The Pharmaceutical Journal Vol 266 No 7149 p703-704
May 26, 2001

Does the end of resale price maintenance mark the end of community pharmacy as we know it?

Pharmacies and other retailers are now free to set their own prices for over-the-counter medicines. Michael Thompson considers some of the implications

Lifting resale price maintenance of over-the-counter medicines has been heralded as the death-knell for independent community pharmacists, says the UK200 Healthcare Group, part of the UK200 group of chartered accountants.

But in the view of the UK200 group it is not necessarily so. The group suggests that the future success of community pharmacy lies in the hands of the manufacturers of OTC medicines.

“The manufacturers themselves were heavy campaigners for maintenance of the scheme,” says Jonathan Russell, chairman of UK200's health group. “In part, therefore, it is the manufacturers who can still protect small pharmacists.” He takes the view that if it is the buying power of the multiples that will force down prices and margins, then the answer is for manufacturers to resist the multiples' power. Failure to do this will lead to greater pressure on brands from own-label products and generics. Ominously for the manufacturers, he warns if they do not stand up for independent pharmacists they will have to admit that the continuance of RPM was, in the main, to their advantage and that the position of independent pharmacists was merely an excuse.

However, Mr Russell's optimism is not shared by many pharmacists who really do believe that the loss of RPM may push them to the wall unless the Government increases National Health Service remuneration.

RPM: an NHS prop

Wally Dove, chairman of the Pharmaceutical Services Negotiating Committee, takes the view that the pharmacy network that Government ministers say they value so highly for the delivery of NHS services has been propped up by private money. “The loss of RPM is the end of one of the major props,” he says. “I don't know of anywhere in the world where fees are so low together with an open market in OTCs. A starting point will be an extra 20p–30p on dispensing fees”.

Mr Dove believes that there is no time to waste before putting new support in place. “The attrition starts from now”, he says. “We have got to have a short- to medium-term fix before the debate about the new contract and what that will bring. I wouldn't like to see the Government saying there is no possibility of any extra money this financial year.”

One thing that community pharmacists are going to need is advice on how to respond to the shift of OTC buying that many are expecting to see. It is possible that a contributory factor to the expected change in buying patterns will be a public perception that supermarket prices are lower, even when they are not. Advertising campaigns and single product price promotions are bound to add to this perception.

Wally Dove says that pharmacists need to invest in management accounts systems if they have not got them already. They will have to look at how they allocate their merchandising space and must not assume that people will keep coming to them for OTCs. Pharmacists will have to work twice as hard to hold on to market share.

Major shifts in OTC sales

And though Mr Dove might not agree that the end of RPM marks the end of community pharmacy, he certainly believes that things in pharmacy will never be the same again. “There are going to be major shifts in who sells the majority of OTCs,” he says.

Although it is true that the immediate response of the supermarkets and of Boots The Chemists was to cut the price of selected high-profile products and, in the case of Boots, to announce an unprecedented three-for-the-price-of-two offer on general sale list packs of Nurofen, only time will tell whether deep price cuts will be maintained.

“We predicted deep price cutting, with prices then going back up again,” says John D'Arcy, the National Pharmaceutical Association's chief executive.

No-one should be surprised at the vigorous action taken by Boots. When the Community Pharmacy Action Group launched its fight for the retention of RPM, the then company spokeswoman, Sharon Buckle, said that Boots would not be the company it was if it were not making contingency plans. Boots would re-evaluate its position when the Restrictive Practices Court issued its ruling (PJ, April 6, 1996, p473). Last week, Boots's chief executive, Steve Russell, said that Boots intended to take market share from wherever it could.

The Boots offer is one which would have fallen foul of the Royal Pharmaceutical Society's Code of Ethics until it was changed last week (reports p704 and 710).

The new Code of Ethics, put to the Society's annual general meeting on May 16 has been designed to allow pharmacists to use marketing ploys on the sale of medicines so that the Society does not find itself in breach of the Competition Act 1998.

The new code has been written so that pharmacists are not put at a competitive disadvantage to their non-pharmacy competitors. Essentially, it declares a free-for-all over promotions of GSL medicines so that pharmacists cannot be guilty of professional misconduct if they choose to compete with the supermarkets.

The position over pharmacy medicines is similar, in that discounts, seasonal promotions, special offers, linked sales and three-for-two offers are all allowed, but pharmacists might be called to account to the Statutory Committee if the offer is inappropriate for the product concerned.

The key word in Part 3, Section 1(d) of the new ethics code is “wanted”. Promotions should not seek to persuade people to buy more medicines than they want, not need.

The Society has taken the view that pharmacists cannot judge how much medicine a purchaser needs and so should not apply a rigid rule to the amount that might be sold at any one time. The issue is whether or not a promotion causes a person to buy more than they would have if there had been no special offer available.

This suggests that there is no problem with a three-for-two offer until a customer who asks for two packs is told that they can have three. That would be selling more than was wanted. A further complication could be that a customer who pays for two and then finds out about the three-for-two offer might choose to complain to the local trading standards office that there has been a Trade Descriptions Act offence.

Three-for-two offers

Three for two offers are clearly exercising pharmacists' minds, as letters about the Boots offer have been received by The Journal from Hedley Johnston, Sunil Bajarra, Conal Farry, Barry Shooter and Lynn Martin (a second-year pharmacy student). Although the points they raise derive from the old Code of Ethics, they remain relevant.

Exactly what is ethical will only really be known when a complaint is taken to the Statutory Committee, or its successor under any new disciplinary mechanism that might be introduced under the Health and Medicines Act 2000, and a ruling given. In the meantime, pharmacists need a clear statement from the Council of the Royal Pharmaceutical Society, giving examples, of how it intends to interpret the code. A special meeting of the Ethics Committee has been convened to consider how to proceed.

The proprietors of independent pharmacies also need some advice on how to respond to the loss of RPM.

One thing that independents should not do is just cut prices, according to one bank, Lloyds TSB. “There will be an intrinsic response for many small pharmacies to cut their prices, but this may not be the best solution,” says the bank's business banking managing director, David Singleton.

He says that small businesses need to avoid panic reactions. They should look to their individual competitive advantage and make rational and calm decisions.

Mr Singleton offers the following advice

• Look at your competitors' prices closely, to evaluate your position
• Check your original business plan before deciding what to do; if you have not got one, write one
• Decide whether your strategy is based on products, prices or customer service
• Consider your unique selling points; convenience overrides price
• If you cannot compete on price, compete on service
• Diversify into other products
• Check your efficiency
• Market yourself locally
• Be positive

Promotion of medicines — the impact of the Competition Act 1998 and the loss of RPM

The Royal Pharmaceutical Society issued the following statement on May 18.

“Promotional activity involving medicines has for many years been controlled by a number of mechanisms; statutory requirements under the Medicines Act 1968 and the Medicines (Advertising) Regulations 1994, the advertising codes of the Proprietary Association of Great Britain, the Society's Code of Ethics and resale price maintenance (RPM). The recent enactment of the Competition Act 1998 prevented the Society from controlling price promotions in the Code of Ethics. The end of RPM has led to a proliferation of aggressive promotional activity on OTC medicines.

“The new Code of Ethics was adopted at the annual general meeting on May 16. It sets out pharmacists' professional responsibilities in relation to medicines promotions. The relevant section of the Code is reproduced below for ease of reference. In particular pharmacists have a responsibility to ensure that promotions emphasise the special nature of medicines and do not encourage inappropriate or excessive consumption or use of them.

Promotions of GSL medicines

“The Code of Ethics recognises that pharmacies must be permitted to compete on equal terms with other retailers of general sale list medicines. Pharmacies may therefore adopt the same promotional techniques as other retail outlets. Types of promotions which would be acceptable include price discounts and volume based promotions, eg, 20 per cent off, new low price, three-for-two offers, etc.

Promotions of pharmacy medicines

“Promotions on pharmacy medicines, eg, volume-based promotions or linked sales, etc, will have to be considered on their merits the pharmacist having given thought to factors such as the product, the pack size, the condition to be treated, the intended recipient of the medicine, etc. Simple price promotions are acceptable.

“The challenge for pharmacists is going to be deciding where to draw the line, eg, a three-for-two promotion on kaolin and morphine is unlikely to be defensible but a similar promotion on an antihistamine product where the pack size is small and the patient is likely to need the medicine for an extended period of time may well be.

“Pharmacist owners and superintendent pharmacists must be satisfied that promotions for P medicines are professionally acceptable and that they do not seek to persuade consumers to obtain medicines which are not wanted or quantities substantially in excess of those wanted. Individual pharmacists must be able to, and expect to, justify decisions to supply medicines to particular purchasers.

“The new Code requires an identifiable pharmacist to be accountable for the provision of each pharmacy service and the activities of non-pharmacists involved in their provision. With the advent of price promotions, pharmacists in charge of a pharmacy must be satisfied about the procedures under which counter staff operate.”

Extract from Code of Ethics and Standards

A new Code of Ethics and Standards was accepted by members of the Royal Pharmaceutical Society at its annual general meeting on May 16. A section on publicity, promotion and information says:

It is in the public interest for pharmacies to provide information about their opening hours and services available. Any information or publicity material regarding pharmacy services must be accurate and honest. The public and the profession would not expect any products or services advertised or otherwise promoted, to be injurious to health when properly and responsibly used.

a) All information and publicity for goods and services must be legal, decent and truthful; be presented and distributed in a manner so as not to bring the profession into disrepute; and not abuse the trust or exploit the lack of knowledge of the public.

b) Information and promotional material relating to professional services must be compatible with the role of pharmacists as skilled and informed advisers about medicines, common ailments, general health care and well-being. It should be presented so as to allow the recipient to decide independently whether or not to use a service and should not disparage the professional services of other pharmacies or pharmacists.

c) Pharmacists must not make any unsolicited approach, for promotional purposes, directly to a member of the public by way of a telephone call, e-mail, or visit made without prior appointment.

d) Pharmacists must ensure that promotions (materials and campaigns) for medicines aimed at the public

i) emphasise the special nature of medicines

ii) do not make any medicinal claim not capable of substantiation

iii) are consistent with the summary of product characteristics approved by the Medicines Control Agency as part of the licensing procedures

iv) do not promote a medicine by way of endorsement by a pharmacist. A pharmacist may recommend a product in response to a request for advice from an individual patient

(v) do not promote inappropriate or excessive consumption or use of medicines or their misuse, injudicious or unsafe use which may be injurious to health.

(e) Pharmacists may advertise the prices at which they sell medicines and price discounts. Promotions for pharmacy medicines which seek to persuade consumers to obtain medicines which are not wanted or quantities substantially in excess of those wanted are considered to be professionally unacceptable.

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Michael Thompson is on the staff of The Pharmaceutical Journal