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Darrin Baines, PhD, is part-time senior
research fellow, King’s College London
Catherine Hale, LLB, is lecturer in law and medical ethics, University
of Birmingham
Correspondence to Darrin Baines
e-mail director@medm.co.uk
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Community pharmacists are currently in the process of negotiating a
new remuneration system and terms of service. Since 1948, community
pharmacists
have had “independent contractor” status within the NHS and
have been paid on the basis of a national pharmacy contract. Unlike the
payment system for family doctors, the existing pharmacy contract is
extremely simple, with the majority of income being derived from dispensing
fees. As a result, this national arrangement is easy to administer but
contains few incentives to encourage pharmacists to enhance the services
they offer.
Contracts
Remuneration for pharmacists will be arranged at a local level under
the new contract |
Over the past 30 years, the “contract” has become a major
area of study within economics. In this article we compare and contrast
emerging thinking in this field as a means of identifying issues that
the designers of the new pharmacy contract should consider.
To lawyers, a contract is a binding, formal agreement between two parties
that may be contested and enforced in law. However, to economists, a
contract is “an agreement under which two parties make reciprocal
commitments in terms of their behaviour to co-ordinate”.1
Under the economist’s definition, “reciprocal commitments” include
payments made, goods or services traded and (formal and informal) understandings
of how the other party should act. Importantly, the mention of the concept
of “co-ordination” implies that buyers and sellers will commonly
encounter problems delivering what the other party wishes to receive.
For instance, you may experience difficulties in co-ordinating your car
mechanic so he does what you wish (that is, lowest cost, needed repairs
only) not what you fear he wants (that is, maximum income, minimum work).
Therefore, economists examine the theoretical issues involved in co-ordinating
different parties to a transaction, whereas lawyers can help enforce
actual agreements made in everyday life. Institutional framework
Despite their differences, lawyers and economists both acknowledge
that contracts tend to operate within wider “institutional frameworks” that
specify the society-level rules we should follow regardless of the
contracts we sign. For instance, pharmacists must work within the institutional
framework specified by the 1968 Medicines Act and their professional
code of ethics when delivering their contracted services. As part of
these arrangements, failures to act legally or ethically can be punished
by the courts or by removal from the pharmacy register.
As society-level rules affect individual transactions, economists use
the term “property rights” to denote “the rules which
specify what individuals are allowed to do with resources and the outputs
of those resources”.2 For instance,
community pharmacists currently have the right to purchase drugs for
patients using NHS resources and
may keep any profits made, after an agreed claw-back has been applied.
However, the new contract may alter this right so pharmacists lose some
of their purchasing income when a new funding formula is applied, even
if this money were made legitimately.
In sum, economics suggests that pharmacists work within a specified institutional
framework, with property rights that specify the resources they may access
(and what profits they may make) for providing their services.
Against this background, the pharmacy contract specifies the reciprocal
commitments the profession and the Government have agreed to make when
co-ordinating their economic behaviour. Contract theory
In a book on the economics of contracts, Brousseau and Glachant identified
four main questions of concern to researchers in this field:
1. Why is it difficult for economic actors to co-ordinate their
activities?
2. What mechanism can be used effectively to promote co-ordination?
3. How do agents conceptualise the rules governing their activities?
4. How do contracts influence the structures governing economic
activity? In the current context, the economic actors involved, on one side, are
community pharmacists and, on the other, the Government acting through
primary care organisations. As questions 1 and 2 imply, the new contract
should embody mechanisms (such as incentives) for co-ordinating the activities
of community pharmacists that motivate them to deliver the objectives
set by national and local health policy.
An initial analysis of the proposals currently in circulation suggests
that the new contract will abolish the national, “fee-for-service” dispensing
payment and introduce local, cash-limited budgets in its place. If such
a move occurs, pharmacists will face a completely different incentive
regime, which will shift the risk for overspending on service provision
from the Government to themselves.
Next on the list, question 3 implies that the proposed contract will
institutionalise new rules that pharmacists should follow. At present,
the institutional framework governing the operation of pharmacies is
separate to the arrangements for controlling primary care as a whole.
For instance, pharmacists now have separate professional governance procedures
managed through their own regulator, with the policing of standards being
primarily outside NHS control. However, under the new contract, PCOs,
Patient and Public Involvement Forums, the Healthcare Commission (formerly
the Commission for Healthcare Audit and Inspection) and the National
Care Standards Commission will all have powers to inspect pharmacies.
Finally, the four-part list suggests that the proposed changes to the
contract will alter the economic structures governing community pharmacy.
As mentioned, the economic structures for administering the ring-fenced,
national “global sum” will be dismantled and pharmacy monies
will be channelled through local, PCT “unified budgets”.
As a result, NHS managers will be able to divert funds away from pharmacy
to other areas of the health service or, vice versa, shift money from
elsewhere into pharmaceutical care.
NHS plan
Economics is built upon the assumption that resources are scarce and
should be used efficiently. In this context, this view implies that
pharmacists should be subject to contractual arrangements that maximise
the economic benefits for patients from public spending.
Under the 1946 NHS Act, pharmacists were given the explicit role of
supplying all medicines and appliances that family doctors prescribe,
with the
result that the profession’s contract focused primarily on dispensing
not health outcomes.
Given the limitations of a nationally co-ordinated dispensing service,
in 2000 the NHS plan announced that pharmacists should shift their attention
away from their traditional role of dispensing towards the new task of
meeting patient needs.
As “Pharmacy in the future” outlined, patient management
should no longer be a professional issue for individual pharmacists,
but should become a management objective for PCTs in which plans, targets
and governance should be introduced.
With this shift, the definition of efficiency for community pharmacists
changes from being “a low-cost dispensing service” to being “a
fixed-cost producer of health outcomes for patients”. To demonstrate
that such a move is possible, specially funded projects (such as medicines
management initiatives) have been set up and are beginning to prove that
pharmacists can work within new management arrangements. However, delays
in the launch of the new contract suggest that civil servants and pharmacy
negotiators have struggled to incorporate the evolving agenda into a
remuneration system acceptable to the profession. Vision for pharmacy
While the new contract was slowly being constructed, Labour health
policy evolved and “Vision for pharmacy” was published.
According to the Department of Health, since the NHS plan was published “there
have been other far-reaching changes in the NHS and it is both timely
and appropriate to look again at the future shape and direction of pharmacy”.
While “Pharmacy in the future” promoted extended professional
roles for pharmacists, the Vision document focused primarily on integrating
community pharmacy into the NHS.
In an integrated health service, the Government believes that pharmacy
services should not be uniformly based around dispensing. Instead, they
should be innovative, responsive and flexible so that diverse patient
needs can be met. With proposals to introduce flexibility into the mechanisms
used to co-ordinate pharmacy care, the Government hopes that: “The
extent to which particular services are provided will vary from one place
to another ... some areas may have integrated primary care services
... in others, the local pharmacy may be the most accessible and convenient
place for people to call in to discuss any health problems.”
Although diversity will be possible, the Vision document stated that
pharmacies will be permitted to specialise in dispensing, if the service
is run at significantly lower costs: “Some community pharmacies
may choose to focus their services on the provision of highly efficient
dispensing services.”
In other words, the new contract will abolish the agreed national price
set by the dispensing fee and introduce local negotiations for this standardised
task. Discussion
In October 2003, the majority of respondents to a Pharmaceutical Services
Negotiating Committee ballot stated that they were “happy with
the outline service framework for the new contract, provided that it
is supported by fair funding, an acceptable contractual environment
and that a structured transition from the old to the new contract is
in place”. However, these arrangements would not be tolerated
if they were not funded fairly or introduced sensibly.
From the perspective of contract theory, the contract being offered
to community pharmacists is not just a legal agreement that specifies
the
obligations of each party. Indeed, the proposed changes will require
pharmacists to operate in a new institutional framework, with altered
property rights, PCT-based economic structures and new incentive mechanisms.
Under the old contract, all pharmacists worked in a set of rules designed
specifically for them, with one, clearly defined co-ordination mechanism:
the dispensing fee. Under the new arrangements, all accredited suppliers
of pharmacy services will have the same set
of rights to provide NHS services using public resources.
However, the introduction of PCT-based economic structures will change
the ways in which services are funded, commissioned and remunerated.
For instance, nationally “ring-fencing” pharmacy remuneration
may cease when money previously spent on dispensing is included in PCT
unified budgets because they are designed to include all health service
resources in one pot.
Although the loss of guaranteed remuneration levels could be a worry
for pharmacists, the biggest economic change ahead could be the introduction
of cash-limited budgets. With local budgets replacing the national “fee-for-service” dispensing
payment, community pharmacists could find themselves bearing the risk
for unpredicted spending. For instance, pharmacists may be given an annual
financial allocation for providing essential and enhanced services to
a specified group of patients, which may not be increased if demand is
greater than expected. In other words, pharmacies may have to operate
like hospitals, which ration services in order to stay within given budgets.
For professionals familiar with providing demand-led dispensing services
the move to priority-setting, cost control and budgetary planning may
prove an interesting challenge. However, if pharmacy services were eventually
to operate on the same economic basis as other parts of the NHS, the
Vision document states that the need for a separate pharmacy contract
may be diminished: “If, in future, NHS pharmacy costs were to switch
to being fully met by PCTs, it appears sensible to consider whether the
national ‘terms of service’ should continue in their present
form or also be subject to contracts.”
In other words, there is no logical reason for the new pharmacy contract
to remain when local contracting could do the same job without the added
complication of referring to a national agreement when meeting local
needs.
Given this fact, the Vision document announced the Government’s
intention to discuss with pharmacy negotiators whether the pharmacy contract
should eventually be abolished in favour of more appropriate local arrangements. Conclusions
Once community pharmacists agree to a new contract there will be no
turning back. Under the new framework, the existing economic structures
for
remunerating pharmacists nationally will be abolished and local arrangements
put into place.
Accompanying this fundamental shift will be significant changes in
property rights and incentive mechanisms, which will change the ways
in which
pharmacists do business with the NHS. Although these new arrangements
will stimulate change, the proposals for a new national contract may
already be redundant, as logic suggests that PCTs do not need national
rules to commission services locally.
Therefore, it must be concluded that, while the new pharmacy contract
will change the ways pharmacists can do business with the NHS, it may
not survive to see those changes come to the fruition that the Government
plans. References
1. Brousseau E, Glachant J-M. The economics of contracts. Cambridge:
Cambridge University Press; 2002.
2. Gravelle H, Rees R. Micro-economics (2nd edition). London: Longman;
1992. |
The
Pharmaceutical Journal