APPENDIX 8
Memorandum by Lloydspharmacy (PS10)
EXECUTIVE SUMMARY
1. The purpose of the current control of
entry regime for community pharmacies is to achieve a rational
distribution of pharmacies, thereby ensuring that all patients
have convenient access.
2. This protects many vulnerable patients,
such as the elderly, those in rural and deprived areas and those
on lower incomes who might otherwise find it difficult to get
to a pharmacy.
3. Lloydspharmacy is concerned that the
recommendation made by the OFT will not operate to serve the interests
of patients but is likely to prove detrimental to that aim.
4. We see little evidence that the OFT has
taken account of the position of pharmacy in a wider public policy
context, despite its claim that it "remained mindful of the
public policy objectives".
5. Deregulation could particularly endanger
the provision of certain services, such as methadone and needle
exchanges, emergency contraception, and new offerings such as
diabetes, cholesterol and blood pressure testing. There is little
evidence of the willingness of supermarkets to undertake these
new services.
6. A major expansion of the number of pharmacies
would have serious pharmacy workforce implications in the UK,
with knock-on consequences of labour market shortages for patients,
businesses and the NHS, such as salary inflation.
7. We estimate that a pay increase of less
than 6% for hospital pharmacists would cost the NHS more than
£11 million a year, exceeding the savings to the NHS that
the OFT claims would result from deregulation.
8. The OFT report finds that the pharmacy
market is currently working well for patients, that levels of
access to community pharmacy are currently very good, that customer
surveys indicate high levels of satisfaction and that there is
no evidence of excess pharmacy profit.
9. Before considering any reform, Lloydspharmacy
strongly urges the Government to conduct robust and comprehensive
research on the likely impact on public health provision.
10. While we accept that the current regulations
governing pharmacy contracts do not always operate perfectly,
we would stress the importance of their primary objective which
is to protect the public interest.
Lloydspharmacy is the largest community pharmacy
operator in the UK, with over 1,300 pharmacies located mainly
in the community and health centres. We place a great deal of
importance on the concept of "social pharmacy"—the
notion that pharmacy should operate across the health and social
care divide and should lie at the hub of the local community.
We strongly believe that community pharmacy, with its comprehensive
network of trained healthcare professionals across the UK, could
play a greater role in supporting and furthering NHS priorities.
1. Findings of the OFT report on control of
entry
The purpose of the current control of entry
regime for community pharmacies is to achieve a rational distribution
of pharmacies, thereby ensuring that all patients have convenient
access. This protects many vulnerable patients, such as the elderly,
those in rural and deprived areas and those on lower incomes who
might otherwise find it difficult to get to a pharmacy. Overall,
the Office of Fair Trading (OFT) report on control of entry finds
that the pharmacy market is currently working well for patients
and found no evidence of excess profits for pharmacy companies.
It would seem logical that any recommendation for major policy
change would require at the very least sufficient evidence of
a need for change: nevertheless, it appears clear that the current
system operates in the patients' interests.
2. Lloydspharmacy's response to the OFT
Lloydspharmacy believes that the OFT's recommendations
pose a significant threat not only to patient access to pharmacy
services but also to the delivery of a number of the Government's
key public policy objectives in which pharmacy plays a role.
We are concerned that a major expansion of the
number of pharmacies would have a very negative impact on the
pharmacy workforce in the UK, with the knock-on consequences of
labour market shortages for patients, businesses and the NHS.
We do not believe that the OFT's presumption in favour of deregulation
is appropriate, given the specific characteristics of the pharmacy
market (not least fixed prices for prescription medicines) and
are concerned that a number of potentially serious economic consequences
stemming from deregulation have not been taken into account. Furthermore,
we believe that the cost savings identified by the OFT, both on
OTC medicines and for the NHS and businesses, are based on questionable
and selective use of data and as such are exaggerated.
3. Community pharmacy—supporting the
NHS
Community pharmacy is a key part of healthcare
provision in the United Kingdom. As well as being generally accessible,
pharmacies are staffed by highly trained professionals who are
able to provide expert advice not only on medicines, but also
on the treatment of minor ailments and the management of more
serious conditions. As recognised in many Government documents,
from Pharmacy in the Future to the Wanless Review,
the role of pharmacists in the delivery of healthcare is likely
to expand considerably over the coming years, to include services
such as medicines management programmes for long-term conditions,
increased autonomy in repeat prescribing, the electronic transfer
of scripts and enhanced responsibility for the delivery of the
National Service Framework programmes covering areas such as diabetes,
older people, coronary heart disease and mental health.
Lloydspharmacy already offers a wide range of
such services, including indicative diabetes testing and weight
management advice for diabetes patients, blood pressure and cholesterol
measurement, and smoking cessation services. We are committed
to developing these services and see them as part of our core
business. Nevertheless, the OFT report does not examine pharmacists'
role in the provision of advice to patients but rather gives disproportionate
weight to price competition for OTC medicines (sales of which
represent only 20% of pharmacy income).
Deregulation of control of entry is likely to
cause severe disruption to community pharmacy and could potentially
endanger the delivery of enhanced services, as envisaged by the
Department of Health, unless it goes hand-in-hand with reform
of the system of remuneration.
Unfortunately, the issue of remuneration is
not addressed by the OFT report, which approaches pharmacy as
a typical retail sector. We do not believe that the Government
would be acting responsibly if the OFT's recommendations were
implemented without trying to find a solution to the remuneration
issue at the same time. Thus the obvious route would be to take
into consideration the OFT concerns within the current embryonic
discussions surrounding a new pharmacy contract.
4. Quality of service provided by community
pharmacy
The OFT report argues that the main benefit
to patients of deregulation would be reduced prices on OTCs, but
it also gives some consideration to "non-price competition".
This is a particularly crucial section of the report—in
Pharmacy in the Future, the Government made clear that
it would consider removing control of entry if it could be demonstrated
that it was acting as a barrier to better services.
The report suggests that as they compete for
business, pharmacies will improve services like private consulting
areas, extended hours and home delivery. This is not borne out
by experience with supermarkets, which effectively offer competition
to existing community pharmacies in certain areas where people
may choose to fill a prescription whilst doing the weekly shop
rather than using the local pharmacy store. Thus far, supermarkets
have not in general established proper consulting areas nor have
they adopted new services, either due to lack of space or lack
of commercial motivation.
In relation to more challenging services such
as blood sampling, diagnostic testing, needle exchange and methadone
programmes, there appears to be little evidence of the willingness
of supermarkets to take on these extended roles.
The empirical basis of the OFT's research on
non-price competition did not stand up to scrutiny—in particular
the response rates were on occasions so low as to be statistically
insignificant. Lloydspharmacy therefore strongly urges the Government
to conduct quality market research into this aspect of the pharmacy
market before undertaking any policy changes.
5. Maintaining access to community pharmacy
The OFT's report assumes that the entire population
has similar healthcare needs and similar ability to access healthcare
provision. This is clearly not the case and it is important to
give greater consideration to certain groups of vulnerable patients—notably
those with mobility problems, many of whom have greater healthcare
needs than the general population. We do not believe that the
economic modelling undertaken by the OFT has looked closely enough
at the specific characteristics of certain population groups.
The effects of deregulation on socially deprived
neighbourhoods, which have specific healthcare needs, which are
unlikely to see the opening of new supermarket pharmacies and
which would probably see access to pharmacy services deteriorate,
are likely to be particularly severe.
The Government recognised in its Neighbourhood
Renewal Strategy the importance of local access to a range
of outlets, including pharmacies, and the negative impact that
the closure of those outlets can have on local communities, forcing
people to travel further and pay more for their services. Furthermore,
the strategy recognises that poor public transport is an additional
obstacle, particularly in outlying areas. The importance of these
issues has been further highlighted in recent months by the New
Economics Foundation in its report, Ghost Town Britain.
6. The impact of deregulation on the pharmacy
workforce
The OFT has not adequately examined the repercussions
of the workforce shortage facing the pharmacy sector and the effect
that its deregulation proposals would have. Both the community
and hospital pharmacy sectors are currently experiencing recruitment
problems.
If mishandled, deregulation could cause acute
labour market distortions affecting the recruitment of pharmacists
by both community pharmacies and the NHS.
This could potentially result in even more acute,
localised shortages of pharmacists, inflated salary costs for
both the community and hospital pharmacy sectors, and enforced
closures of some pharmacies because of increased costs and an
inability to recruit. Deregulation could potentially leave large
areas of the country with serious pharmacist shortages—"pharmacist
deserts". Further research is urgently needed to establish
how serious this problem would be. Deregulation should not proceed
unless the effects on the pharmacy workforce are properly understood.
The OFT estimates that deregulation would result
in 400-500 additional supermarket pharmacies. It is likely that
this would require the recruitment of between 1,200 and 1,500
additional full-time pharmacists, not to mention technicians and
support staff. An alarming possibility is that new market entrants
would simply pay higher salaries to recruit the pharmacists they
need. It is particularly likely that supermarkets, which benefit
generally from the increased footfall generated by an in-store
pharmacy and from more flexible margins, would be prepared to
take this approach.
It is difficult to estimate precisely what the
increased costs would be, for example on NHS pharmacy, but based
on an assumed total of 5,979 hospital pharmacists at an average
salary of £32,500, the cost to the NHS of implementing a
market-led pay increase would be significant (see table). We estimate
that a pay increase of less than 6% for hospital pharmacists would
result in increased costs to the NHS exceeding the savings to
the NHS that the OFT claims would result from deregulation.
| Percentage increase
| Additional cost to the NHS[20]
|
| |
| 1% | £1,943,175 |
| |
| 2% | £3,886,350 |
| |
| 3% | £5,829,525 |
| |
| 4% | £7,772,700 |
| |
| 5% | £9,715,875 |
| |
| 6% | £11,659,050 |
| |
| 7% | £13,602,225 |
| |
| 8% | £15,545,400 |
| |
| 9% | £17,488,575 |
| |
| 10% | £19,431,750 |
Furthermore, anecdotal evidence suggests that many of the
areas experiencing pharmacist shortages also suffer from problems
recruiting GPs. This is very worrying, given the Government's
objective of using community pharmacies to take pressure off GP
services.
If deregulation were to lead to further pharmacist recruitment
problems in areas where GP recruitment is already a problem, or
where GP services are already overstretched, the local delivery
of healthcare could be seriously impaired.
We believe that the Government should conduct systematic
research on this issue as a matter of urgency to ensure that gaps
of this kind do not open up in healthcare provision.
7. Cost Savings to NHS
According to our own estimates, the cost savings to the NHS
would total only £2.68 million a year, and the costs to businesses
would be only £1.2 million a year. In relation to cost savings
on OTC medicines, we have not been able to replicate the OFT's
own estimate due to the unsourced data used by the OFT. We have
therefore been unable to properly test the validity of the OFT's
findings, but believe their figure to be an overstatement as it
is based on a restricted basket of products and an unrepresentative
period of study. Overall, we therefore believe that the £50
million total cost savings estimated by the OFT are significantly
overstated, possibly by as much as four or five times. Indeed,
this figure does not take into account the likely increased costs
to patients, the NHS and businesses associated with deregulation
itself. For example, workforce shortages resulting from a major
expansion in the number of pharmacies could easily result in costs
to the NHS exceeding all of the likely cost savings from deregulation.
8. Conclusion
We believe that the approach of the OFT in producing this
report has been to adopt a general presumption in favour of deregulation.
Although this may be appropriate for many markets, we do not believe
that the OFT has taken account of the particular characteristics
of the pharmacy market which make it inappropriate for such an
approach.
The OFT report on control of entry in the pharmacy market
has potentially significant implications for patients and the
NHS. Lloydspharmacy has concerns about both the rationale and
the evidence presented by the OFT. In particular, we do not believe
the report pays sufficient attention to the effects of deregulation
on the capacity of community pharmacy to deliver new and enhanced
services; the impact of deregulation on access to pharmacy services
for vulnerable patients; or the consequences of deregulation in
light of current workforce shortages.
We are concerned by the quality of the data and market research
on which the OFT's recommendations are based and strongly believe
that the cost savings for the NHS, consumers and businesses identified
by the OFT are over-stated and highly contestable.
Although we recognise the difficulties inherent in the current
regulatory structure, it is essential that any move to deregulation
is based on robust evidence and full consideration of the consequences.
Furthermore, deregulation is only likely to succeed if it goes
hand-in-hand with reform of the system of pharmacy remuneration.
20
It should be noted that the estimates in this total relate to
salary costs only, and do not include the costs of benefits such
as pensions. Back
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