THURSDAY 3 APRIL 2003

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Members present:

Mr David Hinchliffe, in the Chair
Mr David Amess
Andy Burnham
Mr Simon Burns
Jim Dowd
Julia Drown
Sandra Gidley
Siobhain McDonagh
Dr Doug Naysmith
Dr Richard Taylor

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Memoranda submitted by Pharmaceutical Services Negotiating Committee, National Pharmaceutical Association, ASDA, National Cooperative Chemists Ltd

and Office of Fair Trading.

Examination of Witnesses

MS SUE SHARPE, Chief Executive, Pharmaceutical Services Negotiating Committee, MS LIZ COLLING, NHS Development Manager, Cooperative Pharmacy Community Technical Panel, National Cooperative Chemists Ltd, MR JOHN D= ARCY, Chief Executive, National Pharmaceutical Association; MR JOHN EVANS, Superintendent Pharmacist, ASDA, MR JONATHAN MAY, Divisional Director, Officer of Fair Trading, and MR MATTHEW JOHNSON, Economist, Office of Fair Trading, examined.

Chairman

Colleagues, could I welcome you to this session of the Committee, and particularly welcome our witnesses. Could I place on record our thanks for your participation in this inquiry and for the written evidence we have received from witnesses and from a number of other interested individuals and organisations. Could I ask you each briefly to introduce yourself to the Committee.

(Ms Sharpe) Sue Sharpe. I am Chief Executive of the Pharmaceutical Services Negotiating Committee that specifically represents community pharmacists in their provision of NHS services.

(Ms Colling) Liz Colling from National Cooperative Chemists, Community Pharmacy Contractor.

(Mr D= Arcy) I am John D= Arcy from the National Pharmaceutical Association. We represent the owners of community pharmacies throughout the UK.

(Mr Evans) I am John Evans. I am the Superintendent Pharmacist for ASDA Stores Limited.

(Mr May) I am Jonathan May. I am a director of the Office of Fair Trading, responsible for this and a number of other market studies.

(Mr Johnson) My name is Matthew Johnson, I am a team member on the OFT pharmaceutical inquiry.

Could I begin by asking the OFT witnesses to tell us a bit about the background as to why you undertook this inquiry and produced this report. What were the reasons?

(Mr May) Very briefly, the Government has said that the way regulations/legislation impacts on markets and consumers is an issue of some importance. It has said this in a number of White Papers, most recently in the Competition White Paper, and it has asked the competition authorities, the Office of Fair Trading and the Competition Commission, to look at regulatory issues and make recommendations. The Government has said that if we do that then it will be committed, in a sense, to responding to our recommendations. The set up is very clear: we, in a sense, look at the market, we cover those kind of issues which we think are consumer and competition related and obviously we will have a view on that - and we have a view in this area - and then it is for ministers and Government to decide what to do with those recommendations. Clearly they can accept them, they can reject them or they can, in a sense, do something in between. That is the set up. The reason why we looked at the pharmacy market is because it is clearly a very large market. It is of great importance to a whole variety of people in the country - everyone has a prescription at some time dispensed to them - and we have this particular system of control of entry into the market and, in theoretical terms at least, entry controls you would normally expect to make markets work less well because they are restricting the freedom of people to enter and exit.

How did you go about the inquiry? How did you compile your report?

(Mr May) We did a number of things. Clearly we talked to all the major stakeholders, the specialists, the experts, the individual pharmacists, the multiples and some of the supermarkets, and then we did a series of background work, one of which was a consumer survey, where we asked people, for example, who had had a prescription dispensed over the last six months a series of questions about, for example, why they used the pharmacy they did, what they thought about it. We carried out a survey of pharmacists themselves, all kinds of pharmacists to see what kind of services they offered and so forth. We did a fairly extensive and quite complicated kind of mapping exercise of the location of pharmacies and how things have changed, and then we did some scenario planning, if I may put it that way, looking at A what would happen if something happened@ .

Did your work include spending time within a community pharmacy to see exactly what happens? A couple of years ago, I spent two and a half days in community pharmacies in my area and learned a great deal about the extent to which health advice is given to people by pharmacists. Is that an issue you looked at? Would you be able to indicate how much health advice is given by pharmacists freely and perhaps have any calculation, any estimate, of savings to the NHS which occur as a consequence of the advice given in community pharmacies?

(Mr May) Could I give you a general answer to that question and then, perhaps, Matthew could say something, if that is all right with you. We recognise quite fully the importance of pharmacies, in a sense, as a front line in offering individuals advice - and that is instead of going to see the doctor and so forth. I am aware, because I go to pharmacies from time to time, that one can actually ask them for advice and that is very helpful. We are well aware that in some countries actually the role of pharmacies is much greater: they are used as an alternative to going to see a GP and they can dispense medicines, say, which in this country only GPs can. We are fully aware of the importance of that role and the value which people attach to it. I think that comes out in our report - at least I hope it does. Perhaps I could ask Matthew to add something.

(Mr Johnson) In the course of the inquiry, members of the pharmacies team did visit various different pharmacies of different sizes. Also pharmacists from the different groups - from the supermarket group to the larger multiples, to the very small chains - came into the OFT and gave us their views and opinions. To get a wider picture of the pharmacy market, we also looked very closely at the trade press and all the other information that surrounds the pharmaceutical market.

Bearing in mind we are told that the Treasury are quite supportive of the arguments you have put forward, looking at it the other way round, did you come up with any estimates of what the Treasury saves as a consequence of the current role of community pharmacies in giving people free health advice within their shop?

(Mr Johnson) No, we did not. I think it would have been impossible.

Can you give a guesstimate? It is clearly a factor that must be brought into the discussions we are having.

(Mr May) I think it is fair to say that I have seen, in a number of publications, estimates of the time, the importance of the time spent and the value it has in terms of relieving pressure on GPs most particularly. I think I have seen some figures attached to it, although, I do apologise, I cannot for the life of me think what those figures are. Certainly we would accept that they play a very valuable role in giving advice.

I do not know whether any of the other witnesses from a different perspective can answer that specific point. It is a fairly important point. Ms Sharpe, is it anything your organisation has looked at?

(Ms Sharpe) In terms of hard evidence, I do not think that we have the collective picture. I think probably the most useful figure would be the figure that has been given of the amount of time that pharmacists can save on repeat dispensing, if they take that workload away from GPs, and the figure given was 2.74 million GP hours, which equates to very many hundreds of millions of pounds to the NHS simply on that one specific service, leaving aside the areas of advice that you are picking up. But I am afraid I have not got a full figure.

Could I come back to you, Mr May. Your report talks about A ... entry restrictions to any market result in prices being higher, innovation lower and quality of service poorer.@ Would you say it is appropriate to apply such market logic to a sector which is an integral part of the NHS and where performance criteria cannot be measured simply in terms of price?

(Mr May) I think it is certainly an appropriate criterion to apply. As I explained earlier, Chairman, in a sense we look at the issue from one perspective and then clearly ministers will look at the issue from a much wider perspective. I think it is fair to look at it in that regard, firstly, because, in a sense, people are consumers when they use pharmacies: they go there to do more than just get their prescription dispensed to them. Secondly, private businesses and private individuals run pharmacies: they make decisions on investment, whether to stay in business, whether to expand, whether to pull out. These are all what you might call market decisions, so I think it is perfectly proper and I think it is enlightening too, in a sense, to apply that kind of analysis or thought process to the problem. I would say that is our role - and I hope we have done it reasonably well - but clearly there are other factors. In setting up this system, I explained in the beginning, it is quite clear to us and it is quite clear to the Government that our role here is to make recommendations, is to look at markets, and then it is for ministers to apply those wider policy considerations of which, clearly, in the health area there are very many. I do not think I would say that we should not look at this kind of market.

You mentioned the steps you took, the surveys you undertook. What view do you have of the public need for changes that you are proposing? Also, what feeling do you have of the public support, if any, for the direction of travel that you are suggesting?

(Mr May) I will try to answer that in two bits. It is clear from looking at Government thinking in this area, the proposals on pharmacies, that they want to see changes in terms of service provision, they want to raise, in a sense, the quality and the kind of things that pharmacists do for people. We know from the surveys we did, for example, that some pharmacies will provide what we might call better kind of services - I mean to say that they will have longer opening hours, they will have a consultation area, they will deliver medicines to the home. These are all very important things in terms of wider health policy. It is quite clear that people value that. Therefore one might say that the Government is clearly looking for change and one can also see that in terms of pharmacy provision across the patch in some areas it is poor and in some areas it affects the more deprived and the older groups, for example. So I think that is certainly the case.

(Mr Johnson) You asked about what support there was from consumers. There has been a clear published response from the Consumer Association and the Scottish Consumer Council. They have both come out strongly in favour of the report.

Dr Taylor

One of the many, many letters I have had has raised the question of the credibility of the report at all. Is it true that the Director General of the Office of Fair Trading was recently a highly paid consultant for a supermarket chain?

(Mr May) John Vickers I think has made the position on this clear. When he was not the Director of Fair Trading, when he was an academic at Oxford, I think, which is going back some years, he did advise supermarkets on, I think, the merger. Recently, when, as I am sure you are all aware, there was this case about taking over one of the main supermarket chains, he took the decision to pull out of any part of the decision-making process. He felt that in this case, whilst obviously supermarkets are involved, the involvement is, in a sense, a small part of the overall picture and therefore he did not think - and I think the advice we had - he did not need to pull out. I think it is very important we accept that.

So we can be assured that he has no connection with supermarkets now.

(Mr May) Oh, yes.

Mr Burns

Could I pick up on the point Mr Johnson just made, that the Consumer Association and the Scottish Consumer Association have expressed support for the OFT report. On what do they base their support? Is it on their view or have they consulted consumers? Because every Member of Parliament around this table has an electorate on average, I suspect, of somewhere between 69,000 and 75,000. I have 76,000. All voters are, by definition, consumers as well. I have already had petitions with just under 4,000 of my constituents signing petitions against the OFT report. That is about five per cent of my electorate. I can assure you that the other 95 per cent, if they have a view, will not necessarily agree with your report. On what basis have the Consumers Association come up with a view supporting your report?

(Mr May) I think -----

I was hoping Mr Johnston would answer, since he made the statement.

(Mr Johnson) Okay. Obviously the Consumer Association is there to represent its members, which are obviously consumers, and more generally to represent consumers in this country. That is the whole point of the organisation.

Yes, I understand that.

(Mr Johnson) I understand that there has been feeling on both sides. Obviously many MPs have received -----

No, I am sorry, could I go back. The statement that the Consumers Association broadly supports the OFT report, is that based on their view as a body or have they consulted consumers before that view? Because it is two different things.

(Mr Johnson) You would have to ask the Consumers Association.

So we need not take at face value then that consumers, through the Consumers Association, necessarily support that.

(Mr Johnson) Yes, I do understand that they did consult consumers through a survey.

They did.

(Mr Johnson) Yes, the Consumers Association did consult consumers through a survey.

And do we know how many?

(Mr Johnson) We do not know how many.

Julia Drown

In terms of quality of service and level of innovation, how much would you say your report was looking at that? In so far as you did, do you have any concrete evidence to suggest that your recommendations would actually improve innovation or service delivery if pharmacies were de-regulated?

(Mr May) In general terms, if people want to enter a market and go through the raising of capital, finding some way to do it and so forth, they clearly believe that they can meet a demand, they can satisfy consumers in some way. In a market like pharmacy, where there is a large number of pharmacies, clearly, in order to do that, they have to think they have something particular to offer. It may be an area where there is an absence of adequate pharmacy services, for example, so they would be adding to the pot of pharmacy services. They may think they can offer, let us say, better services in terms of helping patients or maybe in the services they give to patients: after hours delivery, repeat prescription help and that kind of thing. They may offer better consultation, they may offer better opening hours. There is a whole variety of things. In the markets, it is people coming in and people going out which tends over time to lead to change. I think we can see that. We can see that, for example, in some areas - and it is only in some areas - in quality of service the supermarkets have the potential to offer, say, longer opening hours. There always is a problem, say, at the weekend, almost wherever you are, in terms of getting access to a pharmacy. There is normally one which is available, but it may not be very convenient. For some people, if a supermarket had a pharmacy and it was open that would be a big improvement. But there is a variety of ways in which this can happen.

There are also examples where people get into a market to push other people out of the market and then consumers end up with a worse service overall.

(Mr May) Clearly that is possible.

In terms of concrete evidence that deregulation would improve it, do you have any concrete evidence?

(Mr Johnson) If you are looking for concrete evidence of competition increasing in service quality, at paragraph 4.66 of the report some econometric modelling is done by our consultants. That shows that pharmacies are more likely to open before 9 am if there are more pharmacies per GP in their area, and that is obviously a reasonable proxy for competition. Also pharmacies are more likely to offer a consultation area if there are more supermarket pharmacies in their area, and again that is a reasonable proxy for competition.

Sandra Gidley

The report also seems to indicate that supermarket pharmacies are less likely to offer things like home delivery and, again, there is a number of other examples in the report. If you de-regulate the market, potentially so that there are more supermarket pharmacies, you are not guaranteeing a better service because the law of averages seems to indicate that there will be a reduced service.

(Mr May) We tried to look at quality of service with a series of proxies. One was the consultation area, the second one was opening hours and the third one was home delivery. If you look at the figures, you can see that the independents and the supermarkets score highest in terms of consultation areas, which is interesting if you compare with the multiples, for example - and consultation areas are clearly important for patients who may want to consult with their pharmacist. Supermarkets offer less, obviously, if you look at the chart we have there, in terms of home delivery, although it is worth noting that they probably offer a higher proportion than do multiples to patients in need. In terms of the third quality or service standard at which we looked, which is opening hours, clearly supermarkets would tend to be open longer.

But if you have more supermarkets, you have a bigger demand on pharmacists. This may be something which we will come back to later. There are only so many to go round.

(Mr May) Yes.

You cannot guarantee that the more supermarkets that are open, they will have longer opening hours, because they simply will not be able to staff them.

(Mr May) No, but if, for example there is a shortage of pharmacists - and I am sure we all accept there is - there is a number of ways in which that can be improved. (i) they can be training more; (ii) you can try to attract pharmacists from other parts of the world - as I believe has happened; (iii) if there is a demand for more pharmacists then over time you would expect more people to want to become pharmacists and therefore to train to do so.

Dr Taylor

Could I ask Mr Evans specifically, as the boss of the ASDA services. One of, again, the many, many letters I have had actually asks questions and I want to ask if your supermarket would be able to do this: Who will dispense free of charge Miss J= s (a middle-aged mental, confused patient) compliance aid every week? Who will collect and deliver the same day, free of charge, to Mr B (an elderly difficult gentlemen) who constantly runs out of medication? Who will dispense Mr K= s dexamphetamine tablets, Ms W= s methadone? Who will dispense 30 compliance aids each month free of charge to domiciliary homes? Who will visit housebound patients free of charge? Who will dispense and deliver urgent prescriptions to local nursing homes? Are those the sorts of things we can expect supermarkets to take over? Because they are done already by the local pharmacies.

(Mr Evans) I think there are two points there. First of all, most of the services you have mentioned our supermarkets are already doing. Home delivery is what we do not do very much of, but there is no reason why we could not do it in the future - one store does it quite a bit but not very much. I think you are making the assumption that supermarkets would take over these roles from other pharmacies. I am not sure if I agree with that. I think that if the market were de-regulated, more pharmacies would exist rather than less pharmacies, so the current pharmacies out there would still be there. It is not about opening up supermarket pharmacies and closing down other pharmacies. That is not the case.

I think that raises an absolutely basic point. One of the fears of people is that opening more in supermarkets will kill off the local pharmacies.

(Mr Evans) I think it is an important point that we discussed - in our view, it is the crux of this whole thing. It is important to keep the emotion out of this because most of the petitions I have seen have been saying, A If a supermarket pharmacy opens up, then my pharmacy will close.@ If that was the case, I would sign that petition too. But I also have a petition here, which I was given this morning, from Slough, with 4,000 names on, collected in the last five days, which says A I would support the OFT= s recommendation to put a pharmacy in this ASDA store.@ It does not follow that petitions obviously represent the people in all the constituency. However, the point you are making, which we think we need to discuss, is: If deregulation happens it will close down small pharmacies? We do not believe this is the case. Why do we not believe that? There are two independent bodies, and we have discussed them already. The OFT, first of all, thinks that opening up the market to newcomers will actually bring in more pharmacies than will close down pharmacies. Secondly, the Consumer Association has made an observation, based on what evidence shows and not the CA, that they heard the same complaints being made from the current contractors when price fixing of medicines went, when RPM went, and not one pharmacy has closed down that I am aware of. In fact the number of pharmacies in the UK has remained constant for the last 16 years at just over 12,000. Finally, the most important thing is that before 1985, in the five years before 1985, the number of pharmacies in the UK on average raised by over 130 pharmacies every year. That is the net number of pharmacies that were opened. If that was the case, how can pharmacies be closing in the future? People might say that the amount of businesses is going down but actually there were 40,000 prescriptions dispensed in 1990 and there were 56,000 prescriptions dispensed last year, which is a 38 per cent rise in prescriptions, so the work is getting more. Thirty-eight per cent more prescriptions dispensed by the same number of pharmacies.

Is the pharmacist profession not under-subscribed? Is there not a shortage of pharmacists, therefore will they not be attracted to the bigger centres and taken away from the smaller ones? Is that not a risk to the smaller ones?

(Mr Evans) Yes, it could be. The Society= s register shows there are 40,000 pharmacists registered in this country. (There are more but they are working abroad.) Out of those 40,000, one in five of those is not doing pharmacy, so the problem we have as a profession is that we do not make the profession attractive enough. There is a paper by Professor David Taylor called Fulfilling the Promise which talked about how pharmacists were fed up with the jobs they have to do. Pharmacists are just too busy, they are just too busy dispensing, and we have to share this workload around. We have turned our pharmacies into dispensing factories and our pharmacists into dispensing machines. That is why they are leaving the profession. We have to make the profession more attractive for young pharmacists to stay in. It is an important point.

Julia Drown

I understand the total amount of money that is going out to pharmacists for prescribing does not go out in the same proportion as the increase in prescriptions.

(Mr Evans) That is right.

There is limit there, a limited pot, in terms of the money that is needed -----

(Mr Evans) Yes.

-- to support pharmacists across the country. It sounds great when you say a 38 per cent increase in dispensing because it sounds like there would be loads of money to go round and it will support more pharmacists, but, if there is a fixed pot, there is not. That does then raise a serious concern about how those community pharmacists would survive if there were more pharmacies around which to spread that fixed pot of money.

(Mr Evans) I think you are correct. The global sum is a fixed amount negotiated each year by the PSNC and the Department of Health. I guess Sue Sharpe is more knowledgeable than I am about this. However, it has gone up by about 2.7 per cent a year in that same 10-year period, so the global sum is also increasing.

Is that 2.7 per cent in real terms?

(Mr Evans) Those are figures I obtained from PSNC yesterday.

I see some shaking of heads.

(Ms Sharpe) The annual increases are increases in the cash sum available in the global sum. Expressed as a fee per prescription, the trend has been very regularly and continuously downwards in the last 12 years.

Overall it has been broadly kept in line with inflation?

(Ms Sharpe) Broadly.

(Mr Evans) Yes.

So there is not more money to support lots more pharmacists.

(Mr Evans) The number of prescriptions is going up and the global sum is also going up.

That is just creating more work, is it not? If there are more prescriptions but no more money to dispense them.

(Mr Evans) The item fee per item has come down, yes, it has. The contract is being renegotiated next year - in 2004, hopefully - and you will find the dispensing fee probably is not as much as it is now. We pay more for services by pharmacists rather than just dispensing. Dispensing in future, I think, will be a smaller part of pharmacy than it has been in the past.

That is the model you think will then support more pharmacies across the country.

(Mr Evans) In the press, the pharmacy press, yes, it is the case.

Is that view shared?

(Ms Sharpe) Our principal concern is to ensure that the use of pharmacists and the use of pharmacy NHS services is a planned service and that we make sure that we do not end up with the risk that this very finite pot - which meets taxpayers= needs, to have a finite pot - is spent unwisely and is not spent in a way that ensures delivery of the best claim. We are, as was just said by John, negotiating a new pharmacy contract, but we have no illusions that the taxpayer is going to want to make sure they are getting best value out of the funds that are coming to community pharmacy. Our case is that they get best value within a planned service, and not within the picture we are getting of an increase in numbers of pharmacies in unplanned localities.

Somebody - it was, perhaps, Mr May - said there was evidence that if there were more pharmacies you would get more opening before 9 am.

(Mr May) That was the evidence of our small survey.

Did you look in your work at the nominal hours that pharmacies are open but then actually they have to close, for one reason or another, on a temporary basis. Did you look at the comparison between supermarkets and when they were not able to deliver with independent pharmacies?

(Mr Johnson) I am not sure that I completely understand the question.

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. We certainly had that happening on occasion, and 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 per cent 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 not think we can make major improvements to the regulatory framework; the issue is whether there should be a regulation 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

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 ------

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

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

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?

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.

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

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.

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.

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.

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 first off but that increase will settle down because the market, as we have already established, is elastic. It is not going to go in the way it is described. There will be a bigger 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 per cent 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 threats 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 very concern. It is concern about local services to local communities.

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 that balanced package message 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

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 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.

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 ------

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

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.

These are a planning mechanism, surely.

(Mr May) I think they are a negative planning mechanism. They do not allow you to say, A 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, A There are shortages of services, there is a problem.@

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 ensure 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, A There are shortages in these areas@ - and there are shortages of provision in this country - A 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

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

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 A 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 per cent 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.

Could I take issue with A a better service@ . Some people will just go into the nearest pharmacy to the doctor.

(Mr May) Some people will and some people will actually look for other things. The debate we have been having today is on all these services people look for from pharmacies: consultation, getting advice and so forth. Either that is important or it is not. I think it is important.

(Mr Evans) I think it happens anyway, if there is a pharmacy close to a surgery now. Many patients will go to their nearest pharmacy whatever the service is like, whatever the waiting time is like, because it is convenient for them. I think that is the difference. I think leap-frogging possibly will happen, but is that a better service for the patient? That is what has to count. Is the patient getting a better service from that or not?

I want to come back to which pharmacies are most vulnerable. There have been assumptions in some of the submissions we have had that the supermarkets will effectively have a greater impact on the pharmacies closest to a supermarket. But, if I may just quote a local example, a pharmacy in a village, just about viable but extremely worried that if the supermarket in the nearest large town opens up it will just tip it over the edge to become unviable. How many pharmacies in that position do you think there are in reality?

(Mr D= Arcy) It is very, very difficult to give any degree of accuracy on this because you are trying to second-guess what might happen. Sue might want to pick up on this, but estimates we have done, in terms of looking at vulnerable pharmacies, in terms of distance from a GP= s surgery or distance from a supermarket, find that we are moving towards a figure of around 1,000 pharmacies at risk. I do not know if you want to add in on that, Sue.

(Ms Sharpe) Yes. We have access to some geo-demographic modelling which shows that there are 858 pharmacies at present that are more than a mile already from a GP= s surgery, so they are not the pharmacist next door. They are within the catchment areas of supermarkets that do not currently have pharmacies. All we need is a 10 to 15 per cent shift of business, convenience business, away from those pharmacies and we would expect the majority of them to move from viability to unviability. I think Ms Colling has some very specific examples.

(Ms Colling) Specific to the service that we provide. We have assumed, exactly as Sue describes, there are new openers - and they are not necessarily supermarkets - into the pharmacy service provision and prescriptions in some of our pharmacies fall by 10 per cent. That would mean, for us, that six of the pharmacies which currently provide services for inner city areas would no longer be viable, and these are deprived areas, and two pharmacies that are currently in rural areas and are just about viable would be pushed into being unviable and would then therefore need ESPS to support them. That is just a picture across the 300 pharmacies that we have.

Andy Burnham

We have a difference of view again. The OFT in their report suggests that it would be pharmacies in the immediate catchment of a supermarket pharmacy that would be the most vulnerable, whereas Ms Colling has suggested that it is not necessarily the geographical proximity to a supermarket, it is more the social profile of the customer-base or the rurality of the location. From my own constituency experience, I tend towards what they are saying: if people have a car, they will travel four miles to a supermarket - and it does not really matter to them if it is four miles, two miles, whatever. Why have you concluded that the ones at risk, if there are any at risk, are the ones closest to the supermarket?

(Mr Johnson) Firstly, the consumer survey that we did showed that location was very important, therefore we looked at those pharmacies which were closest in location to the supermarkets. Secondly, in order to do the modelling which you may be proposing, which is looking at pharmacies in deprived areas and looking at the exact number of scripts there were, would be pretty much impossible to model. We have modelled a compromise. I think what you propose would possibly not be practical.

My constituency is one large town served by a number of smaller satellite towns. People shop in Mr Evans= shop from all of those towns. The potential would be that those pharmacies in those surrounding towns are at risk, not the one in the centre of Leigh which is closest to the supermarket. I do not personally see how that stacks up. I think it is the outlying ones that are actually more at risk rather than the one closest to the supermarket.

(Mr Johnson) I think that is a good point you make. In fact, in the appendix to the report, one of the case studies we have been looking at is of a supermarket entry. It looked at a supermarket entry and the effect on the seven pharmacies which were nearest to that supermarket. The effect of the supermarket entry was either small or nil on the surrounding pharmacies and none of the seven surrounding pharmacies closed as a result of the supermarket entry.

Ms Colling, you say that pharmacies will be at risk in geographically isolated and socially deprived areas. I have both those in my constituency. Are they not the ones with the biggest, let us say, captive market? Are they not the ones with the people who tend to have a lot of prescriptions: elderly people, people with chronic illness, people in the lower social classes? Are they not the people who generally put more prescription business through the door?

(Ms Colling) They are the high users of pharmacy services. I am particularly concerned that these small pharmacies serve very distinct socially deprived areas and it would not need many prescriptions to go elsewhere, as a result of out of town shopping or whatever, for the services which these pharmacies currently provide to be no longer viable. An exit from that area will then create a whole new problem about socially deprived people not having access to, not just pharmacy services, but any kind of health services in some situations.

You are worried it is the car-owning, younger families, perhaps, who would then use the supermarkets and that would affect the volumes of over-the-counter goods sold and the prescription volumes.

(Ms Colling) It is more about prescription volumes. We have modelled if 10 per cent of our prescription volume went elsewhere. I would like to stress here that it is not just about supermarkets; it is if there was a leap-frogging next to the surgery two or three miles away. If there was just a 10 per cent loss in volume, our modelling shows that some very needed pharmacies would be at risk.

Could I switch the questioning back to the OFT and refer you to planning policy guide PPG6, which, in a sense, supports the existence of the regulators that we currently have. It specifically says that local planning authorities should seek to retain post offices and pharmacies in existing districts and local centres. In a sense, that buttresses the existing control of entry regulations. Is there not a contradiction there, in saying: that is not fabricating totally deregulated markets, that is telling local authorities to be wary of the strict amount of pharmacies specifically from local centres? If the control measures were removed entirely, would that not make implementation of PPG6 difficult?

(Mr May) You may well be right, Mr Burnham, but it is not clear to me how planning authority can stop chemists or pharmacies closing down. Planning authorities can give planning permission, normally that is for changes of use or new build or something. I think we go back to the point I keep making - for which I do apologise: there are a lot of very good reasons to want pharmacy services in an area and to preserve them. The question is whether the planning permission you have quoted for the control of entry system actually does that. I think the evidence is that if it does have an effect at all, it is a very, very small one and there are a lot better ways of actually ensuring that you get service than relying on the entry control system. In our view, you are losing a lot by actually having this, in terms of innovation, choice and potentially more pharmacies opening up.

Does this boil down in the end to the balance between what you think the public interest is best served by and those of us who might say it is location and accessibility for the economically less well off groups. Or whether you think public interest is best served by some cheaper products, some better quality services? Is it ultimately a question of where you think public interest best lies?

(Mr May) I think that is a matter for you guys, politicians: you take those decisions about the public interest. Our view probably is that you could remove these controls, and that would serve the public interest in the sense that we think there would be improved access for pharmacies, lower prices and savings for businesses and the NHS.

It might serve the public interest for some sections of the public, but it might not serve the interests of other sections. Is there not a balance to be made in deciding where the public interest is best served?

(Mr May) I agree with that because you should, quite rightly, be concerned about vulnerable groups and so on; however, it is worth remembering that there are a number of vulnerable groups that are not well served by the existing set-up including the control system. There is also change going on in the pharmacy market, and there is another market for something like fifty or more businesses closing down each year, and fifty or so opening. Some people who use that pharmacy suffer now, under the existing system. You cannot, in a sense, stop the change happening; it already happens. The question is whether the system represents good value. From the way we look at it, it is not, which is not to say that there are not very, very important issues surrounding it.

Dr Taylor

Mr May, you were telling us about the consumer survey and the mapping exercise, and you said that there had been pharmacy surveys, but did not give us any idea of the results of those. Like Mr Burnham, I have been absolutely assailed by people in areas that have lost their post offices and look as though they are going to lose their local pharmacies. Every community pharmacist in my patch has actually written to me with these fears. What were the results of your pharmacy survey?

(Mr Johnson) The aim of the small pharmacy survey was not to ask opinion on whether they were fearful of changing the regulations particularly, but it was more about the background about their size, turnover and location.

So it was not asking what they thought about the questions.

(Mr May) I think that if you ask people who have got used to an existing system and way of doing business, A do you think there ought to be a change?@ a lot of people will instinctively worry about this, and think, A no, I prefer a system I know and understand@ .

That is why petitions are not much good, because you can get a petition -----

(Mr May) Well, no. I think it is very difficult. That is why it is very difficult to change things, because people naturally are attached to what is -----

Going on to a slightly different tack, many of the letters I have had from local pharmacies have emphasised that your report focuses on the retail pharmacy business and glosses over the NHS side, although the NHS side is 80 per cent. A Price competition from the NHS part of pharmacy turnover has been glossed over. Instead, to find price savings, the report focusses on a narrow part of the pharmacy business, the sale of non-prescription medicines.@ Is that valid? How does that affect the results?

(Mr May) I do not think it affects the result. It is quite clear that for prescription medicines there is no price competition and there is a fixed price. It is possible to have price competition for over-the-counter medicines. There was a great deal of concern when retail price maintenance on over-the-counter medicines was ended, and we have heard there was a fear of a quarter of all pharmacies closing, but that did not happen. We think it is valid to look at that part of the market where there is price competition and see what consumers are getting or may be missing, and also to look at the other measures we have tried to get a grip on: quality of service, access, opening hours and these kinds of things. They are obviously rough-and-ready measures of what is a very complicated business, but they are indications.

There would not be economies from the bulk of the work of the pharmacy industry, the pharmacy retailers, as 80 per cent is NHS services, which are fixed price.

(Mr May) The economies, as I understand it, come in something called the discount survey, which is at the higher volume dispensers, prescriptions, in the sense that it is considered that they can buy their raw materials more cheaply; and therefore an estimate was made of what advantage they had compared to the average pharmacist; and some money is taken off. So the logic of efficiency would point to very high-volume retailers, but efficiency is obviously just one very small part of this, and actually you do not necessarily want efficiency.

So the big supermarkets would have an advantage in price in that way.

(Mr May) Well, it is possible they do. Certainly, the multiples, which are integrated - the assumption is, I think, that they can get their raw materials cheaper, and some money is clawed back off them in a way that it would not be for an ordinary little pharmacist.

Mr Evans was shaking his head.

(Mr Evans) I wish we did get a bigger discount. We have got 81 pharmacies and we would like to have 260 pharmacies, which is what our customers want as well, and that is how we would like to look at it. Can I come back to the point about access to vulnerable patients? Ninety-two per cent of the people in the UK visit a supermarket every two weeks; 99 per cent of the customers can get to a supermarket if they choose to. The problem is that we cannot put pharmacies into supermarkets if we want to. We try to get to regeneration zones and we are quite famous for investing money and bringing stores into regeneration zones - like Mosside, like Longside, like Chalkhill Farm and Huyton, Liverpool. We want to be able to do it. We are not able to put pharmacies into it. The point that Mr Burnham about the little old lady who can= t get about - if she cannot get to ASDA or to a supermarket or a pharmacy, it is important that we look after them. It is vitally important to look after them because if they can= t get out, they will not get their medication. That is why I think we need to make sure that the PCT take their choice to make sure we beef up the SPS system so that if a pharmacy is needed in that location, we put a pharmacy into it.

(Mr D= Arcy) That seems to indicate that there is already some kind of problem with access; and indeed the Office of Fair Trading report acknowledges that access is very good for pharmacy services: something like 90 per cent of people can get ready and easy access to a pharmacy service and are satisfied with it. There seems to be an element here of - a lot of the report seems to be a solution looking for a problem almost. What is the problem that we are seeking to fix with this report? People do enjoy access. We are committed to improving that access. We are committed to improving quality of service, depth and range of service, and indeed the pharmacy strategy, the Pharmacy in the Future document in England and the other pharmacy strategy in the other UK countries, are all about doing that. But in order to do that service, that is predicated upon us having some kind of network of pharmacies from which to do that; and that is what we already have. The network of pharmacies that we have got are underpinned by the regulations, which guarantee not just access but also build a platform from which to launch many of these new services.

It is very interesting to get the other point of view. Is the problem that supermarkets want to expand, because the service at the moment is really pretty good for the ordinary patient - is it not just the supermarkets wanting to expand?

(Mr Evans) Well, we want to look after our customers. This is not about supermarkets; this is about opening the pharmacy profession. Eight-nine per cent of customers and patients might have easy access which means one in ten people do not have easy access. They might like the locality of their pharmacies but what they cannot do is access their pharmacy when they want to access it. We opened up a pharmacy two weeks ago in Llanelli, South Wales. It was quiet throughout the day; at half past five, when traditional pharmacies close, it was heaving from half past five to half past six. That shows that people want and expect to have pharmacies at long opening hours. If you look at the plan for England, Scotland and Wales, they all say that people now need and expect, and deserve to have services at a time and place they want it, after they finish work at five-thirty. All the plans acknowledge that you have to extend these opening hours. We want to do it free of charge. Why pay more for it?

Ms Colling, can I ask you about opening hours in the Co-op case?

(Ms Colling) Pharmacies already compete, and one of the ways we compete is by extending our opening hours to meet the needs of our local population. Most typically, that would be where a community pharmacy echoes or mirrors the hours of the GP surgery. The number of pharmacies that down tools at 5.30 are surely on the decline? In my own business, we stay open as long as there is a demand there, and that may be 6.30 or 7 o= clock.

Jim Dowd

Does anybody have any idea how many prescriptions are dispensed within the radius of the surgery that they originate from, because my strong feeling is that people= s habits do not mirror their domestic shopping habits when they are dealing with a prescription; they actually go to the pharmacy closest to the GP surgery?

(Ms Colling) I do not have that information.

(Mr May) We do have a pie chart on this subject, which I think shows that about half the people come directly -----

(Mr Johnson) About half come directly from the GP surgery and the other half come from other locations.

Mr Evans, how are you going to provide services on Easter Sunday?

(Mr Evans) Big problem. We do in quite a few stores, if we are involved in the rota on Easter Sunday. We would like to open the store, but we are not allowed to because of the regulations. We do open the pharmacy if we are on the rota and just open the store just for the pharmacy. We do that. If we are tied into a rota system, we will do that. In several locations we negotiate with the LPCs and say, A we will do all the bank holidays for you free of charge and all the Sundays free of charge, and all the rest, so long as you can open these four days with which we find difficulty, which are New Year= s Day, Boxing Day, Christmas Day and Easter Sunday. We can do that and save thousands for the PCTs. We want to do it free of charge for you.

Dr Naysmith

We have heard this morning that there is a shortage of pharmacists and some of the people who have made submissions to this Committee have suggested that big supermarkets, because they can pay over the odds, are inducing some kind of wage inflation among pharmacy staff, and that could be one element where competition would be harmful to the community of pharmacists. Is there any evidence of that happening at the moment, where you have pharmacists employed by small community pharmacists, and superstores?

(Mr D= Arcy) I am not aware of any evidence showing that differential now, but there is - and it has been acknowledged - a shortage of pharmacists at the moment. It also seems pretty clear that if we get deregulation there will be an increase in pharmacy owning. If we have a shortage now, that shortage will be exacerbated in the event of there being larger openings. On that point, I should say that one of the things the report says is that the pharmacist shortage will limit the number of pharmacy openings. We disagree with that. We do not think it will limit it at all: it will lead to inconsistency in service provision, which will be limited by availability of a pharmacist. But it must follow, if there are more pharmacy openings and thus more demand for pharmacists, that it will put pressure on existing pharmacists, and there will be attempts made to woo those pharmacists from existing positions. One has to go further and suggest that pharmacists who would be most hit would be those in less nice areas, who might be wooed to go to better areas, with the prospect of better working conditions and perhaps better money.

(Mr Evans) If you ask pharmacists if they are the best-paid in the industry, they would say they were not and they would like more money.

But what is the reality?

(Mr Evans) If you look at the Pharmaceutical Journal and look at the adverts there, people are paying a lot more in independent pharmacies and other multiples than we are - and that is the fact. We will pay the right price for the person because we believe it is right to reward people. We have just come through a fallow year where no pharmacist has qualified - well, they have in Scotland and in Bradford. We are down about 1,500 pharmacists, I guess, or that particular year. We have got through that year, and some pharmacies did close, but not very many in that time. If we say that 130 pharmacies open a year, which is what happened before; if it was double that and was 260 pharmacies, there are plenty of pharmacists to go around so long as they don= t leave pharmacy. What we are finding is that because we are opening extended hours, mums who have given up work are coming to work for us in the evening and may do three or four evenings a week for us and Sundays as well. We have got some vacancies, but our turnover is quite low.

There is no suggestion of any inflation in the costs of employing pharmacists? The reason I ask is because it is not what you might think is the straightforward thing, because there are lots of predictions built on, A these reports will save money and cut down costs@ ; but a lot of it is just going to go on competing for pharmacists and wage increases, and some of these assumptions will not be true.

(Mr Evans) I have no evidence of salary inflation. Locum rates are expensive and would depend on the location of that pharmacy. If it is in the middle of nowhere, it is more expensive to get a local pharmacist - that is true.

(Ms Colling) I concur with that. Salary rates of pharmacists are fairly stable across different employers, because we compete for the same individuals; but with regard to locums, there are certain geographic locations that are particularly difficult to get locums in. Ms Drown said about her locality, where if a pharmacist is not available, then whoever is providing the service does close. Mr Evans has asserted that the closures in the last couple of years have been few. I do not have figures, but from the anecdotes I get, I would suggest that there would be more than a few, and that the pharmacy service has been disrupted by the lack of pharmacists.

What would happen if there was a free-for-all? Would it remain the same or would it make any difference?

(Ms Colling) Logically, it would mean that pharmacies that were open would be unable to obtain pharmacists and would therefore not be able to carry on their business and would close, with service disruption and disappointed members of the public who would find their service had been stopped and no longer provided.

Andy Burnham

Mr D= Arcy, it is clear that there does not seem to be any debate that some pharmacies would be closed if the controlled entry regulations are removed. There is clearly a debate about where they would be, the location of those pharmacies, and possibly about the number that would close as well. I want to ask particularly about the Essential Small pharmacy Scheme. Currently, 340 small pharmacies are subsidised through the scheme. How many do you estimate would have to be subsidised through the ESPS, were the regulations to be accepted?

(Mr D= Arcy) I think we need to start by saying a little bit about the mechanism of the ESPS. To be clear, this is not an additional subsidy for pharmacy; this subsidy comes out of existing pharmacy remuneration. There is a local sum figure, and this money comes out of there. The ESPS has been proposed as an alternative, but it is not a credible alternative or a way of solving the closure problem, because it is essentially a top-up payment, and it is not a particularly good one. It will keep a pharmacy afloat, but it does not turn it into a great pharmacy practice. If there were closures - and we have opined that there could be between 800-900 pharmacies at risk - if they were to be supported by an ESPS, it is untenable to suggest that the current arrangements, where it is taken from other pharmacy contractors= remuneration - that is not tenable as an alternative. Does that answer your question?

I think it does. You are suggesting somewhere in the region of over a thousand pharmacies would have to be -----

(Mr D= Arcy) If we take the thousand pharmacies as an estimate, based on the democratic modelling that has been done - if we take that as the number of pharmacies that could be at risk of closure - it may be that the 340 you have got now are part of that, but that is the kind of figure we would be looking at.

How much would you expect the state would have to spend on that scheme, compared to what it is currently spending?

(Mr D= Arcy) It is impossible to tell because you have to bear in mind that ESPS is a top-up payment, and you would need to work out what the top-up is.

A 10 per cent prescription traffic suggests that the viability of some of them will be seriously affected, so that the top-up they would need could be significant to keep a pharmacy viable in a remote or disadvantaged area.

(Mr D= Arcy) I think it would be significant.

(Ms Colling) The ESPS is simply about prescription volume and distance from another pharmacy. What we are talking about now are deprived neighbourhoods, and the distance to another pharmacy might not be great, but it is outside of the neighbourhood. It is outside of the specific geographic locality that that pharmacy serves; so we would need to revise the whole system. It is really a speculative thing, but I would suggest probably double, based on what we have looked at. If it stays under the current rules, it will come out of the total global sum used for pharmacy, so at its most simplest, we would be reducing an already reduced prescription fee, in order to bolster up some of these pharmacies that would become unviable should deregulation occur.

The OFT makes reference to the cost that PCTs would save on administration and says that businesses would save on processing applications and then appeals. You hinted earlier that the ESPS would need to be augmented. Do you accept that there might be a fairly substantial cost to the public purse in doing that?

(Mr May) I think that is possible. We are saying we think that with deregulation there will be more pharmacies opening up. In theory, there is no more need for ESPS type pharmacies. However, clearly, that may not be the case in particular areas. We have heard discussions this morning about particular problems; so you might have to spend more. Currently, they spend just over , 4 million on ESPS. Our estimates of the costs of the existing entry control system - which obviously people say have been exaggerated - are around , 10 million. You could therefore double, for example, the spending on the ESPS. There are reasons we have heard this morning about how well targeted and effective that system is - so that you might get more bang for your buck. Therefore, in theory, if there is a need to subsidise pharmacies, the money might usefully come from those savings, and arguably that would be a better use of public money, a better targeted way of spending it.

I think Boots seriously question the figures on savings to the NHS. They say it is more like 7 million as opposed to 10 million.

(Mr May) But that would still be well over double what we are currently spending on ESPS.

What would you think the figure for ESPS would have to be? How much would it have to spend and how many pharmacies do you think it would have to support?

(Mr Johnson) It is impossible to say. It could be very small, in terms of tens. Within the report we modelled a number of different scenarios of what might happen, and the different entry of supermarkets and pharmacies in GP surgeries. This is the analysis that you questioned. Under the very worst case, A what if?@ scenario, which we never expect to happen, you get roughly 200 pharmacies that would then fall under the ESPS.

Extra to the 340 that currently do?

(Mr Johnson) Yes. We are not saying this is what we expect to happen; it is a A what if?@ scenario.

So the savings might not be worth making a big deal about because they are just going to be picked up by extra costs elsewhere.

(Mr Johnson) If that did happen, if there were 200 more pharmacies in the ESPS system, if they were remunerated to subsidise at the same level as the other ESPS pharmacies, there would be an extra 2.7 million on the bill, which is obviously much less than savings you get from the administration -----

I would say you might be underestimating severely there. With others - butchers and bakers, the trend on small high streets has been that everything has gone; and a supermarket cannot afford not to have a pharmacy once one supermarket has got one; once you are in that environment, you can be sure that every single big supermarket within a town will have one. I suspect there would be far more than that, given the experience in other sectors, and the effect that that has had on the high street.

(Mr Johnson) My immediate response to the butchers and bakers point is that pharmacists are very different from butchers and bakers. The way that supermarkets drove out butchers and bakers by cutting prices - a loaf of bread for 90p - whereas 80 per cent of a pharmacy= s business is price-controlled.

Because they a re very different, does that not justify this very different set of regulations to control them: because the state is putting so much money through them, do we not have a right to say they cannot be left to the market?

(Mr Johnson) The fact that they are very different protects them from supermarkets and makes these fears very much unfounded.

(Mr D= Arcy) We are drawing this analogy again with butchers and bakers and getting into retail and shifting from healthcare, which is where I think we should be. What is significant is that if we look at a pint of milk, what you will find between a large outB of-town outlet that will charge a low price for a pint of milk is that a small local retailer has the ability to up the margin on that to reflect added costs at local level. Pharmacies do not have that ability on 80 per cent of their business. We are dependent upon NHS prescriptions, and it is that effect of prescriptions being sucked away that gives them the problem, and gives the problem about access and perhaps viability. It is a problem that they cannot get round because of the absence of price competition.

Julia Drown

Mr Johnson, can you explain more about where these real savings would be? It is not as though pharmacies are continually closing; there is always some turnover, but there is a lot of stability in terms of the market. What are the administrative and legal savings, given that there would probably still have to be an expanded ESPS?

(Mr Johnson) Absolutely. Chapter 16 of the report deals with this. You are right that movement within the pharmacy market is limited by regulation. That does not mean many people applying to come in to the market are refused and that that leads to administrative costs. Furthermore, when movement does happen, it is often at great cost. In one of the case studies we looked at, a pharmacy wants to move from one part of town to another part of town, but because of the restriction cannot move straight from where it is to where it wants to go. It has to do that in two steps. It moved a mile in re-location, opened and did business for one day, and closed down and moved on again. That is the way that regulation increased costs there.

(Ms Sharpe) I think that that is a fairly unrealistic picture to paint of what happens in the market. Again, I would just refer to our position, which is to look critically at the regulations and see how they can be improved in the context of land service, to ensure that the regulations and bureaucracy associated with the regulations is necessary, and to make sure that where we can free up and remove some of those unnecessary cost burdens and restructures, we do so. The other point I would make is that the evaluation of the present costs from a number of those who have had a look at the report critically is overstated at the moment, and the cost-savings are very different and come from very different income streams from those that have been identified.

In your view, there might be better ways of saving some of that money.

(Ms Sharpe) Yes.

To Mr Evans or perhaps the OFT, presumably you partly want to provide pharmacies in your stores because it is another service for your consumers; but, presumably, you have looked at it in terms of your profit margins for the overall stores. Do you have any data for us on what that means for your stores in general?

(Mr Evans) Some people say that if you put a pharmacy into a store, the sales in the whole store go up. We have not been able to prove that at all. I wish we could.

Has it gone down? Is it a disaster?

(Mr Evans) No. It has not gone up significantly. Our pharmacies do make a profit. Nowadays everything has to make a profit or it is not in there. But it is important as well that the customers that come in we look after.

You are saying it is pretty neutral.

(Mr Evans) Yes.

Overall it is a piece of business, so you are going to make a profit because you are doing more business in -----

(Mr Evans) We make more money - yes, money from the pharmacy, yes. So we are looking after customers that are coming into our stores.

But if out of this what happens is that more money ends up going into the ESPS, does that mean that more taxpayers= money is effectively just going to support bigger profits for the supermarkets?

(Mr Evans) There are a few points there. The ESPS needs to be changed. That supports essential pharmacies with the PCTs, and we want to have the pharmacies. If ASDA or somebody else wanted to open up a supermarket but the PCT did not think it was essential, it should not get the SPS for it. I would say that the regulations should change so that you can open a pharmacy anywhere, but if PCT wants to open a pharmacy somewhere, then by all means pay ESPS for that. Some funding will be needed for that because you will not be giving ESPS to all pharmacies that are vulnerable because some of them will not be needed - some are not essential. If there are two pharmacies close together, you are not going to give ESPS to one of them, are you? I cannot see a reason why new entrants to the market cannot pay the PCT for a contract and fund healthcare that way. I do not know how much that would be, but I would rather pay a PCT funding for the contract than somebody who was given the contract 16 years ago and just -----

To understand that better, you, ASDA, would pay the PCT in order to front the pharmacy.

(Mr Evans) If we could buy a pharmacy contract with PCT and open up a pharmacy in that store, yes, we would consider that.

Jim Dowd

On that point, I can quite understand that every pharmacy in every store needs to make a profit, but what proportion of the turnover in the pharmacies is prescriptions?

(Mr Evans) In our stores, probably about 77 per cent prescriptions and 23 per cent over-the-counter.

Without that, very few of them would be profitable and the majority would be -----

(Mr Evans) Yes. It is not so much of a profit with non-dispensing pharmacies. We have got one non-dispensing pharmacy in Manchester, where we applied for a pharmacy contract and could not get it for a number of reasons - and there is detail behind that. So we opened up a pharmacy which just sold pharmacy medicines. Within the first six days, 94 people came in with a prescription. They expected us to have a pharmacy which does prescriptions and sells medicines. They just do not understand the concept of a pharmacy which just sells medicines.

That was the Superdrug experience as well, was it not, before they ----

(Mr Evans) It was, yes.

Siobhain McDonagh

Do you understand the nervousness, Mr Evans, or scepticism that people might greet the role of the supermarket in providing what is an essential community service? If I can give an analogy - not your own chain, but certainly two other major players several years ago took a great deal of interest in getting post offices into their supermarkets, and clearly made a judgment that that would attract customers and make money. Now, those same supermarkets feel that more money could be made out of the space from doing something else, and many areas in my own constituency are now threatened with having no post office.

(Mr Evans) I cannot speak on behalf of other chains, I am afraid. We have post offices in ASDA. What I can say is that pharmacy is the number one requested service that customers ask for outside of the core range in the store; so customers want pharmacies to be there, and that is why we provide it.

Customers would appear to want post offices as well.

(Mr Evans) I am very sorry, I cannot comment on other supermarkets. I do not know.

Dr Naysmith

We have partly covered this already, but it is to do with some evidence that is in the PSNC submission about the potential worst-case scenario if this is introduced and has the effects that are predicted. You suggest that between 1,000 and 6,000 pharmacies might be threatened with closure. That is a very large number: 6,000 is nearly half of them. Where do these estimates come from? Can you back them up?

(Ms Sharpe) The figure of 6,000 was the figure given by the New Economics Foundation, which did a report on the likely impact of deregulation. Their modelling showed 6,000 pharmacies at risk. I think there is a point of clarification to make here: a number of us have said that the result of deregulation would be at least initially an increase in the number of pharmacies, and pharmacies would tend to cluster either around GP surgeries, which is the modelling that the OFT did not undertake satisfactorily, and the pharmacies within supermarkets. The A at risk@ pharmacies are the pharmacies that are in the local neighbourhood situation, and I think the figure of 6,000 is really looking at that neighbourhood locality type of pharmacy, and the risk that that is stripped out so that people who do not have access to private transport - and Mr Burns said they would get in their cars and drive four or five miles without any real detriment - it is those people who are not the highest users of pharmacies will be prejudiced. We are not suggesting that there will be a net closure of 6,000 pharmacies, but that study was undertaken by one of the policy think-tanks.

So it is not fair to suggest that you were saying about half the current pharmacies might be at risk.

(Ms Sharpe) We are not saying that there would be a net closure of half of the current pharmacies; we are saying that the current pharmacies that are in neighbourhood localities are the ones that would be particularly prejudiced. They are the ones that provide services to people who do not have easy choice and easy access to alternatives.

You are saying they are potentially at risk, depending on what local competition springs up; and that competition might spring up, which would reduce the figures.

(Ms Sharpe) I think we would be very surprised if local competition did not spring up, but it would be different in different areas. The proximity of a supermarket will be a major determinant, and the extent to which there are openings within GP surgery premises that one would expect to strangulate the flow of prescriptions out into the neighbourhood communities.

(Mr May) On this question of how many pharmacies might be under threat if there was deregulation - our view, which we have expressed I hope this morning, is that we do not see that as being a significant problem, particularly if we compare it with the impact supermarkets may have had on other kinds of shops.

What about post offices? You can say something about those.

(Mr May) I do not know anything about post offices because we have not studied them. What we do know is something about pharmacies, and one of the clear things about pharmacies is that people use the pharmacies they do because of where they are located: that means it is adjacent to either their GP= s surgery or to their home. Then there is an issue about convenience. Clearly, if new pharmacies set up, some may be more convenient than the one you have just used, and therefore you might switch. But if you add to those strong reasons of locality, location, convenience and the experienced staff, which we have also discussed this morning, the fact that the large proportion of the income comes from prescribing for which there is no competition, we think the threat from a new entry, particularly if it is a large entry in the supermarkets, will be not necessarily minimal, but all the kind of stuff and the comments we have seen since we have published we think have been exaggerated for those kinds of reasons. Obviously, you can form a view on that, but that has to be borne in mind.

Andy Burnham.

Coming back to the issue of where the public interest is being served by the proposals, whether it is more or less served by doing it, and whether removal of controlled entry will provide a fair deal for vulnerable social groups, Mr Evans you said that convenience is what your customers tell you they want. I am perfectly prepared to accept that that is what your customers would say that they want; but the issue is about the people who do not use your stores and who are vulnerable - perhaps people who do not own a car, whose voices you are not hearing. What are they saying? Within this context, I point particularly to the population of people putting business through the local pharmacy are not the people who are your main customers. People over the age of 71 cash an average of 13 prescriptions a year. I do not know the data, but I guess that people over 71 are not the mainstay of your shoppers. Where is the public interest best served? Where is the balance?

(Mr Evans) One in five of our customers is a lady over 65, so old people do get into our stores. There is about 2 million people. The same number is true for mothers as well, so we do cater for these people already. Mr Burnham, I think where we differ is that you think that pharmacies will close and go down if deregulation happens. We do not agree with that. I hear Sue Sharpe telling us now that she thinks numbers will go up and stabilise afterwards.

Mr Evans, you will surely accept from me that in my area Tesco will open one, and you have already got one.

(Mr Evans) Yes.

All the supermarkets would have one, so the net - you would probably see them change, but in my view you would see them taken out of the small surrounding towns, concentrated on where all the supermarkets are. Net, it may look as though there has been no change, but actually I represent an area with high levels of chronic illness - some of these places are pit villages - with low car ownership and small towns that depend on the high street. So the figures may not tell the real story there.

(Mr Evans) I go back to the point I made earlier, Mr Burnham, that if the PCT identifies an area which needs a pharmacy, it should help fund that pharmacy, using a new type of ESPS.

Does anybody else have a view on -----

(Ms Sharpe) I would like to come in on that because I think this is precisely the issue we are talking about. Let us build the primary care trusts where services should be delivered. We are hearing, time and time again, this issue about A let the PCTs have power to develop proposals for where new pharmacies should open@ - and that is specifically what our proposals for amendment and development of the planned system are.

Is the heart of this debate that the regulations we have got are there to protect vulnerable social groups; and what is proposed is in some instances in the interests of the mobile affluent groups? Is that not the essential contradiction? In whose interests are they mostly for?

(Ms Sharpe) Yes, but developed from there, we can improve the regulation to improve the level of protection, support and service for those vulnerable patient groups. I think that is really at the heart of this debate. We do not oppose increased competition at all. What we are supporting is planned use of this immensely valuable and, by everybody= s agreement I think, thinking about primary care as an under-utilised resource. That has to be done sensibly within a planned system rather than within a free market system.

Dr Taylor

Mr D= Arcy, in your written submission you make a very strong statement on this subject, that the OFT recommendation flies in the face of the Government= s plans for pharmacy. Can you justify that?

(Mr D= Arcy) Yes, it is a statement that really picks up on Sue= s point. We are saying that we are on the cusp of making great use of pharmacy and pharmacists= skills, improving pharmacists= input and improving patient care. That is the policy that is outlined in Pharmacy in the Future and the various other UK strategies. Therefore, pharmacy services, as part of overall NHS care, should be planned and managed. We have planned here, and are all set to do it - and we have a report that comes in that says A let us try and do that through the free market@ . That seems to be incompatible with the way things are going. Increasingly, power is being driven down to primary care organisation level. The primary care organisations in England PCT have the responsibility for developing a health programme, which is going to be based upon health need; so it seems to us logical that what we should be doing is working with PCTs at local level to decide what that health need is and how pharmacy can deliver that. We have a system at the moment, which we accept is not perfect but which does work well. A lot of the report acknowledges that, particularly in terms of access. It seems to me that we could be in danger of throwing out the baby with the bathwater. We are taking a big risk here. We have a system that is not perfect, but is giving us a network of pharmacies and is acting as a platform delivering new services, and delivering access; and we are suggesting an alternative model that is untried, untested - the free market. The debate today has illustrated just about every answer to every question is A who knows; it might be, it might not be@ . We seem to be on the verge of taking a risk. We suggest that in moving forward we should be building on what we have got, recognising deficiencies, and dealing with those on the basis of health need in particular in the needy groups - the mothers with young children, the elderly, the infirm - particularly vulnerable groups - and building a modern, high-quality pharmacy service, which is flexible and adaptable and is actually patient-focussed.

Jim Dowd

Are you not presenting this as a somewhat monochromatic argument; that there are just two poles: you either have to do it with complete deregulation, or you have to have complete planning at every stage of provision by PCTs et cetera? If I understood it, you were saying that you think that under these proposals 90 per cent or so of the population would be adequately served, and it is just the other 10 per cent you need the intervention of PCTs for, to ensure that those people get access to service as well.

(Mr Evans) I do not think I used those figures.

I do not know what the figures are, but the largest proportion of the population will be served quite adequately by this, but there will be those you recognise who will not be, and that is where the intervention of PCTs would work.

(Mr Evans) Yes. Let market forces choose where to put pharmacies, and then let the PCT control where extra pharmacies are needed. The current regulations do not look after people who cannot get to pharmacies now. They are just there. The pharmacies now are in locations where they were 17 years ago but -----

The OFT report suggests that they are very well located.

(Mr Evans) No, 90 per cent of people feel that their pharmacies are in locations that they can get to; 10 per cent say they cannot; but the location of a pharmacy, opening hours and accessibility when open is the issue. We are saying, let the market choose a level first of all; then let the PCT subsidise areas where it needs pharmacies. That is what we are saying.

Dr Naysmith

Mr D= Arcy almost argued that the proposals are incompatible with the Government= s plans for changing and improving pharmacies. Is that a fair summary?

(Mr D= Arcy) Yes.

You want to stay as you are now, basically.

(Mr D= Arcy) No, we do not want to stay as we are, we want to build on what we have got. We are saying that we have a system that does work. Where there are deficiencies, let us work within the existing system to plug those gaps and work on those deficiencies.

But you think the proposals are basically incompatible with that.

(Mr D= Arcy) Yes.

Is that what Liz Colling and Sue Sharpe think?

(Ms Colling) I think so. Increasingly, pharmacists are becoming part of the wider healthcare agenda and engaging in provision of primary care health rather than retailers. We all want to move the profession along that route, and that would address some of the concerns Mr Evans has about pharmacies leaving the profession. They are a valuable resource; they want to be healthcare professionals - but we also need to preserve the diversity of the areas which they can service and the accessibility and relationships they have with their local communities. The regulations are not perfect by any stretch of the imagination, but they do however allow some new openings. We have opened new pharmacies, but we can build on them and we can use the PCTs and work with them to identify real health needs; and then find solutions to local issues.

(Ms Sharpe) I agree entirely. In essence, community pharmacy is an NHS primary care service, closely allied to primary care medical services. It must make sense for community pharmacy services to be planned.

Mr Evans, you obviously disagree profoundly with what has just been said by all three community pharmacy organisations.

(Mr Evans) We are also a community pharmacy organisation as well. We have 81 community pharmacies working in there, so we offer a service to our customers too. It is just a bit more to one side. We think PCTs should control where pharmacies are needed, but what we are asking you boys - give us the chance to look after our 11 million customers a week to have pharmacies. That is all we are after: that is what they want and that is what we are after. We will do that for PCTs. Then let the PCTs identify where that is lacking and -----

But that is not a free market, is it?

(Mr Evans) Exactly. We are not after a free market; we are after deregulation. Let the PCTs choose where the services are needed. We are not after a free market.

No, but the PCTs choosing is a form of regulation. It is deregulation, but if the PCTs do that, then it is a form of regulation. They might say to you, A we are going to have pharmacy here, and we do not think you should have one there@ . They will not have that power at the moment, but they might do if things get developed along that line.

Julia Drown

Is there not a problem with this in that of course you recognise customers want pharmacies everywhere and would like a pharmacy on every single street corner so that wherever you happen to be you can pop in with a prescription: but the problem is that this is not something where the consumer just pays for the product; we have a lot of taxpayers= money going in to support pharmacy services. As I understand it, the argument of the supermarkets and the OFT is that you let the market decide, which would naturally move the market to a fairly stable level where profits are reasonable for the supermarkets, and they are where the consumers want them; and there will be some gaps, where a subsidy scheme would be put in. That would be fine if there was not any taxpayer subsidy going in to the mainstream, the market bit. As long as taxpayers= money is going in to the mainstream market bit, we have to have some sort of regulation. Would not any economist say that if you are going to have to regulate a part of the market, you want the regulator to have all the economic power possible to get the best service for everyone across the board? You do not want to have to create a whole new extra subsidy and only be able to operate within the bit of the market that is unviable - once the market had settled itself on a commercial basis. Is that not a problem with this?

(Mr May) Our view is - and the Social Exclusion Unit will come up with this, for example - that the existing system means that a number of people are not served well.

Everybody is accepting that the system could be improved; that is across the board.

(Mr May) Secondly, our view is that the control of entry regulations actually stifle the provision of services. They stop new people coming in offering new services.

There is some agreement to that.

(Ms Sharpe) We want to change and develop them, yes.

(Mr May) In doing so, they cost both the taxpayer and businesses money in certain respects, and we also think there are consumer savings. We think that if you let the market essentially let people come in, you will then have provision. We also think that some of that new provision should help to deal with some of the problems that currently exist. What the PCTs and the health focus should be is looking at those areas where there is not adequate provision, and using their powers and subsidies for a targeted scheme for example, or using the way they remunerate pharmacies - and this is very important - what service are you getting from your pharmacy - to tackle those issues. We think that would be a better use of public money and everyone= s time and effort.

Are you not forgetting the fact that a lot of the taxpayers= money is going in to the bit that the market is settling on its own? What about the economics argument that if you are going to have to regulate the market, you want as much buying power as possible?

(Mr May) But you would have plenty of buying power because you would be remunerating the pharmacist as you choose through the global sum, and you can change the way you do that and put a different focus on different services.

So you would have to change that if you were changing the market as well. Do others agree with that?

(Ms Colling) I am not sure I fully grasp the issue, to be honest.

The point I am getting at is that it would be fine if the supermarkets were going to open many more pharmacies if that was not requiring use of taxpayers= money. The fact that you are using taxpayers= money means that given we have to have some sort of regulator dealing with the bits that - if you were that regulator you would rather have the power over all of the money.

(Ms Colling) Absolutely.

That is some regulation seen across everywhere, rather than just having what one is left over with to deal with the bits that are unviable.

(Ms Sharpe) I think under the proposed new scheme, everybody would be providing a NHS community pharmacy service, and whether in a supermarket or wherever would expect to get their funding for the service they are providing. That is where there is an incompatibility between this idea that you do not plan and you do not ensure that you are getting the best value in terms of location and quality of service. It does not merely come through the planned regulator service.

You picked up earlier some issues that the OFT is raising, that people who use pharmacies are proportionately more amongst the elderly and people with disabilities, and that is whether they are supermarkets or community pharmacies. The OFT has argued that those groups would be disproportionately affected by deregulation, and I wonder if you would agree with that.

(Ms Sharpe) It is interesting, if you look at parts of the OFT= s own study, that the over-sixties, and people who are most likely to use pharmacies for their OTC purchases and toiletries purchases - we know in answer to a parliamentary question that was answered by the Minister responsible for pharmacy very recently, that 56 per cent of all prescriptions are for people over sixty. It seems to me to be self-evident that these are the high users of the local community pharmacy services, and therefore by definition those are people with local pharmacies that are threatened will be the people to be affected.

Can we move on to the issues that we have not touched on, for example social functions that pharmacies provide, things like distribution of emergency contraception, controlled Methadone distribution and so on, which are particularly important in deprived areas? Did the OFT look at that at all?

(Mr May) No, we did not look at that. I come back to the point that you can ensure that pharmacies provide these things by making sure that when you are paying them from the global sum, you say, A these are the things we expect you to provide as a minimum@ and you can force standards through that. Then you can encourage people to provide more. We saw that as very much a health policy issue. It is not really to do with the control of entry system; it does not affect that at all.

It does not affect it, except if there was deregulation you are hinting strongly that the whole of the remuneration of pharmacies would have to be looked at alongside it.

(Mr May) Only to the extent, if more people came in and the global sum remained fixed.

Is not the whole reason you want to deregulate it so that more people come in?

(Mr May) Yes, to provide an alternative.

So you are suggesting that deregulation will lead to more people coming in, and therefore you would need to look at the whole way the pharmacy -----

(Mr May) I think it would be sensible to do so, and that is my understanding of what Government intends to do. That is essentially what the response to our report says. It makes sense.

I know that some of the ASDA stores do provide Methadone treatment at the moment. Do you think that work is about a third?

(Mr Evans) Yes.

Will there be an increase over time? If deregulation happened, would it increase or decrease?

(Mr Evans) We are community pharmacies and we provide the same services as other pharmacies give. In a third of our stores we give Methadone. In Scotland it is over half of our stores that give Methadone. We are extending that service along with the other services that a community pharmacy generally provides.

What about opening up at nights if someone needs palliative care drugs? Do ASDA stores open up in the middle of the night to do that sort of thing?

(Mr Evans) I have got no evidence of that. I also have got no evidence that all other community pharmacies or multiple chains also open up at night. I am aware that some community pharmacies do open up at night and are paid accordingly for it.

But at the moment your stores would not do that.

(Mr Evans) If deregulation came, then we could have stores in certain parts of the country where we would offer 24-hour pharmacies, in big towns like London, Birmingham and Manchester - possibly, yes, we could do - but if they are being called out - no, they are not.

How does that compare to the independent pharmacies in terms of the numbers of pharmacies that do provide Methadone and other treatments? How do you think that would compare in terms of looking at this as a bigger service issue rather than a pharmacy issue?

(Ms Colling) The issue about Methadone and emergency contraception is that it is paid for and commissioned locally by the PCT, so an absolute look at numbers does not give you the answer. If there is a health need in that area, and the PCT asks pharmacists to participate, do all the pharmacists participate? The answer is, obviously, that not all do. Our own Co-op pharmacies would, and independents would. As John said, some supermarkets do. Equally, other players do not. With regard to out-of-hours calling, some of our branch managers do, and some independent pharmacies do. I imagine - and it is certainly the case for ourselves - we are also in some Co-op supermarkets, and it is incredibly difficult if you are being called out to attend to a huge premises in the night, so it tends to be smaller pharmacies where that service is offered.

Mr Burns

Clearly, for supermarkets in particular, deregulation would be advantageous because it would potentially open up markets that are currently closed to you. During the course of your evidence this morning you have given a lot of commitments or hopes of what your supermarkets, and presumably other supermarkets in the same position as you, would offer if they had the opportunity to provide a service. How long do you think that offer or those services would be provided at the levels that you suggest they will be after you have got what you want?

(Mr Evans) I cannot speak for other supermarkets; I can only speak for ASDA. The services we offer now are the same as other community pharmacies offer. We have no plans to reduce them. We have got plans to extend them as the role of pharmacies in this country gets more extended. Pharmacy as a profession will give more service in the future and we will be there with everybody else.

Chairman

Mr Johnson, your survey data shows that people living in villages cash almost 50 per cent more prescriptions as a yearly average than people in towns or cities. This presumably raises questions about deregulation. What conclusions did you come to as to why that was the case?

(Mr Johnson) People in rural areas spend more on prescriptions? I do not think we did come to a firm conclusion. I suppose the initial reaction is that there may be more old people living in rural areas. I have no idea. One interesting bit of evidence coming from a survey done by the Countryside Agency in 1997 showed that even under the current system, 79 per cent of rural parishes do not have a pharmacy in them; so that shows that the current regulations do not put pharmacies into rural areas; they are going to stop pharmacies going into rural areas.

You did not look at whether that a big difference was the consequence of GP prescribing.

(Mr Johnson) That could be the reason.

Do you say it could be a reason?

(Mr Johnson) I think it is likely to be a reason. There will be more GP prescribing in rural areas.

Do you draw any conclusions as to whether that might be the reason for the additional prescriptions in rural areas compared to town areas?

(Mr Johnson) No.

Presumably, you understand the point I am making?

(Mr Johnson) Not wholly.

Sandra Gidley: We are confusing the words A prescribing@ and A dispensing@ . We are talking about dispensing.

Chairman: I beg your pardon. My colleague is a pharmacist. I know what I am saying!

Jim Dowd: Villages are such unhealthy places, Chairman!

Chairman: That is an interesting point. I would have thought the pattern would be the other way round.

Sandra Gidley

In the rural area, you are much more likely to have a so-called dispensing doctor. Do you have any evidence to prove or disprove that the fact that the doctor actually gains from the dispensing means that they increase the amount of prescribing, because the figures already show that it is much more expensive to have the average prescription dispensed from a dispensing doctor than a pharmacist?

(Mr Johnson) No, we did not find any evidence of that. I think we have to be very cautious what we say about GPs= integrity and that kind of thing.

Did you look for any?

(Mr Johnson) Evidence of GPs over prescribing, no. The issue of dispensing doctors was reasonably minor in our report, we focused more on pharmacies. I think the high level point that we make is that the first base situation is for doctors to prescribe and pharmacies to dispense. Dispensing doctors should only come into play when there are real gaps where pharmacies cannot come in to the market, that is our view. The best thing is for pharmacists to dispense.

We have the slightly bizarre situation where doctors= practices in towns can dispense for their rural patients even when there is a pharmacy next door. Did you consider that as part of the overall equation?

(Mr May) One thing we did find about these controls was how amazingly byzantine they are. They may make a lot of sense to the people who have to live with them but when you are addressing them for the first time there seem a lot of very complicated rules and so on and potential anomalies. Going back to the question about dispensing GPs, we looked at them, we heard a number of stories that they tended to do more, they tended to be more expensive but that was not really our remit. This is clearly of interest to this Committee but I do not think it is something on which we can really offer very much information.

If you are talking about control of entry into pharmacy, the dispensing doctor is actually a significant part of the whole picture. I do not know if any of the pharmacists would like to comment on this because it should be examined in the same light, yet there seems to be a slight disparity between the way the two would be treated.

(Mr D= Arcy) In fact at the briefing meeting this was a point I made: why have you selectively looked at this. The answer which came up was we are looking at the retail pharmacy market but if we look a bit broader, if we look at the fact that we are looking as part of the pharmacy market at dispensing of prescriptions, why not look at it in totality?

Chairman: Any other points?

Dr Taylor: Only just a comment. The Audit Commission has recently done a review of dispensing doctors and I am sure that will give my colleague her answer.

Chairman: Are you speaking for the medics again.

Sandra Gidley

If I can be fair and quote from a submission from the British Medical Association. They say in that that doctors were able to provide a dispensing service in rural and remote areas which is not only adequate but they say highly valued by patients. Is that not a desirable outcome?

(Mr D= Arcy) Can I make another add-on. Our view on this is that it is wrong to compare a dispensing service offered by dispensing doctors with a pharmacy service. What we have been talking about this morning is a full pharmacy service, of which dispensing prescriptions is a core part but all of the add-ons are something which would be exclusive to pharmacy and not found with dispensing doctors. I think, just to be clear, we are not comparing like with like here, they are two different offers. All of what we are talking about in terms of additional series would apply to pharmacy but not dispensing doctors.

You are saying dispensing doctors only deal with dispensing but actually we have established already that is a core part of the business for the pharmacies in the UK?

(Mr D= Arcy) It is a core part.

80 per cent.

(Mr D= Arcy) What we are saying is the policy way forward, as outlined in the pharmacy strategies, is about whilst retaining dispensing as a core aspect, enhancing that with a large range of additional services.

Chairman: Have any of my colleagues got any further questions?

Sandra Gidley

There is just one further point. I am a pharmacist and years ago I looked into buying a pharmacy and decided I could not afford to do it and keep my hair, the cost was too worrying. It is very difficult for independent pharmacists to start up these days. There is a case for some relaxation of the market but obviously total deregulation is a step too far. Sue Sharpe alluded to it earlier, that there are ways forward and I think that is probably the next step to concentrate on. Could I just hear from all of you what you would like to see in an ideal world?

(Ms Sharpe) At the risk of repeating myself again and again and again, we are talking about trying to ensure that we do support patient access, quality of services, choice and competition so long as they are compatible with the core requirement which is access and which is work within a planned service. At the moment, we are engaged in dialogue with the NHS Confederation which represents PCTs and with the Department of Health in planning the new pharmacy contract. We would see this as being an important part of their remit to see how we can make sure that wherever pharmacy services are needed or are desirable then we can get the opening up of the market but within a planned service to ensure it does meet patients= needs. Those desirable services may be in supermarkets, they will also be in small local communities so we are supporting competition and supporting freeing up the market but essentially with a planned service.

Who would plan that, PCTs or strategic health authorities, which would be the best?

(Ms Sharpe) Structurally we think the work we are doing with the NHS Confederation and the Department of Health is the starting point for the framework but essentially the whole focus of care is to make policy decisions at local level within the Primary Care Trust. I would expect strategic health authorities to have an oversight role but the core role at local level should be the local primary care organisation.

Andy Burnham

What would you say to the suggestion - PCTs vary, mine would be very different from an inner London one - what about whether they could voluntarily opt out of controlled entry if they felt they did not have the issues a constituency like mine would have?

(Ms Sharpe) I would be very surprised if there were areas which would not have the same sorts of views in different pockets. I live in London myself and there are areas very near where I live which are areas of major social exclusion where people will want to have and still need to have services in low cost housing areas. I know the concerns in some of the inner city areas are at least as acute as they are in the more sparsely populated small satellite villages that you were describing earlier.

Jim Dowd

Surely where there needs to be a public subsidy to provide a minimum service is because people are not prepared to provide it otherwise. What is wrong with the system where the PCTs provide that network but then allow anybody else who wants to get to the market to do so?

(Ms Sharpe) I think it comes back to the point being made earlier and that is is this the best way to use taxpayers= money or is the best way to ensure that taxpayers= money is spent in providing services where the planned service needs are going to be best delivered?

That is not an answer to my question. Why have a system which prevents anybody entering it beyond the minimum provided by the public sector?

(Ms Sharpe) I think the answer is because the people will be providing an NHS pharmacy service and that service has to be funded through taxpayers= money. Is this the best way of structuring the use of taxpayers= funds?

Jim Dowd: Okay.

Sandra Gidley

Does anybody else have any comments on the way forward?

(Ms Colling) Yes, just really to echo what Sue said. The Primary Care Trusts will have a duty to carry out a health needs assessment as part of their duty to the strategic health authority and what we would really like to see is pharmacy playing a major role in that, working together through the LPC with the PCT to identify areas where service provision is perhaps lacking or could be improved upon and - I think I have said this already - to find local resolutions to those issues which will take us forward.

(Mr D= Arcy) Can I just add something as well. The general thrust throughout the NHS is that you have a national service and you deliver. You have national frameworks, national structures but you would have local flexibility. What Sue has described is exactly that kind of model. Just to pick up on the point that was made about why not have PCT doing this or PCT doing that, I think the problem with that is that you get a lot of inconsistency, a lot of variation and a lot of uncertainty in terms of service provision. Certainly we would advocate the approach where there is a national framework but with local flexibility and that would seem to us to be the best way of moving forward.

I just wonder if John Evans wants to add anything because he also said earlier that maybe complete deregulation was not working?

(Mr Evans) Yes. I think if I can quote from Remedies for Success which is the Welsh plan - I put no bias there at all - it talks about: A Patients= requirements for advice and support do not end when most people finish work for the day. Increasingly, people expect to be able to access services whenever they need them; and pharmaceutical services, too, must be available when they are needed.@ I think that is the way we should look at pharmacy. Let the people look at the pharmacies who want to look at the pharmacies, promote their pharmacies and then let the PCTs decide where things are lacking.

Chairman: Any other questions?

Julia Drown

Should the issue not be that yes any pharmacy could open and give out NHS prescriptions if it was not going to take any subsidy or have any other payment from the NHS for those prescriptions, that would be one way of looking at it, and then the rest of the NHS money could be spent on the pharmacy remuneration scheme. What about looking at it like that?

(Mr Evans) NHS prescription, we get a dispensing fee wherever they are dispensed.

Quite.

(Mr Evans) So it does not matter if it is dispensed at a new pharmacy or an old pharmacy. The professional service allowance adds other services to the pharmacy offer.

We are talking about taxpayers= money, should not every penny/pound of taxpayers= money be part of the equation?

(Mr Evans) They are providing the service anyway. They are dispensing the medicine anyway so it does not matter if it is dispensed here or there ---

Yes, it does. You have to have pharmacies that are viable across the board.

(Mr Evans) We have discussed already how we would support essential non viable pharmacies. It would not be right - I feel the same way - to support non essential small pharmacies.

Andy Burnham

Does this not need to go hand in hand with the whole review of the prescription system: who gets exemptions, how they are charged for, how they are done, electronic dispensing? Does this helpful debate not need to be done of the whole review of the prescription system and linked into the negotiations?

(Ms Sharpe) Yes, linked with the new contract and the way forward making best use of skills.

Is there a danger of not looking at the whole picture?

(Ms Sharpe) Absolutely.

(Mr D= Arcy) I think that is a key point. What the pharmacy strategy and the other strategy in the UK envisage is community pharmacy as a key player in primary care and integrated pharmacy into that. We have to look at all aspects of it to get the job done properly.

Sandra Gidley

Just a final thought really. The global sum is not likely to increase, there will be those who sadly may not want to provide a lot of extra services, they have a heavy dispensing volume. The likelihood is money will be taken away from dispensing services and be reallocated to other services. Will most pharmacies be happy with that? I am not saying it is right or wrong but I think there is a problem where pharmacies are taking on extra services but not necessarily getting money for doing that.

(Mr D= Arcy) I think inevitably if you are looking at a centralised system for a large grouping some are going to be happy, some are going to be unhappy. I think it is a question of we have to look at it from the other way round and think what is best for patients, and what is the best way pharmacy can play its part in improving patient care and what is the best system for doing that. We have to take on board the needs of the profession as a whole with our core focus being the patient.

(Mr Evans) Can I just say if pharmacists feel they do not want to change, all they want to do is count tablets and give out bottles all day, they should not be in pharmacy. Pharmacy moving forward is for the future which is supporting all the new services pharmacies can offer, not just dispensing.

Chairman: Can I ask a question which I think will be the final question, unless anybody else has a further final question?

Andy Burnham: I have another four!

Chairman

I thought you might. Jim made the point about the issue being somewhat polarised. If I was to be mischievous and get the public and everybody else to leave the room, I want to sit here and chair a two hour session with the witnesses, do you think we could come up with a consensus on the basis Ms Sharpe has put forward one or two points, Mr Evans, I do not know whether you feel and OFT witnesses feel there is any basis for perhaps if we had a two hour session to come up with a consensus way forward, third way? I make a serious point, is there common ground that could be worked on on some of the confrontational issues that we have addressed this morning? Mr Evans, you have heard some of Ms Sharpe= s proposals.

(Mr Evans) She has heard what I have said and I have heard what she has said, I think there is common ground here. I think we all know that pharmacy has to change. I think where we differ is how far or to what degree pharmacy is going to change.

Mr D= Arcy?

(Mr D= Arcy) Just to make the point, yes, the middle way, the fundamental thing which did come out in the report and probably the one thing we would agree if you look at the stark regulation or deregulation, I do not think there is middle ground between that. It is a bit almost like pregnancy, you have got regulation or you have not got regulation, I think that is where the fundamental difference comes from. We even got a fundamental difference in approach with the respective administrations in Northern Ireland, Scotland and Wales on that as a complete rejection of the deregulation. That needs to be factored in in terms of trying to find the middle ground.

(Ms Colling) I think the common ground is we all agree that pharmacists are a valuable resource and we need to find a way of pharmacists moving to primary care and that brings us to the nub of the issue does regulation promise to do that or does deregulation in any way jeopardise that, the difference lies around there. There is a basis for going forward, there is certainly a common platform.

Ms Sharpe, do you want to comment?

(Ms Sharpe) I think there is a core shared aim and that is to make sure the patients get the best possible access to pharmacy services and the best possible quality of pharmacy services. I think if we started from that perspective then we may be able to thrash out a good compromise around the table, that is what we should be about.

Chairman: I have enough problems with this bunch so I am not going to suggest anything. Can I thank all our witnesses for an excellent session. We are most grateful to you. Thank you very much.