Malcolm Almond is a writer and community pharmacy locum from Huddersfield, West Yorkshire
About 15 years ago, my old friend the late Eric Jensen suggested that pharmacists could do better financially by selling their pharmacies and investing the capital released. For readers who may never have heard of Eric Jensen, he was a pharmacist, a writer and an economist. As he was with many of his ideas, he was well ahead of his time with this one. However, the time may have arrived to take Eric’s suggestion seriously.
The financial state of community pharmacy does not look good at the present time and the prognosis is not good either. Community pharmacy has become accustomed to clawbacks over many years, but the current clawback of money for overpayment of generic prices is tough. The current clawback is due to be paid over a period of 20 months up to April, 2000, but that will not see the end of the matter. While community pharmacists are paying back discounts for generics obtained in 1997-98 and 1998-99, the clock is running on the next clawback. An increase in the numbers of prescriptions dispensed during 1998-99 will have led to an overpayment of dispensing fees which will have to be adjusted. Prescription numbers in 1998-99 rose by a greater percentage than the increase in the global sum. It is also likely that there will be a further correction required for generics and parallel imports because there is no further scope for clawing back ethical discounts.
The latest clawback is particularly vicious for two groups of contractors. First, there is a small number of independents who are still not using parallel imports, but the current remuneration system demands that they must pay back money that they have not had. Secondly, there are the multiples and large independent contractors that have been using brand equalisation schemes. These schemes allow contractors to dispense brands such as Zantac tablets, Ventolin inhalers, Voltarol tablets and Tenormin tablets against generic prescriptions. While the scheme may have compensated the contractors for the price differences, I do not think there was enough in the deals to to cover the clawback. I certainly have not come aross a fleet of articulated lorries going round pharmacies dropping off free stock to cover the losses caused by the clawback. In addition to these two groups, any pharmacy not using large quantities of ranitidine will be repaying money that they have not had in the first place.
Contractors are currently being disadvantaged by the rapid changes to Category D of the Drug Tariff. In most pharmacies, prescriptions are endorsed at the time of dispensing or at some time later on the same day. However, the rules often change part way through the month when generics are changed from Category A to Category D in the Drug Tariff. This change requires a contractor to endorse a pack size and maker’s name on the prescription to ensure correct payment. It is not practical to sift through prescriptions already endorsed to add the extra details. Contractors relying on computerised endorsing systems are being lulled into a false sense of security; indeed, I have found items that have been in Category D for two months not being correctly endorsed.
If we add the potential problems lurking on the over-the-counter side of community pharmacy, the future is not bright. Resale price maintenance is under threat and is likely to remain so until it falls. On the counter-prescribing side, potent drugs that we have waited for years to be reclassified from prescription-only to pharmacy medicine status are moving at too great a rate on to the general sale list.
Eric Jensen’s suggestion that pharmacists invest their capital outside pharmacy has never been more appropriate than it is now. The FTSE-100 index has doubled in the past six years and has increased more than six-fold since 1984. The Pharmaceutical Journal of January 9 (p54) carried an article by the development director of Moss Chemists suggesting that proprietors consider selling their businesses now. Although I feel sure he was not thinking only of the benefits to the vendor, this was certainly timely advice. A business with a turnover of £500,000 split 75 per cent dispensing and 25 per cent OTC will have seen overall gross profit fall from 24 per cent to around 17 per cent in the past six years. A fall of 7 per cent in gross profit can be put into perspective by comparing the fall to the level of staff wages, which probably amount to around 5 per cent of turnover, excluding the cost of the pharmacist. Add to the diminishing margins the phased withdrawal of retirement relief and owning a community pharmacy does not look so attractive in the long term. There is a definite incentive for proprietors in community pharmacy over 50 years of age to take the money and run as soon as possible. Having accepted the proceeds of the sale of their business on tax-advantageous terms, pharmacists can start to build a portfolio of investments free of tax by using the Individual Savings Account allowances. In the case of a married pharmacist, this amounts to a five-figure sum annually. At least in the world of finance the tax rules are laid down prior to profits being released, whereas in community pharmacy the repeated clawbacks amount to retrospective taxation. Although interest rates are not attractive at the present time, there are opportunities in equities and in bonds to obtain better and more stable returns than owning a community pharmacy can produce.
As community pharmacy changes to meet the challenges presented by changes in the National Health Service, there are new roles appearing in pharmacy. Unfortunately, these roles are not for the average community pharmacist and certainly not for the independent community pharmacist. Posts are advertised for prescribing advisers to primary care groups, but the clinical pharmacy knowledge required means that the posts are filled by hospital pharmacists or freelance consultant pharmacists. Education and audit facilitators are required to develop community pharmacy services but these posts are health authority posts and, again, will probably be filled by hospital pharmacists or consultant pharmacists. Pharmacist prescribing may be introduced at some point in the future but I can only see that role being given to proven clinical pharmacists and not to rank-and-file community pharmacists. The only new roles that the community pharmacist is likely to get are the “add on” roles that are expected to be carried out free of charge.
In spite of the adverse financial climate in community pharmacy, the major multiples are looking to expand. Supermarkets are always seeking pharmacy contracts and will go to almost any lengths to achieve a relocation for a contract.
The future for community pharmacy was set out in the Nuffield report, which was published in 1986 and largely ignored by pharmacy’s leaders. Nuffield called for a reduction in community pharmacy numbers, yet 13 years later we are still not moving in this direction. Until there is a reduction in community pharmacy numbers, it must be assumed by the Department of Health that community pharmacy is a lucrative business. The fact that the large multiples within community pharmacy are constantly looking to expand their chains only serves to confirm this belief. If I was asked to paint a picture of the future of community pharmacy from an independent’s perspective, I am afraid I would have to paint it black.