that there was a significant underpayment of a concessionary price, compared to the average purchase price paid by pharmacies for that month, this will trigger an automatic top-up payment.’

The negotiator said the ‘top-up payments’ were agreed with the Department of Health and Social Care (DHSC) in March, and are the latest in a series of improvements to the price concession system it had been developing with DHSC.

But it told The Pharmacist today that the change was only likely to affect 'a small number of products each quarter'.

The CPE spokesperson added: 'We anticipate that the overall value will be relatively small. This is in effect a re-distribution of margin – to ensure that losses are not made on specific products where the original concessionary prices granted by DHSC were significantly below reported market prices. It does not increase the overall funding available to pharmacies.'

And they reiterated CPE's position that the margin and overall funding 'needs urgent uplift'.

'It is insufficient to reflect the ever increasing volume of dispensing and services provided by the sector. The margin system is not working as it needs to and the endless cycle of margin recoveries and concessions is eating into the financial sustainability of many pharmacies and the stability of medicine supply,' they added.