Examination of Witnesses (Questions 40-59)
THURSDAY 3 APRIL 2003
MS SUE
SHARPE, MS
LIZ COLLING,
MR JOHN
D'ARCY, MR
JOHN EVANS,
MR JONATHAN
MAY AND
MR MATTHEW
JOHNSON
40. Our local example is that our independent
pharmacies tend to keep going, whether the person is ill or whatever.
The supermarket pharmacy has just closed down and sometimes it
did not deliver over the Christmas period, when it was supposed
to, etcetera. I wondered whether you looked to see if that was
unusual or reflected across the country.
(Mr May) I do not think we have the evidence for that.
If that happened on occasion, clearly there would be a problem.
Could I just say a couple of things. I think the debate about
the global sum is an important one. Clearly, as John Evans has
said, the market for prescriptions is growing; in a sense, the
number of pharmacists which is meeting that demand has essentially
stayed the same, partly because of the control of entry regulations.
However, with a lot of the issues we are talking about here, which
I think are very important issues, it is not clear to me how they
are affected by the control of entry regulations, which is what
we looked at. The control of entry regulations were set up to
stop people, potentially, or to restrain people from opening up
pharmacies; they are not there to do anything about ensuring that
there are pharmacies in a certain area which provide a certain
standard of service. Those are very important issues but the control
of entry regulations do not impact on them. The things that do
impact on them are things like the size of the global sum and,
in a sense, the incentives built into that to provide certain
kinds of services, opening hours or whatever. I do think there
are very important debates here, on which I am not particularly
well qualified to comment, but I do think it is important, in
a sense, to be clear what the control of entry regulations do
and do not do and what the wider issues are. I think there has
been a confusion in this debate. If you will indulge me for one
more second, I would like, in a sense, to support what John Evans
was saying about supermarkets. Clearly this is a huge concern:
that supermarkets would put out of business a number of local
pharmacies. We do not believe that would happen. We think, essentially
as we say, that there would be more rather than fewer pharmacies.
We think our study suggests that the small independents provide
very valuable services to customers and that, if you look at our
report and the reasons why people use the pharmacists they do,
the kind of reasons for that would largely remain unchanged. The
last point I think I would make is that a lot of concern about
the supermarkets has been because of the effect they have had
on, let us say, bakers and butchers and other kinds of people.
I think pharmacies are very different for a whole variety of obvious
reasons and one reason they are different is because 80% of their
income comes from dispensing NHS prescriptions. There is no price
competition in that and that can add up to, on average, something
like £70,000 a year. So I do think that pharmacies are very
different and the kind of threat which supermarkets could offer
them is very different and has been in other areas.
(Ms Sharpe) I think it is very important not to characterise
this as a debate between deregulation and the status quo. We have
made proposals for change, proposals for improvement in the planning
systems that operate under a revised scheme, and I think it is
really important to identify the key issue here which is: Do we
have planned pharmacy service or do we have an unplanned service
that comes from deregulation? I do not think any of my colleagues
here are supporters of the status quo. We do think we can make
major improvements to the regulatory framework; the issue is whether
there should be a regulatory structure.
Chairman: I am seeing some interesting parallels
here with the debate on foundation hospitals, but we will not
go into that at the time being.
Jim Dowd
41. Chairman you see foundation hospitals everywhere!
I want to turn to the methodology the OFT have used, but, before
I do that, Mr May, perhaps I could go back to a point you made
earlier when you said about increased opening hours. Let me establish,
so that we are all perfectly clear, that we should not confuse
the availability of pharmacy services in a supermarket with the
hours that supermarkets themselves are open.
(Mr May) Yes, that is correct.
(Mr Evans) May I answer that as well. Our average
pharmacy is open 82 hours a week. I have read in certain publications—
42. What do you describe as your average pharmacy?
(Mr Evans) Some are open 90 hours a week, some are
open 100 hours a week, the least hours open is 72 hours a week,
so, on average, the number of hours open is 82 hours. The point
that Ms Drown made about supermarket pharmacies closing because
they cannot keep the pharmacies open, I cannot speak for other
pharmacies in other supermarkets but I know that in ASDA we are
open more than other multiples in town and we make every single
effort we can to get our pharmacies open whatever it costs. Having
a constant service for the customer—who expects it from
us now—we will try very hard to achieve, and there are very,
very few occasions we have closed in the past.
Julia Drown
43. Do you have data on how much?
(Mr Evans) I could find that for you if you want me
to get that.
Julia Drown: Please.
Jim Dowd
44. One competitor supermarket wrote to my PCT
recently indicating they were going to have core hours, in total
something like seven per day, in the supermarket. But we will
come back to that. You use in the report the number of outlets
as evidence of the concentration in the UK. Why do you use just
numbers of outlets? Does that not have a broad parity or a seeming
parity about it which obscures the fact that that does not reflect
market share concentration.
(Mr Johnson) Market share in terms of actual turnover?
45. Yes, comparing a large supermarket pharmacy
with one somewhere out in a rural village.
(Mr Johnson) We were not able to get information on
pharmacy turnover from the Department of Health for reasons of
the Data Protection Act and commercial confidentiality.
46. How do you feel it would affect the estimates
you put into the report if you were able to do that?
(Mr May) I think it would probably show that certainly
some of the larger supermarkets and some of the multiples would
have proportionally a larger share of, say, scripts or something.
That would be my guess.
Chairman
47. Could you speak up, please.
(Mr May) I think that if you looked at volume, had
we been able to get that information, you would clearly find that
some, say, of the supermarkets, some of the multiples, would be
prescribing more scripts than the average, and that would change
these figures a bit. I think this table is designed to show, in
a sense, who are the main players, the importance of the individual
or very small chain of pharmacies, rather than the multiples or
the supermarkets, and how, despite the control of entry regulations,
change has been going on in the industry. If people are concerned,
as there is often good reason to be, about the individual local
pharmacies, then these control of entry regulations are not stopping
the change which is going on in this industry and we have seen
across a whole variety of other retail set ups. I think that is
what it is really showing.
48. Mr Evans, you said that you thought if these
proposals were adopted wholesale they would lead to an increase
in the number of pharmacies and not a decrease.
(Mr Evans) Yes.
49. Are you saying then that the opposition
this has generated amongst community pharmacies is based on either
ignorance or a willingness or an unwillingness to face increased
competition, not just from supermarkets but from more outlets?
(Mr Evans) I think probably the second point you raise
is the one I agree with.
50. It is just special pleading.
(Mr Evans) If anybody has more competition against
them, they are going to be concerned about it. I can understand
that. If we have another supermarket opening up against us, we
are concerned about it, but we have to improve the service we
give to compete with that. That is why I think that innovation
will improve because competition is there. If I owned a pharmacy
next to a surgery and another pharmacy were opened against me,
I would be concerned because some of my trade would go to that
pharmacy possibly. I guess the customers would choose to come
to me or to go to the new pharmacy. If I was a new pharmacist,
I would want to get better services in my pharmacy than in the
old pharmacy. Services overall would then go up. It is bound to
happen.
(Mr D'Arcy) The point here—and it goes back
to Dr David Taylor's point—is there will be an increase
in openings first off but that increase will settle down because
the market, as we have already established, is inelastic. It is
not going to go in the way it is described. There will be a shift
towards the bigger, better resourced players, and the worry of
individual pharmacies, particularly the small pharmacies, is not
any worry about competition or anything like that, it is simply
the effect this will have on their business because the fact remains
that 80% of pharmacy business is NHS and they are paid for providing
NHS services, which in real terms means dispensing prescriptions,
and if they lose those prescriptions, prescriptions will be sucked
away from them and their viability will be under threat. Their
concern is about the threat to local communities and particularly
to the kind of people who are writing in, the elderly, the infirm,
mothers with young children. That is the concern. It is concern
about local services to local communities.
51. Finally, Ms Sharpe, you mentioned that nobody
wants the status quo. I presume therefore yourself and anybody
else who wants to respond to this will be heartened by the interim
message from the Secretary of State which seems to indicate that
the report, lock stock and barrel, will not be adopted but that
changes will be made.
(Ms Sharpe) Yes. We are pretty concerned to make sure
that the balanced package of measures really does improve primary
care trusts' ability to plan and identify and ensure that necessary
services or enhanced services are provided. So we are certainly
encouraged by the initial message, yes.
(Mr Evans) I am also encouraged. She does say that
pharmacy has a lot more to offer, which I am really pleased about,
because it does have a lot more to offer. I think the balanced
package of measures she has talked about is good news as well.
That, I think, with more deregulation which she also suggests,
would be a good thing for pharmacies and a good thing for patients.
(Mr D'Arcy) We welcome it. One of the things that
did not come out earlier is that these regulations are based on
need and we need to be focusing upon local needs. It is not just
an issue about closure; we need to look at access and we need
to look at local service provision. If we start from a position
of saying deregulation is not necessary to achieve the Government's
objectives in terms of health care, then, if we can develop proposals
that will give PCTs and primary care organisations throughout
the UK greater flexibility in meeting local needs, that is something
we are all supportive of and in essence deregulation is not necessary
to achieve that.
Dr Naysmith
52. Could we ask Mr May and Mr Johnson what
they think. Earlier on you were trying to make it clear that you
make recommendations and it is up to ministers what they do with
it, but also you have been putting forward a pretty clear free-market
sort of view and modelling in places where it seemed to indicate
your recommendations were the right ones. Here we have a situation
where it sounds as though your recommendations are not going to
be implemented, at least in full.
(Mr May) I think we welcome the ministers' statements
because it does make very clear, for example, that they favour
change to open up the market and improve the quality of services.
That is, in essence, what we think would happen with deregulation.
We fully understand that ministers have wider concerns and they
are also, in a sense, thinking about the development of pharmacy
services anyway. We welcome the fact that our report has, in a
sense, raised that debate. It has made people think about what
these entry controls are for: What are they doing? and also, equally
important: What are they not doing? I do think it is important
to remember that they are not providing a planned service; that
does not exist through the entry controls. You can do that in
other ways but the entry controls do not do that. So I think we
welcome the Government's response. I do not think personally I
would ever expect the Government to accept our recommendations
in full, particularly in an area like this which is complicated
and where we have seen, from the reaction from a lot of individuals
and MPs, there is a lot of concern. I think we would like to see
those concerns dealt with but be very clear about whether those
concerns are about the way pharmacy services are provided in this
country or about the entry controls, because I think it is very
easy to get too confused.
53. This has been very useful, your very clear
outlining of what the report is about and what it is not about.
Did you anticipate it would cause this furore when you published
this report? Were you expecting it?
(Mr May) No. I think it is fair to say we did not
anticipate it. As I was saying to John D'Arcy earlier, I think
it has been a very impressive campaign. I think it is good in
a way because it shows that—
54. You are still speaking to each other then.
(Mr May) I have only just met him, actually. So far,
so good! It has raised the whole issue in people's minds about
pharmacy services, what are they there for, how important are
they to us. I think it is important for your Committee here to
have that debate and think about it, and, as I said earlier, it
is important to think about the bits which help you to provide
that and the bits which are superfluous, where we are doing different
things.
Andy Burnham
55. I understand the role of the OFT is to stimulate
debate and challenge existing ways of doing things and that is
healthy. But let me take you back to something you said earlier,
where you did not see how the control of entry regulations contributed
towards a planned pharmacy service. That contradicts directly
something Ms Sharpe was saying earlier, that this is one of the
planning mechanisms that the NHS has at its disposal. It means
that its ability to control geographically where these outlets
are located is not a precise tool—it is bit of a blunt instrument,
actually—because you cannot make sure one will open where
you want it. But coupled with the Essential Small Pharmacy Scheme
surely the control of entry regulations are precisely one of the
best planning mechanisms that the NHS has.
(Mr May) If I could, I would disagree with that. The
pharmacy system existed until 1987 without a control of entry
system. The control of entry system was introduced, as I understand
it, because there had been a huge upsurge in the number of pharmacies
opening. That upsurge was caused by the remuneration system—which
goes back to the debate we were having earlier about how the global
sum is spent—and since then they have changed the remuneration
system, which has reduced what was a massive increase in very
small business pharmacies. So I think it is quite possible to
have a system, as before, whereby you do not control who enters
or exits the market—you cannot control who exits the market
anyway—but you actually think about the incentives within
the way you reward pharmacists through the global sum or through
other means to ensure you get the services.
56. These are a planning mechanism, surely.
(Mr May) I think they are a negative planning mechanism.
They do not allow you to say, "There is an area over here
which is clearly short of pharmaceutical services" and there
are a number of areas in the country about which a number of bodies
have said, "There are shortages of services, there is a problem."
57. You would favour a much greater enhancement
of the Essential Small Pharmacies Scheme and less reliance on
control of entry, but essentially they are both planning mechanisms,
are they not?
(Mr May) The Essential Small Pharmacy Scheme allows
you to support a pharmacy in an area where there is perhaps not
enough demand for it to be viable remains open. I think that our
preferred system would be that you let the market decide where
the pharmacy shops will be. They will be trying to meet customer
demand, and if there are areas where that is not sufficient to
provide the kind of pharmacy services you are looking for, you
have a targeted scheme so the money is focused on delivering pharmacy
services. I do not think the control of entry system does that.
It is negative rather than positive. In that sense it is not a
planning system. A planning system would be to say, "There
are shortages in these areas"—and there are shortages
of provision in this country—"therefore, we will set
up a pharmacy. We will insist that ASDA sets up a pharmacy."
Andy Burnham: It is a blunt one, but I still
think it is a planning instrument.
Chairman
58. Sue Sharpe was indicating some dissent.
(Ms Sharpe) If I could just support the very last
point. That is that on their proposals we can use this blunt instrument,
sharpen it up a little bit, to ensure that we actually are able
to use it as a positive vehicle for planning where we do need
to have new or enhanced services. But the point on which I was
shaking my head was that the purpose of the introduction of entry
controls in the first place was to ensure that we had a cap on
expenditure on pharmacy services to achieve precisely the point
we are talking about here now, which is to get best value for
the taxpayer and to ensure that we did move away from a completely
unplanned service. The large numbers of pharmacy increases really
occurred when it was known that entry controls were about to be
introduced. That was a result of it being known that entry controls
were about to come in and the time lag between that being announced
and it actually happening.
Sandra Gidley
59. I want to pick up on some of these points
that have just been made actually. The supermarket pharmacies
are being painted as the villain of the piece, which I think is
quite unfair if we look back to why controls were introduced in
the first place. It was not just about the remuneration system.
My recollection of what was happening at the time was that a company—and
I will name it—Lloyds Pharmacy, were indulging in something
called "leap-frogging": opening up between an existing
pharmacy and a doctor's surgery, creaming off a lot of the business.
What assessment has the OFT made of whether we are likely to see
a resurgence of that if controls are deregulated?
(Mr Johnson) We received quite a lot of representations
during the course of our report about leap-frogging from existing
players in the market. We did look at the effects that might be
caused by deregulation. I think the first thing I should say is
that having the pharmacies where they are at the moment is largely
a result of the pre-1987 pattern of pharmacies where there was
this leap-frogging and since 1987 the market in terms of geography
has been reasonably static. Therefore a large amount of leap-frogging
that can occur has occurred already before 1987. For example,
about 75% of GPs already have a pharmacy within 300 metres, so
there are lots of pharmacies clustered around GPs already. Secondly,
leap-frogging will be limited by obviously costing more—the
cost of moving a pharmacy, the space costs, planning costs. There
are costs like this that will obviously be involved. Furthermore,
part of the reason for leap-frogging before 1987 was the remuneration
system, which encouraged small, low-volume pharmacies to come
into the market and chase round after small numbers of scripts.
The remuneration has changed since and I believe that leap-frogging
will not be such a problem following deregulation.
(Mr D'Arcy) I want to take issue with that particular
point. From our perspective we are not in the least convinced
that leap-frogging will not be there. It seems to me that the
OFT have not factored in the importance of getting hold of NHS
prescriptions for pharmacy viability and it seems to us that leap-frogging
will be as omnipresent post-deregulation as it was prior to 1987.
There is nothing in our view that will stop it. I think the OFT
report makes a point that suggests that if there is a pharmacy
already within, I think, 300 metres of a GP surgery that will
stop leap-frogging. It is simply not the case. Pharmacies will
move. You will get clustering of pharmacies around GP surgeries
or, indeed, in GP surgeries, and you will get pharmacies in areas
of high foot-fall. That will give us exactly the position that
we have talked about earlier in terms of movement of pharmacies
away or make pharmacies vulnerable within needy local communities.
That will prejudice access.
(Ms Colling) Just to echo that, really, the distance
between a pharmacy and a GP is only safe for that pharmacy's business
when it is zero. At 300 metres there is plenty of opportunity
for leap-frogging to occur. I agree completely with John: I am
sure it will be absolutely widespread should these regulations
be abolished.
(Mr May) We do touch upon this in the report in paragraphs
5.29 onwards, if people would like to look at that. The point
is that if there is already a large number of pharmacies near
GPs—as all the evidence suggests there is—then in
order to set up a new pharmacy you have to be convinced you can
take customers away from those who use the existing pharmacy.
To do so, you have to be able to offer a better service. You cannot
compete on price for most of the business because the business
is fixed. It is a fixed price prescription.
|
