The Pharmaceutical Journal
Vol 270 No 7234 p159
1 February 2003

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Office of Fair Trading pharmacy report summary

OFT report has been driven by cost concerns, not consumer benefits

Mahesh Shah, managing director of Nucare Plc, is disappointed by the conclusions of the Office of Fair Trading's report, which, he says, is inherently flawed

I am disappointed by the Office of Fair Trading's recommendation that the control of entry regulations for community pharmacies in the United Kingdom should be abolished. At the start of the OFT investigation, Nucare maintained that abolition was likely to have the greatest detrimental impact on the independent community pharmacist, hence our determination and lobbying of the OFT to present and highlight the views of the independents. We are disappointed that the ethos and methodology of the investigation did not reflect this.

The OFT report is inherently flawed because it concentrates only on competition and price issues. In addition, we are not operating in a truly open market; it is a distorted market dominated by one player — the National Health Service. If this report is accepted, we could see the emergence of pharmacies moving into or close to surgeries and contracts being given to those pharmacists with the deepest pockets, thus creating new and different barriers to entry.

What is more, there is no evidence to suggest that the present regulatory system does not work. Since its inception in 1987, hundreds of contracts have been awarded and there has been no suggestion that the public has had trouble in obtaining pharmaceutical services.

Set out below is my initial response to the recommendation and report:

The OFT report is flawed At the briefing to stakeholders, the OFT admitted that health care and health care policy were not the primary drivers of the report. The report focused on competition and retailing issues only. It was driven by cost considerations and "would not be worth anything if it results in increased costs of (essential small) pharmacies". In other words, the report's recommendation is driven by cost concerns rather than consumer benefits.

The OFT has not really taken any account of the structure for the provision of health care services Community pharmacy operates in a monopsony situation, where there is one predominant purchaser of prescription services — the Government. The source of prescriptions is via general practitioners, who do not have freedom to open surgeries wherever they like. GPs need permission from health authorities as to where they can operate and there are areas where they are not allowed to open. This is entirely sensible because it ensures rational distribution of medical services. Thus, it is inconsistent that consumers should not benefit from a policy that encourages rational distribution of pharmacies. The OFT proposals would leave it open to market forces to determine the fate of distribution of pharmacies.

Accepting the OFT recommendation will inevitably lead to pharmaceutical services becoming a commodity Here the focus is on absolute costs rather than a focus on cost-effective health care. It has been said that drug costs are already too high, but there is plenty of evidence to show that drug treatment is far more cost-effective than most other treatment options.

The OFT report concedes that it is difficult to estimate the potential benefits that consumers would derive from deregulation There is no evidence at all that members of the public have had any difficulties in obtaining full pharmaceutical services and it is a high risk indeed to recommend the complete reversal of a system that has worked well to date. Since the new regulations have been introduced, hundreds of new contracts have been granted where they have been deemed necessary or desirable.

The OFT uses tenuous grounds of access, suggesting that the longer supermarket opening times are a benefit to consumers Pharmacists have long been providing rota services, and 24-hour emergency pharmaceutical services are available everywhere. It would be interesting to look at the evidence of whether or not there is a real need for pharmaceutical services late at night. The evidence from rota pharmacies suggests that such demand is low. However, if there is sufficient evidence to support the assertion that longer opening hours are required, this could be accommodated by existing pharmacies; indeed it already is where there is local demand.

The OFT estimates consumer benefits in the order of £30m per annum The extrapolations are based on many suppositions. In the United States, where there are no restrictions in the sale of over-the-counter medicines (ie, they can be purchased from any retail outlet, petrol forecourt, etc), the costs of such medicines is substantially higher. Secondly, the promotion of cut-price medicines may lead to excessive or inappropriate use of medicines. There is a danger that medicines will be purchased because of a "sale" rather than because their purchase is necessary or appropriate. This would easily negate the "savings" and may indeed lead to other costs, which would be an additional burden on the NHS.

The OFT contends that greater competition would lead to a better service In a survey conducted by Nucare, 82 per cent of independent pharmacy respondents said that they would reduce their investment in the business and only 3.5 per cent indicated that they would increase investment in training and development. Our results question the OFT findings.

An important element of service is the provision of a wide range of medicinal products to meet the individual needs of consumers, and facilitate patient choice. Our research shows that independents stock a much wider range than supermarkets. Supermarkets are interested in volume sales and tend to stock a narrow range of top brands.

Conclusion

It is estimated that pharmacists who are members of Nucare Plc made over 50 per cent of all returns to the OFT inquiry. The majority of Nucare members are located in the heart of local communities and our membership represents 10 per cent of the total pharmacy market and 20 per cent of the independent pharmacy market. As a group, it is estimated Nucare pharmacists deal with half a million patients and consumers a day and dispense over five million prescriptions a month.

Following publication of the OFT report, we are preparing to make representations to the Department of Health, including a detailed response about the profitability of a typical independent pharmacy. Plans are in place for us to conduct our own consumer survey in order to report its findings on consumer attitudes and benefits. The results will be made available at a future date