Select Committee on Health Written Evidence


Memorandum by the Pharmaceutical Services Negotiating Committee (PI 3)


  The Pharmaceutical Services Negotiating Committee (PSNC) represents all the community pharmacies in England and Wales who provide NHS pharmaceutical services. We believe that we are able to contribute usefully to the Health Select Committee's Inquiry into the influence of the pharmaceutical industry, from our experience as the suppliers of over 90% of medicines supplied in primary care. We have serious concerns about the risks and fragility of the present systems.

  In this submission we aim to:

    (a)  describe briefly the supply arrangements under which pharmaceutical products reach the patient;

    (b)  explain features of NHS funding arrangements that affect or may affect supplies and prices; and

    (c)  comment on aspects of the present systems that we believe should be of concern to the Select Committee.


  Under present arrangements, community pharmacies bear the responsibility for supply of medicines in primary care, for ensuring that any patient can obtain promptly what the doctor, nurse or other health care professional prescribes. They are obliged to supply medicines "with reasonable promptness". Local NHS authorities and the NHS rely on pharmacies to procure any medicine or appliance that is required and do not concern themselves with how this is done.

  This role is not generally acknowledged, but it works extremely well; the costs of procurement in secondary care are extremely high. In primary care, they are borne by the 10,500 community pharmacies that ensure they can meet their patients' needs. They are able to do this only through the supply arrangements that include manufacturers and three main full line wholesalers who at present provide the necessary support. As we will explain later, the success of pharmacy in meeting patients' needs is despite, and not a result of, the present funding systems and we believe it is in danger.

  The Drug Tariff, which lists medicines and appliances that may be prescribed in primary care includes over 15,000 products. Pharmacies will consider their patient base and local prescribing habits when deciding what medicines to keep in stock and the stock levels. Prices and reimbursement (discussed later) are very important considerations.

  Medicines supplied can be grouped into three classes: proprietary medicines, normally still within patent protection; generic medicines, for which the patent has expired and which are prescribed under the generic name; and OTC medicines, which are sold, not dispensed under NHS arrangements, although of course in some cases the same medicine may also be available on prescription.


  These will be obtained from wholesalers, normally one of the three main "full line" wholesalers, ie those who carry the full range of products. These wholesalers offer a twice daily delivery service, and this is how demand is met for less commonly prescribed items, or medicines whose cost is such that pharmacies cannot afford to hold them in stock. Although they accounted for only 45% of prescription items dispensed in 2003, the ingredient cost to the NHS of proprietary medicines was 76% of total spend on medicines.

  PSNC cannot say whether the prices paid by the NHS for proprietary medicines are reasonable, but the systems for payment to pharmacies are bad. Many proprietary products have a very high price, over £100 per item. The systems for reimbursement are such that independent pharmacies dispensing a prescription for a UK proprietary medicine will normally lose money: the net reimbursement price will be lower than the purchase price. The larger chains may be able to secure purchase terms that cover the cost or even deliver a very small profit. Pharmacies will seek to minimise stock holdings of highly priced proprietary medicines and are entirely dependent on the full line wholesaler services to be able to provide for their patients.

  Full line wholesalers need to carry substantial volumes of the range of proprietary medicines to ensure ready availability for patients. Where, unusually, the pharmacy's wholesaler cannot supply the item, the pharmacy can contact the manufacturer and establish whether there is a national shortage, and make arrangements to address the patient's need. Unless the arrangements for pricing allow sufficient margin to enable both wholesalers and pharmacies to supply the products profitably the future of supplies cannot be assured. At present it is the profits on generic medicines that makes the present arrangements work, but these are being threatened.

  Relationships with full line wholesalers and proprietary manufacturers are important for community pharmacies. Although pharmacies will order from wholesalers, several of the major proprietary manufacturers have representatives with specialised training in their products who visit community pharmacies. Many of the manufacturers provide training materials for community pharmacists or their dispensing staff, to keep them up to date with disease therapies. They also provide sponsorship for local training meetings and conferences. They are an important source of education for community pharmacy, not confined to promoting a specific product. An example of this is an educational training grant provided by GSK to fund a distance learning programme so community pharmacists can gain accreditation to provide advanced services under the proposed new community pharmacy contract.

  The pharmaceutical industry's support can be construed as no more than a means of developing the market for their products, but this would be unfair in the case of its relationships with community pharmacy, particularly given the low ability pharmacies have to influence prescribing. The motivation for the support is undoubtedly part of activity to develop beneficial use of the manufacturer's products, but it enables pharmacists to use the information provided to help patients get the best outcomes from their treatment. It is known that around 50% of all patients do not comply fully with the regimen prescribed by their doctors, and there is an important current role, and a far greater potential role within the proposed new contract, for pharmacies to support more effective therapy.

  Proprietary manufacturers also provide information "help desk" support for prescribers and pharmacists, manned by health care professionals that deal with queries about the medicines. These may relate to a number of issues, including the patient's clinical conditions and the suitability of the medicines, to the stability of the product or possible effects of use. Typically, once a product comes off patent these queries will continue to be directed to the proprietary manufacturer, whether or not they relate to the original product or the generic.


  Many, but not all, generic medicines have low prices. Generics account for 55% of all prescription items dispensed, and a restricted number of products will account for the majority of this.

  Most of this market for independent pharmacies is supplied by short line wholesalers who will supply a limited range of high-volume products; only around 20% of generics are supplied by full line wholesalers. Pharmacies will buy the most commonly dispensed items in large quantities to take advantage of discount opportunities. Some low volume generics will be supplied in the same way as proprietary medicines, through the full line wholesalers.

  Generics manufacturers act as typical commodity suppliers and do not tend to provide support or services of the kind provided by proprietary manufacturers. Pharmacy chains may purchase directly from the manufacturers. There is very active price competition and a large number of suppliers for the popular lines.

  On some generic products percentage margins are very high. The present systems for pricing generic medicines have meant that products recently removed from patent can have reimbursement prices well in excess of prices available to pharmacies. PSNC is seeking to work with the Department of Health to address this by revisions to the present arrangements.

  Pharmacies depend on profits made from generic medicines to offset losses, on proprietary medicines and on the remuneration paid to pharmacies for their NHS work (the Global Sum) which, as has been proved by a recent cost inquiry undertaken by the Department of Health Statistics Unit in conjunction with PSNC, falls far short of the present costs of providing the service.

  We are very concerned about the present arrangements, and in particular the dependence on profits from generics to offset losses elsewhere. We do not believe that these cross-dependencies are well understood by the Department of Health or by primary care organisations. Unless future systems allow community pharmacists to operate profitably by continuing to dispense all prescriptions presented, expensive or otherwise, and there appears to be a very real probability that they will not, the systems could break down.

  In addition to these problems, the pricing systems are a mess. The calculation of prices to be paid to pharmacies is complex, inequitable and inefficient. The procedure, under which pharmacies send off bundles of prescriptions at the end of each month and receive a cheque from the Prescription Pricing Authority six weeks later, with no ability to understand how the sum has been arrived at, is a disgrace. Proposals to move to electronic prescribing and pricing, and the NHS IT programme as it affects community pharmacy are in disarray.

OTC medicines

  OTC medicines and toiletry items sold in pharmacies will normally be purchased through the pharmaceutical wholesalers (full or short line), although medium and large chains will deal directly with manufacturers.

  We have no figures on the size of this market overall or the prices, but generally margins available to independent pharmacies will be 25-35%. The Office of Fair Trading submitted evidence in court proceedings in 2000 that OTC medicines account for 8-13% of pharmacy turnover.


  Community pharmacies derive around 50% of their total NHS income at present from drug purchase profits.

  NHS income represents on average 82% of total pharmacy income. Non-NHS income as a percentage of the total has been declining consistently over the last 30 years with the growth of one-stop superstore shopping.

  PSNC is trying to agree a new national community pharmacy contract with the Department of Health and the NHS Confederation. The service framework has been agreed but until very recently progress on funding has been held up by the Department of Health. The funding arrangements must address the problems already identified.

  PSNC is anxious to protect the viability of locally situated community pharmacies as well as those in high street and health centre locations. Although many large supermarkets include pharmacies, need for NHS pharmacy services (which as seen from the figures above are the main raison d'être for pharmacies) are not normally coincidental with need for a supermarket shop. The government's policies of access, choice and addressing health inequalities support protection of a wide network of community pharmacies.

  Whilst PSNC is open-minded about the sources that provide the income needed by community pharmacies, it believes that use of the competitive purchase pressure exercised by community pharmacy to drive down prices of generic medicines for the NHS has generally worked well, and that pharmacies should continue to be incentivised to purchase at the lowest possible prices.


  The concerns have been set out earlier in this submission. We have a fragile edifice at present under which community pharmacies take on the burden for the NHS of ensuring supply to patients. They do this very successfully. Even at times when there have been supply problems, pharmacies have been able to provide medicines for their patients, on occasions by agreeing substitutions with the prescriber when no other option was possible.

  Future arrangements must deal with the dangers and flaws we have highlighted in this submission. PSNC continues to try to develop collaboration with the Department of Health to agree future systems that do not prejudice supplies to patients or the continuation and development of convenient local pharmacy services.

  We believe that we need to:

    —  Protect easily available supplies of all medicines and appliances to pharmacies, so there is no risk of medicines needed by patients not being promptly available.

    —  Address flaws in the present pricing mechanisms:

      —  to protect supplies to pharmacies and patients; and

      —  not result in pharmacies being reimbursed at less than the purchase price of proprietary, or indeed, any medicines.

    —  Protect the viability of an easily accessible network of community pharmacies.

    —  Recognise the role played by the proprietary industry in providing information to help community pharmacists support their patients.

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