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Dispensing - The category M drugs problem

Dr David Baker argues that dispensing practices face closure unless reimbursement matches outlay.

Dr David Baker: 'Until reimbursement in dispensing practice matches the outlay on branded products, it cannot be fair to claw back the "profit" on generic drugs' (Photograph: Widle Fey)
Dr David Baker: 'Until reimbursement in dispensing practice matches the outlay on branded products, it cannot be fair to claw back the "profit" on generic drugs' (Photograph: Widle Fey)

The major changes in category M prices from 1 October 2010 were widely reported, but it will be January before the effect of these huge reductions in generic reimbursement prices is felt by dispensing practices.

Category M was introduced into the drug tariff in April 2005 when the new community pharmacy contract was launched (see box below).

The major problem from the perspective of dispensing doctors is that category M is a mechanism designed only to ensure that the purchase profit in pharmacy meets the agreed levels (currently £500 million) rather than have any effect on dispensing practice profit.

'Smooth the impact'
Pharmacies were due to pay back all £140 million in excess purchase profits in 2010/11. But pharmacy minister Earl Howe has allowed £20 million to be carried into 2011/12 to 'smooth the impact', according to the Pharmaceutical Services Negotiating Committee (PSNC). The clawback is around an extra £13,000 for each of the 10,500 pharmacies in England.

The category M deductions will come in three waves: £60 million taken in October, a further £60 million in January and the remaining £20 million over the course of the next financial year.

Because dispensing practice accounts for 7 per cent of all prescriptions, it follows that their share of pharmacists' clawback will be £9.8 million - equivalent to more than £8,000 per practice in England and Wales. This is confusing as it could mean the pharmacy clawback taken via category M will be 7 per cent below what has been agreed (Scotland's dispensing payment system is totally different).

There is a major degree of unfairness here, since dispensing practices' reimbursement and remuneration is calculated in a very different way from pharmacies.

The overall amount the NHS will pay for the delivery of dispensing services in general practice in England and Wales is a fixed sum known as the dispensing envelope. The size of the envelope is calculated according to a formula that was designed to take account of the costs of providing the service and the intended income to be derived from it. Currently the split is 55 per cent 'cost' and 45 per cent 'pay'.

Review Body award
'Cost' is uplifted year on year by the volume of items and the 'pay' element by the Review Body award. If there is a variation of more than 1 per cent from the predicted out-turn of the previous year, then the over or under spend will be adjusted in the current year. The Technical Steering Committee (TSC) then calculates how that fixed envelope can be delivered fairly through the dispensing fee.

How the TSC works

The TSC undertakes an agreed programme of work associated with technical aspects of GP contracts, and produces a series of reports for the negotiators. The committee includes representatives from the four UK health departments, NHS Employers and the BMA. The methodologies, information and reports are agreed at regular committee meetings. The chairman and secretariat are employed by the NHS Information Centre. www.ic.nhs.uk/tsc

The operation of the formula led to a small but nonetheless unwelcome and unexpected reduction in our dispensing fee in October.

Until reimbursement in dispensing practice matches the outlay on branded products, it cannot be fair to claw back the 'profit' on generic drugs.

The outcome, at its worst, will be that dispensing ceases to be financially viable, the acknowledged cross subsidy of medical services disappears and patient care suffers. In the last resort practices will close.

The Dispensing Doctors' Association (DDA) is pushing hard for the issue of reimbursement shortfall to be addressed by the DoH and NHS Employers.

DDA priorities to achieve:

  • A reimbursement system that means, as a general rule, no drug is dispensed at a loss.
  • A logical list of personally administered items that is the same at NHS Prescription Services as at Her Majesty's Revenue and Customs.
What is category M?
  • Category M is used to adjust the reimbursement prices of more than 500 medicines.
  • It uses information gathered from manufacturers on volumes and prices of products sold plus information from the NHS Business Services Authority's NHS Prescription Services on dispensing volumes to calculate margins in the supply chain.
  • It is normally adjusted on a quarterly cycle in light of this information and negotiations with the PSNC.
  • As prices have to be set in advance each quarter, estimated volumes are used, which may differ from actual volumes. However, the built-in correction mechanism ensures that the quarterly adjustments account for any over or under recovery in practice.
  • It is closely monitored by the PSNC to ensure that the scheme operates correctly and to identify anomalies. Regular feedback meetings are held with the DoH.
  • It is the principal price adjustment mechanism to ensure delivery of the purchase profit income promised as part of the new pharmacy contract.

Source: PSNC website

  • Dr Baker is chief executive of the DDA

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