The Pharmaceutical Journal
Vol 270 No 7234 p160
1 February 2003

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Office of Fair Trading pharmacy report summary

The OFT has not served consumers well and a phoney war may follow

Noel Baumber, an independent pharmacy proprietor from Lincolnshire, looks forward to less competition, longer queues and fewer services in the community

The good news is that the Office of Fair Trading report, "The control of entry regulations and retail pharmacy services in the UK", leaves action — or inaction — as an option for the Government. The report's conclusion, however, agrees with one of the principles of competitive markets: that a policy of no barriers to entry generally serves consumers' interests best. Without condemning service or access, the argument seems to be that the current system is not good for consumer choice. What happens next is the phoney war when all parties will be lobbying hard.

The bad news is what is not in the OFT report, since it lies in the realm of conjecture about what might follow from any Government action. It suggests relaxation of controls without providing alternatives or limiting any changes and it implies that the only threat comes from an extension of 500 new pharmacies opening in supermarkets and 130 or so non-contract pharmacies.

I could find no mention of the free-for-all back in the old days when leapfrogging reduced community pharmacy numbers from 15,000 to 8,000 and dispensing practices posed a real threat. Instead, we hear that it was the "bad old" cost-plus contract that was responsible for an increase in pharmacy numbers, not the two-year time lag in introducing the control of entry regulations. My memory must be fading.

Inconclusive research

The report is full of assertions and inconclusive bits of commissioned research. Public detriment is not well defined but is mostly a whinge that we should all have reduced our prices more when resale price maintenance ceased. If we had, then they would not have had to consider wholesale slaughter to make a point. This is a sign of the times.

Interestingly, there is no evidence of excessive profits being made, and so the next objective is to decrease the costs to the taxpayer of dispensing NHS prescriptions and making applications for new contracts.

Having seen an Asda spokesman on the news suggest that pharmacy students could look forward to opening their own pharmacies, I thought the comment was particularly disingenuous. Individual pharmacists and especially students find it extremely hard to compete with the deep pockets of the multiples for the control of viable sites. In any case, supermarkets and new surgery developments will control their own sites, with or without the control of entry regulations.

No official research was done on the services we already provide as a result of healthy competition between contract pharmacies, which I estimate to be well over £100m per annum at little or no cost to consumers. Instead there is a presumption that there is no competition without deregulation.

We all know that manpower, time and contentment are in short supply. Here the OFT is predicting closures without financial compensation, greater ownership by pharmacy chains and longer hours.

There was no mention of the recent agreement between the Pharmaceutical Services Negotiating Committee and the General Practitioners' Committee over dispensing in rural areas but, if the OFT was serious about access and service, the report could have recommended the opening up of rural areas saving up to £100m a year from brand prescribing, or the introduction of patient-oriented services where pharmacies can make a big difference. The regulations are also about the divide between qualified and unsupervised dispensing, and about preventing the collapse of the pharmaceutical service through leapfrogging and monopoly. Here the OFT is protecting the rural GPs' monopoly, which is a vote for unsupervised dispensing and no competition in the place where it is most needed.

Competition clearly does not mean the same thing to the OFT, multiples and independent contractors. Why should the supermarkets drop prices any more than they do now that RPM has ended, when what they want is the freedom to undermine the competition anywhere without having to buy pharmacies and market share? Independents compete by providing patients with good services and good prices. All they want is stability and proper recompense for what they do. Theirs are the only assets at risk and they stand to be the losers, yet no one has looked at their viability or tried to assess what will be lost when they are driven out of business. I fear that the end result will be less competition, longer queues and fewer services in the community.

The Department of Health has been waiting for a fall in the numbers of pharmacies for years before it is alleged they will do something about the annual increase in funding. The OFT wants to oblige with an end to control of entry regulations, which can only mean a return to uncontrolled leapfrogging, bankruptcies and closures. In the short term there might be more pharmacies, but in the longer term the OFT appears content to accept possibly two closures per (undefined) locality and is looking for savings for the taxpayer. That is an appalling scenario for individuals who are contractor pharmacists. Never have independent contractors needed a body to represent their interests more than they do now, but the National Pharmaceutical Association cannot do it, the PSNC will not do it and ginger groups and internet talk shops are ineffective and unrepresentative.

The report highlights the point that the remuneration system could be restructured to remove the need for entry controls. I take issue with this. As I remember it, we received control of entry controls as a quid pro quo for losing the cost-plus contract. Furthermore, the cost-plus contract was lost partly because it was alleged that the increase in pharmacy numbers was due to front loading. In the words of the Nuffield report of 1986: " ... under the terms of the existing contract higher payments are made to smaller pharmacies for each prescription dispensed than to larger ones."

Damning doublethink

This clever and damning piece of doublethink ignores the point that any system with an eye to economies of scale and achieving savings through volume would exhibit the same symptoms. Add to that the initial increase of pharmacy numbers when the floodgates open and it will seem to justify the NHS not paying the professional allowance to all and sundry. Then, we could be down to a flat rate dispensing fee for recompense — a monstrous state of affairs when you know that we all share common costs unrelated to volume, which are at least three times in excess of the professional allowance. On the back of an envelope, this means that over £190m might be redistributed for other purposes within the global sum, roughly £140m of which currently comes to the half of community pharmacy comprising small and medium contractors. Putting that back into a dispensing fee would move an extra £45m per year to the top 25 per cent of contractors, an average gain of £18,500 each. That is what makes courting political influence so attractive, when there is no scope for increasing the global sum, and when "efficiency" is rewarded at the cost of the supposedly "ineffective".

The additional "savings" for the NHS will come from the resulting closures, first through the direct effects of leapfrogging but potentially from the restructuring of the contract. On the other hand, if the professional fee goes into funding new concepts of service in a new contract, then there will not be time or money around to provide all the services we were providing free of charge. We will all be busy studying, redesigning our pharmacies, or more likely deciding whom we will work for and whom we will not.