The Pharmaceutical Journal
Vol 268 No 7187 p288
2 March 2002

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Remuneration down; clawback up — did pharmacy pay too much for the control of entry provisions?

By Alan J. Smith

The "old" National Health Service dispensing contract existed on the basis of cost-plus. The costs were ascertained by means of inquiries into the cost of staff, space dedication, overheads such as rent, rates and insurance, plus a negotiated profit margin. The profit element was awarded by the Franks Panel in 1979 and was originally 4 per cent; however, this was later unilaterally reduced by the Department of Health to 1 per cent. The cost part of the contract was established in 1964 after years of unsatisfactory horse-trading between the Department and the Chemist Contractors Committee, the predecessor of the Pharmaceutical Services Negotiating Committee. The reduction in profit margin was justified by the Department because, if it was difficult for competitors to establish a pharmacy which had an NHS contract, then the risk element was diminished. It is ironic that, having lost remuneration because of the control of entry provisions, the control of entry provisions are alleged to be anticompetitive and are now being investigated by the Office of Fair Trading. Thus the contractors, having lost the profits element for NHS dispensing, are now in danger of losing the control of entry provisions.

In hindsight, it would have been more advantageous to base the future distribution of pharmacies on the continuation of the payment of the basic practice allowance of £3,000 per annum (in 1989) plus the essential small pharmacy scheme. This would have acted as a deterrent. However, it would not have prohibited a pharmacy opening close to existing contractors but would have given a financial incentive to open more than one kilometre away from the nearest contractor and an even greater incentive if the distance was more than two kilometres. The payment of a basic practice allowance plus a relocation allowance for pharmacies to move to an area of need could have led to a rational distribution of pharmacies rather than a prohibition of NHS contracts.

In 1989, the discount clawback was 8.2 per cent and the dispensing fee was 134p for the first 1,400 prescriptions, 61.5p for the next 5,250 prescriptions and 68p thereafter.

The new contract was introduced in April 1989, when it was announced that all costs inquiries would be discontinued except inquiries into discounts. The basic principles on which future remuneration would be based was recruitment, retention and motivation. Dr Keith Watson, of Sunderland Local Pharmaceutical Committee, said at the time that the Department intended to retain the aspects of the cost-plus contract that were of benefit to itself, but reject the aspects of the contract that were of benefit to contractors (PJ, 25 February 1989, p214).

In a House of Commons Written Answer on 4 July 1989, Secretary of State Kenneth Clarke stated, inter alia: "I will honour two further concessions made in the negotiations [with the PSNC] that there will be a mechanism for collecting any over- or under-payment against the target for the year during the following year." These were the "rules of the current system" referred to by the Under-Secretary of State for Health Hazel Blears when she addressed the National Pharmaceutical Association dinner last year (PJ, 1 December 2001, p767). Because the principle was established during negotiations between the PSNC and the Department, it should have come as no surprise to the committee.

The National Health Service (Amendment) Act 1986, which introduced the limitation of NHS contract unless it was deemed "necessary and desirable", also allowed the adjustment of contractors' remuneration to take account of the "rules of the current system".

Community pharmacy needs a sustained and continuous PR and parliamentary programme and, although I have sympathy with the National Pharmaceutical Association's suggestion to "pull the plug" on pharmacy-based repeat dispensing (PJ, 1 December 2001, p767), I suggest contractors "privatise" all prescriptions where the cost is less than the patient's contribution. This would have a doubly beneficial effect: it would highlight the present inequities resulting in less pay for more work and would draw attention to the role of pharmacists as unpaid tax collectors. Most forms of industrial action require widespread support but, in this instance, if patients were paying less for their prescription it would act as good publicity for those pharmacies that were implementing the privatisation scheme and would have a beneficial effect on both discount clawback and pharmacists' remuneration. The cheaper the NHS drugs bill, the more the discount clawback would diminish and, similarly, the number of NHS prescriptions would reduce. Then there would be a smaller possibility of pharmacists being penalised for working harder for dispensing the greater volume of prescriptions.

I realise that privatising prescriptions would increase the workload, but the suggestion is worthy of consideration in spite of the statements, which will undoubtedly arise, that it is illegal. There are cases where pharmacists have individually "privatised" prescriptions and the Government has declined to take action. Indeed, if it did take action against any pharmacist, the amount of good publicity for pharmacy would increase and only negative publicity would result for the Government.

When a pharmacist in Wales was threatened with legal action for privatising NHS prescriptions, the Government decided not to pursue matters because it was aware of the adverse publicity that would ensue. Probably the only basis for legal action was the theft of the paper on which the prescriptions were written, because that remained the property of the health authority.

In 1989–90, the gross profit from NHS dispensing was around 26 per cent; it has now been reduced to under 13 per cent. Conversely, the discount clawback has increased from 8.2 per cent to 11.8 per cent and this will only exacerbate the adverse effects of the reduction in the professional fee to 87.4p. The graduated dispensing fee in 1989 (see above) was intended to match remuneration to the costs of providing the dispensing service. Graduation still occurs in spite of the demise of cost inquiries and is now implemented by payment of the professional allowance. Now that remuneration has been drastically reduced and there is no reward for increased productivity, the only way to influence profit is dependent on a contractor's ability, or otherwise, to beat the discount clawback scale. This obviously favours larger contractors, particularly those who are vertically integrated, with the benefit of wholesale discounts.

Did the profession pay too much for the benefit of the control of entry provision, particularly now that these restrictions are under investigation by the OFT? I believe that it did.

Dr Smith is a consultant to the pharmaceutical industry. He was chief executive of the Pharmaceutical Services Negotiating Committee until 1988