The Pharmaceutical Journal Vol 267 No 7169 p501
13 October 2001

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Competition and pharmacy — the market versus professionalism?

Just five months after convincing the Restrictive Practices Court that the pharmacy network will not collapse after the removal of price maintenance from medicines the director general of fair trading (Sir John Vickers) is to question rules intended to ensure a sensible distribution of pharmacies offering NHS services. Michael Thompson investigates

Making your point

Pharmacists who want an input into the investigation can contact Dr Martin Graham at the OFT on 020 7211 8769. The investigation is expected to take at least six months.

Last week, the Office of Fair Trading announced three new investigations into areas in which it suspects consumers are not getting the best deal. One of them is what the OFT calls retail pharmacy services.

“The study,” the OFT announced, “will examine the market for retail pharmacy services and, in particular, whether consumers are best served by the system that regulates where pharmacies can open. Since 1987, all pharmacists have had to obtain a contract from their local health authority to dispense NHS prescriptions. This is key to the business of many chemists and drug stores, whose overall turnover last year was worth £18.7bn...

“Restrictions on where chemists can open potentially have an effect on competition and not only in dispensing prescriptions. The system will be reviewed to see how the present restrictions affect competition and consumers and whether there are alternative ways of achieving the public interest objectives behind the present arrangements.”

So is the OFT confusing what it calls “retail pharmacy services” with pharmaceutical services offered by the National Health Service through a system of contracts between health authorities and community pharmacies?

Penny Boys, deputy director-general at the OFT, says that she is clear about the difference between NHS pharmacy services and the business of pharmacy. The investigation is about the effect on pharmacy openings of NHS rules introduced 14 years ago. These were put in place to ensure that new contracts are only available to pharmacies that add value to existing NHS services.

The investigation, which arises from the OFT’s new role as a special adviser to the Government on arrangements that can prevent the market working well for consumers, is to be carried out by the recently formed OFT new markets and policy initiatives division.

Penny Boys says that it was difficult to decide what to examine in the health arena, but pharmacy was chosen because it represented a significant area for consumers and there was heavy regulation which could act as a barrier to entry to the non-NHS pharmacy market.

“One of the things we will have to look at is how important is the NHS contract,” she explains. “Is the acquisition of that contract a significant obstacle to competition or a neutral thing?”

She goes on: “It is not for us to decide on regulation. Our study is to look into what happens in the market, to study the background, to analyse it and to come up with no more than recommendations.”

To those who think that this is just another OFT attempt to put pharmacy down, Miss Boys says: “There seems to be an assumption that this is all bad news. I think that there is a lot of opportunity for pharmacists when you look at their importance in conferring competition in the market.”

Nevertheless, the investigation is bound to be unsettling for pharmacy owners who are anxious to develop new pharmaceutical services for the NHS as well as those who are struggling to maintain their current services. There is fear that a free-for-all could develop.

“Without control of entry, we will see the clustering of pharmacies around GPs’ surgeries and shopping centres attracting a high customer flow. This would put at risk access to pharmacy services in deprived and less well populated areas and will play into the hands of the larger, better resourced, pharmacy organisations,” says John D’Arcy, chief executive of the National Pharmaceutical Association.

“Without control of entry, consumers will undoubtedly suffer from a reduction in access to the range and choice inherent in the current community pharmacy network.”

Superdrug, one of John D’Arcy’s larger and better-resourced players, which was launched as a drug store and has been trying to break into the professional pharmacy market paints a different picture. It sees the NHS contract system as an obstacle to its trading aspirations.

“This is great news for Superdrug and potentially even better news for customers,” says Superdrug’s superintendent pharmacist Mike Keen. “We have campaigned for six years to end these restrictions, which limit consumer choice. Pharmacy provision in the United Kingdom is stuck in a time-warp because of regulations introduced in 1987 which make it difficult to open a new pharmacy in many areas. These barriers have meant pharmacy is not always a patient-centred service and has failed to keep up with modern shopping habits. All too often, consumers are not able to get service where and when they want it, particularly in less affluent areas.”

Whether the OFT investigation is a threat or an opportunity depends on the standpoint from which it is viewed. An alterative position may be to see it as a timely intervention that will produce useful, independent, input into negotiations on a new NHS contract, which are expected to start late next year.

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Michael Thompson is on the staff of The Pharmaceutical Journal