Memorandum
RESPONSE TO
THE CONTROL
OF ENTRY
REGULATIONS AND
RETAIL PHARMACY
SERVICE IN
THE UK—A POSITIVE
CASE FOR
CHANGE
On 17 January, the Office of Fair Trading (OFT)
published the findings of its report into the control of entry
regulations in the UK retail pharmacy sector, concluding that
"Removing restrictions on entry to the community pharmacy
market would give customers greater choice, benefits from greater
competition and better access to pharmacy services."
Asda welcomes the OFT's recommendation that
regulations currently controlling entry to the industry should
be lifted to allow any registered pharmacy with qualified staff
to dispense NHS prescriptions.
This memorandum outlines the positive case for
change, responds to some of the concerns that have been raised
about changes to the regulations and describes the services offered
by Asda's pharmacies in England, Scotland and Wales.
Put simply, new participants want to enter the
pharmacy sector and, by doing so, they will increase the provision
of pharmacy services within a community which will benefit patients.
Control of entry currently limits entry into the market thereby
restricting the competitive pressure that could be placed upon
existing market participants and restricting customer choice.
A POSITIVE CASE
FOR CHANGE
In its strategy for pharmacies, "Pharmacy
in the Future—Implementing the NHS plan", the Department
of Health stated that:
"The first challenge is to meet the changing
needs of patients. For pharmacy this means three things above
all:
— first, making sure that people can
get medicines or pharmaceutical advice easily and, as far as possible,
in a way, at a time and at a place of their choosing;
— second, more support in using medicines.
Extra help for those who need it to get the best out of their
medicines—help which will mean fewer people being ill because
they are not using their medicines properly, and which will cut
the amount of medicine which is simply wasted;
— third, giving patients the confidence
that they are getting good advice when they consult a pharmacist."
Asda believes that these aspirations will be
achieved only if there is deregulation of control of entry to
the pharmacy sector. The controls act as a significant barrier
to entry to this sector and their removal will help meet the changing
needs of patients by bringing the following benefits:
— More pharmacies, not fewer.
— Improved services at local pharmacies,
including longer pharmacy opening hours.
— Lower prices for over the counter
(OTC) medicines.
Each of these points is now covered in more
detail.
MORE PHARMACIES,
NOT FEWER
The number of pharmacies in the UK has remained
static at around 12,000 for the last 10 years. This equates to
only one pharmacy per 5,000 people, which is a lower level of
provision than countries like Canada, Germany, Australia, Italy,
Ireland and France.
Over the past two years, Asda has made 15 applications
for new pharmacy contracts, only two have been granted. The process
of applying for licences is costly, time consuming and unpredictable.
The OFT suggested that business spends £15.7 million on this
process per year with taxpayers picking up an additional £10
million to cover health authority and appeal authority costs.
The existing regulations are interpreted in
different ways by Primary Care Trusts and, as Asda found at its
store in Clayton Green in Chorley, even the support of the local
health authority does not guarantee a licence will be granted.
This has made the existing licences a valuable
commodity—in fact, some licences have changed hands for
in excess of £1 million. Since November 2000 Asda has acquired
54 pharmacy contracts through acquisition at a total cost of £26.6
million (48 of these were purchased from Alliance Unichem plc).
Alliance's subsidiary Moss itself has recently acquired a chain
of 59 pharmacies (from the Taylor Group) at an estimated total
cost of around £68 million. In total, Asda believes that
at least 300 pharmacy contracts changed hands in 2001 for at least
£150 million, making the average cost £500,000.
Even if the purchase of a licence is agreed,
there is no guarantee that the licence can be "relocated".
Again the regulations in this area are subject to different interpretations,
making the process unpredictable.
The uncertainties inherent within the system,
along with the high cost of purchasing existing licences represent
a prohibitive cost for any but the largest potential new entrants.
Whilst independents can still enter the sector, the high cost
of licences could explain why so few are entering the pharmacy
sector.
There are some concerns that opening up the
market would put significant competitive pressure on existing
pharmacies and that this would lead to closures within the pharmacy
network. Obviously, all community pharmacies are subject to competitive
pressure—we are all retailers as well as healthcare providers.
However, if a pharmacy is providing high levels of patient care,
services which are valuable to patients and to the local community
and is selling OTC medicines at competitive prices, patients will
remain with that pharmacist. If not, patients will seek other
service providers. It is this that will lead to pharmacy closures,
not deregulation. Just to reiterate the point we made this morning,
before 1985, the average net increase in pharmacies was around
130 per year.
There are also concerns that deregulation will
threaten the commercial viability of pharmacies in inner city
or rural areas. It is essential that patients in such areas do
have access to pharmacy services and Asda agrees with the OFT
that other support mechanisms, such as the Essential Small Pharmacies
Scheme (ESPS), are best placed to provide this support. In this
case, there would always be an adequate level of patient support
in such areas and limited pharmacy closures.
All pharmacists are professionals who are interested
in delivering the very highest levels of customer care—having
more pharmacies and pharmacists, whether in newer or more traditional
outlets, improves the healthcare provision available for patients.
Deregulation would allow new entrants into the
pharmacy sector and this will provide greater patient choice,
innovations in service provision and greater price competition
for OTC medicines—all of which benefit patients. The OFT
was more than clear that, in its opinion, the small number of
pharmacy closures would be more than outweighed by the entry of
new players to the market, giving patients new choices. Patients
in rural and inner city areas should be protected through the
retention of ESPS, which will limit potential pharmacy closures
in those areas.
IMPROVED ACCESS
AND SERVICES
AT LOCAL
PHARMACIES
Whilst the overall number of pharmacies is important,
access and service is not just about location. It is also about
the opening hours of the pharmacies, the services offered by the
pharmacy and the level of involvement the pharmacists have with
their local community.
Many existing pharmacies do not have the resources
to provide additional services like longer opening hours or working
with their local community GP. If a pharmacy has only one pharmacist,
it is limited in the services that it can provide.
Where new entrants have come into the market
service, in terms of longer opening hours, has improved. The OFT
found, for example, that supermarket pharmacies open longer (on
average 79 hours a week) compared to the average independent.
Asda's pharmacies open for, on average, 82 hours per week.
In "Pharmacy in the Future—Implementing
the NHS plan", the Department of Health states that wants
to make sure that "people can get medicines or pharmaceutical
advice easily and, as far as possible, in a way, at a time and
at a place of their choosing."
We agree that this is an important aspiration.
In order to ensure that the regulatory system truly serves the
interests on patients, it is necessary to address the needs and
preferences expressed by patients themselves and demonstrated
by changes in shopping patterns. There is an increasing preference
on the part of UK consumers for the convenience of the one-stop
supermarket shop. Surveys undertaken by Asda show that customers
would like pharmacy services to be widely available in this environment
and a pharmacy is our most frequently requested in-store service.
Greater competition would lead to improvements
in the levels of customer service that patients experience in
pharmacies. More pharmacies would be able to deliver more additional
services. All Asda pharmacies, for example, already provide blood
pressure testing and DOOP bins and over two-thirds have run diabetes
stores tours, "no smoking" sessions and provide prescription
collection services. Half runs schemes in partnerships with their
local PCT which include palliative needs and compliance needs
assessment sessions, repeat dispensing initiatives and a dose
optimisation scheme.
Asda also actively encourages its pharmacists
to work in the local community, giving patients greater access
to pharmacy skills without having to visit a pharmacy. Each pharmacy
has ten hours of double manning each week to enable one pharmacist
to spend that time in the local community. Asda pharmacists have,
for example, established partnerships with GPs, held head lice
information sessions with local schools and coeliac awareness
sessions and established advice groups for teenage mums in our
stores. The pharmacist has discretion to decide where they should
get involved based on their knowledge of their community. A third
of our stores offer a methadone service.
The concern has been raised that deregulation
will lead to instability within the pharmacy sector and this will
make it more difficult for PCTs to work with the sector to develop
and improve the services offered to patients. We do not agree
there will be such destabilisation and believe that changes will
happen more gradually. The existence of more pharmacies offering
different skills, services and opening hours in different locations
should make it easier for the PCT to deliver services. Assurances
of commitment and stability could come from normal contractual
arrangements with the pharmacies.
PRICES WILL
GO DOWN
The abolition of RPM has failed to deliver the
price benefits customers expected and, in the OFT's view, the
current control of entry regulations contribute to making the
retail pharmacy market sluggish and unresponsive to local competition.
Some participants have taken the opportunity
to lower prices, most have not. The OFT's analysis found that
a basket of P-Medicines at Asda is now 29.6% cheaper than the
same basket at the most expensive operator, Lloyds. Lloyds is
the largest single pharmacy contractor in the UK with 1,321 outlets.
The OFT analysis has been criticised for dealing
with too narrow a basket of goods. The analysis is narrow but
reflects our wider analysis—there has been little price
movement and the full potential for price reductions, envisioned
as a result of abolition of RPM, has not been realised.
The maintenance of high prices comes from the
excessive costs of licences, cost which have to be passed onto
the consumer, and also because entry control shields pharmacies
from price competition. This lack of price competition also means
that retailers are not incentivised to negotiate cost price reductions
with manufacturers, which could be passed onto consumers.
Deregulation would lead to greater price competition
within the pharmacy sector and this would lead to lower prices
for patients of non-prescription drugs.
CONCERNS
There is some concern that deregulation of the
pharmacy sector would lead:
— to increased costs for the Department
of Health, and
— to insufficient pharmacists to meet
the needs of any new pharmacies that would open.
These issues are dealt with below.
COSTS TO
DEPARTMENT OF
HEALTH
The potential increase in the number of pharmacies
has led to some concerns about how the addition pharmacies would
be funded, given that 80% of the turnover of most pharmacies is
derived from the provision of NHS services. The funding comes
from the "global sum", so, whilst the overall level
of funding may not increase, the funds available for each pharmacy
may be less.
There is a need for review of the funding of
pharmacies whether the market is deregulated or not. There are
limited resources and the current funding regime encourages pharmacists
to concentrate on dispensing at the expense of the development
of additional healthcare services.
LPS has been introduced to provide a further
funding mechanism to encourage pharmacists to develop and deliver
a wider range of services. The potential success of such a scheme
will, however, always be limited whilst so much of the income
of the pharmacy is derived from the more traditional funding sources.
This leaves little resource within a pharmacy to focus on the
development of new services.
If there is a need for addition funding, there
are a number of routes open to the Department of Health. Asda's
submission to the OFT suggested a licensing or registration scheme
for pharmacies. Such a scheme would assist in the planning for
delivery of pharmacy services and offer some level of customer
reassurance and protection. Companies could pay a fee for the
licence that could then be spent on funding patient care and service
delivery. This would be a far more appropriate mechanism for gaining
a licence than, as currently happens, the fee for purchase of
a licence which is the private profit for the existing licensee
rather than an investment in healthcare.
It is also essential that any review of funding
provides for appropriate levels of support to those pharmacies
providing services to deprived or/and isolated communities and
that the Essential Small Pharmacy Scheme is retained and improved
to ensure that the pharmacies supported by it are serving such
communities effectively.
NUMBERS OF
PHARMACISTS
There is a concern that there will not be enough
pharmacists to operate pharmacies if the market is deregulated
and many new pharmacies are opened—there will just be too
many pharmacies.
Even in the most extreme case, the number of
new pharmacies that would open in one year would be less than
the number of newly registered pharmacists available to work within
them. Some 1,500 new pharmacists register per year and this number
is expected to increase as more schools of pharmacies open over
the next five years (at least two new schools for pharmacy are
expected to open before 2005).
There would also be more pharmacists available
if all those who are qualified continued to practise. Currently
one in five qualified pharmacists are not practising—they
have left the profession. If these professionals could be convinced
to stay, this would help to counter any potential skills gap that
could result from a programme of pharmacy openings.
We passionately believe that the current control
of entry and funding systems are limiting the development of the
pharmacy sector and, therefore, limiting the opportunities for
development of individual pharmacists. Newly qualified pharmacists
are priced out of the market by the prohibitively high costs of
buying existing licences so most will work for the existing larger
chains. Once in the industry, the current funding structures incentivise
dispensing rather than encouraging the new pharmacists to use
their skills to develop and deliver better healthcare services
in partnership with other local healthcare providers.
There also has to be far more flexible working
practices within the pharmacy sector to make it easier for pharmacists
to achieve a work life balance.
Retention levels will be higher if it is easier
for pharmacists to buy or establish their own businesses, if the
funding of pharmacies focuses on service provision rather than
dispensing and if there was greater flexibility in working practices
so that pharmacists can achieve a better work life balance.
ASDA PHARMACIES
Asda currently has eighty-one dispensing pharmacies
in England, Wales and Scotland and a non-dispensing pharmacy at
its supercentre at Sportcity in Manchester. This "wellbeing"
centre offers diagnostic testing in diabetes, cholesterol and
blood pressure.
Asda is proud of the services offered in its
pharmacies and of the role each pharmacy plays in its local community.
All the pharmacies open for more than 72.5 hours per week, with
an average of 82 hours per week and the colleagues who work alongside
the pharmacists are dispensing technicians, trained to NVQ level
two in over 60% of the pharmacies.
As highlighted earlier, all Asda pharmacies
already provide blood pressure testing and DOOP bins and over
two thirds have run diabetes stores tours, "no smoking"
sessions and provide RCPS services. Half run schemes in partnerships
with their local PCT which include palliative needs and compliance
needs assessment sessions, repeat dispensing initiatives and a
dose optimisation scheme, and a third offer a methadone service.
Asda also actively encourages its pharmacists
to work in the local community, giving patients greater access
to pharmacy skills without having to visit a pharmacy. Each pharmacy
has ten hours of overlap time to spend in the local community.
Asda pharmacists have, for example, established partnerships with
GPs, held head lice information sessions with local schools and
coeliac awareness sessions and established advice groups for teenage
mums in our stores. The pharmacist has discretion to decide where
they should get involved based on their knowledge of their community.
Asda has been frustrated by the protracted nature
of the process to apply for new licences and its unpredictability;
this is illustrated by the following case studies:
EASTLANDS, MANCHESTER
Asda opened its seventh Asda Wal-Mart Supercentre
at Eastlands in East Manchester. The £40 million store, directly
opposite the new Commonwealth Games stadium, created almost 1,000
new jobs. Part of the wider regeneration of East Manchester, the
store is part of the city's plans to create a town within a city.
Asda applied for a pharmacy licence in this
store in May 2001. The application was refused in October 2001
by the local health authority. Asda appealed against the LHA decision
on 7 November 2001 re-emphasising local plans in place to build
around 12,500 homes and improve 7,000 others. Asda's appeal was
supported by North Manchester Community Health Council, but opposed
by a local chemist and was lost.
The same local chemist that objected to an Asda
pharmacy at Eastlands successfully applied to move his pharmacy
into the "yet-to-be-built" district centre next to Asda.
Full details are available on the Family Health Services Appeal
Authority website at http://www.fhsaa.org.uk.
CLAYTON GREEN,
CHORLEY, LANCASHIRE
In June 2001, ASDA applied for a pharmacy licence
for its Clayton Green store in Clayton-le-Woods, Chorley, Lancashire.
South Lancashire Health Authority granted this application in
August 2001 based on Asda's plan to have extended opening hours
and the intention to provide supervised methadone administration.
The owners of a local pharmacy appealed against
this health authority decision and won its case in November 2001.
Despite this decision, in January 2002, Asda received a letter
from solicitors acting on behalf of this pharmacy seeking permission
to relocate its business into Asda. To ensure that customers are
offered Asda prices, it is not Asda's policy to allow new concessionaires
to operate pharmacies in their stores, so this request was refused.
The solicitors contacted Asda again in February
2002 to remind it that their client would oppose any future application
Asda would make for its own pharmacy contract and urge the store
to discuss terms for possible relocation.
CWMBRAN
In Cwmbran, a local chemist submitted plans
for a "minor relocation" of his pharmacy to the new
Asda store in May 2001, six months before it was due to open.
It was approved at the health authority stage but Boots appealed
and an oral hearing was agreed—only held in January 2002,
two months after the store opened.
While the members of the oral hearing panel
recommended approval of the relocation, the Welsh Assembly released
this information only in September 2002, another nine months later.
Despite the recommendation of the panel, the Welsh Assembly still
rejected the application.
LLOYDS
We note the press release issued by Lloyds last
week to highlight the seminar. In that release they highlighted
their view that patients would be better served by non-supermarket
pharmacies. As we outlined this morning, this contrasts with the
three applications we have been made aware of to apply for new
contracts in supermarkets in Morrisons stores in Bristol, Rotherham
and Ipswich. Their applications mention that it is "necessary
and desirable" to have pharmacies in those locations because
of dedicated facilities for disabled shoppers and extended opening
hours.
CONCLUSION
The case put forward by the OFT for deregulation
has been presented as a battle between supermarkets and small
shops or as healthcare versus retail. This is misleading; the
debate about pharmacy contract limitations challenges whether
the future needs of patients can be met within a framework of
regulations designed to meet the past needs of a government to
control costs.
The end of the current restrictive system is
essential if the pharmacy sector is to respond to and meet the
current and future needs of patients.
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