APPENDIX 2
Memorandum by the Pharmaceutical Services
Negotiating Committee (PI 3)
INTRODUCTION
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.
A. THE SUPPLY
ARRANGEMENTS
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.
Proprietaries
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.
Generics
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.
B. COMMUNITY
PHARMACY INCOME
FROM MEDICINES
PURCHASES
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.
C. SUMMARY—ISSUES
OF CONCERN
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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