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GP Dispensing: Cashflow issues from falling drug prices

There have been recent changes to the pricing of generic drugs. Dr Allan Tennant takes a look.

Category M of the English/Welsh Drug Tariff was introduced by the DoH with the new pharmacy contract in 2005. It adjusts the prices reimbursed by primary care organisations on behalf of the NHS to pharmacies and dispensing practices for over 500 generic products.

The data on volume and prices of drugs sold is gathered from the manufacturers. This is then combined with prescription pricing data from the Prescription Pricing Division of the NHS to estimate pharmacy profit margins on generic drugs.

The reimbursement prices of these drugs - which make up around 90 per cent of generic drugs prescribed - are changed and published every quarter with the overall aim of allowing pharmacies to retain purchase profits of £500 million on reimbursement while saving the DoH £300 million.

To deliver the £500 million target for the pharmacies, prices have moved up and down, sometimes wildly. So for example, in a 12-month period between April 2006 and 2007, prices of Gabapentin 300mg, 100 capsules, went down by £24, then up by £26, down again by £42, up another £12 and then down by £2.

Reductions in reimbursement
There was an across-the-board reduction in category M reimbursement prices of over 10 per cent in July and then in October they were slashed again, to balance an excess in income from pharmacies. Because of contract differences, dispensing doctors' profits do not mirror those of pharmacists, but they will suffer from a similar fall in revenue because of Category M price changes.

The DoH calculates that pharmacists made excess profit earlier in the year and therefore have cut pharmacist and practice payments per item from 35.6p to 25.2p. This drop in revenue cannot be absorbed. Some accountants are advising pharmacists to take out loans to alleviate their cash flow problems.

Dispensing doctors need to consider overdrafts. October changes will reduce annual income by £8.02 per patient, with an extra £1.30 per patient loss on the July changes.

Some drugs are purchased for more than the price the dispenser or pharmacist will be reimbursed (see below). While pharmacists have to dispense what is prescribed, the Dispensing Doctors' Association (DDA) advises practices to think carefully about alternatives before prescribing these drugs.

Low costs may lead to shortages
There are now 21 products in Category M that treat conditions such as IHD, diabetes and heart failure where a month's supply costs less than a Mars bar. Cheaper prices means lower factory gate prices and lower manufacturer profits, and the last time we got to this situation, in the late 1990s, we saw widespread drug shortages. Meanwhile, the highly regulated German generic drug market has just been opened to the free market. Hopefully these manufacturers will be able to meet the increased demand.

Dispensing doctors' initial response to the price changes will be to become even better at purchasing generics, and obtaining bigger discounts. While in the short-term this will increase income by a small amount, in subsequent months the government will reduce reimbursement prices further to reabsorb the excess profit. We are on a treadmill where we are running faster for smaller gains.

The interference in prices by government causes problems on which product to use. For example, in July Lansoprazole was the cheapest PPI, now it is Omeprazole.

It cannot be right that practices should subsidise drug costs in the NHS when choosing the drug that is best for the patient. Furthermore, the spectre of generic drug shortages such as we saw in the 1990s is just around the corner.

View the list of category M drugs found on sale

Dr Tennant is a dispensing GP North Lincolnshire, editor of DDA Online and vice-chairman of the DDA

The DDA recommends that dispensers check the prices from their supplier and look around before buying above the reimbursement cost.

The DDA is the only organisation that ensures the views of dispensing practices are heard by the government and key negotiating bodies. We also provide telephone advice to members and essential updated information via our website, and email alerts. To find out more call Jeff Lee on (01751) 430835 or visit www.dispensingdoctor.org.uk

The DDA does not necessarily support or endorse the opinions or information contained on this page.

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