| GlaxoSmithKline must have known that its decision to strip discount
from a number of its products was not going to be welcomed. The announcement
came as pharmacists in England and Wales were making final preparations
for the new contract. However, the timing was perhaps not that surprising
since it is exactly because of the new contract that GSK was able to
act. The contract guarantees £500m profit on drugs purchasing and
GSK has, in effect, opted out of this. The problem was compounded when
IVAX removed the discount on its products that are in competition with
GSK products.
“The total £1.766bn funding for the new
contract is guaranteed,” says
Mike Dent, head of finance at the Pharmaceutical Services Negotiating
Committee. “In terms of the £500m retained buying profit,
we will monitor this and if we discover that say only £400m reaches
community pharmacy then a mechanism will be found to feed that money
back into pharmacy, perhaps by lowering the clawback scale or increasing
generic reimbursement prices.” So this, perhaps, is why pharmacy
bodies in England and Wales have been fairly quiet about the situation.
Not so in Scotland and Northern Ireland, where new contracts have yet
to be implemented.
James Semple, chairman of the Scottish Pharmaceutical Federation, explains: “GSK’s
action will certainly have an impact on the new contract negotiations
in Scotland. Until now, everyone has been up front and fair about money
but this puts in an unknown factor. Without a new discount inquiry, we
don’t know how much money will be lost.” And in Northern
Ireland, Terry Hannawin, chief executive of the Pharmaceutical Contractors’ Committee,
says: “We are livid. … We are involved in discussions on the
new contract and this has destabilised the situation.”
England also not happy
This is not to say that pharmacists in England are happy about GSK’s
action. John D’Arcy, chief executive of the National Pharmaceutical
Association, has received telephone calls from NPA members about the
issue. “The GSK decision will mean it will be increasingly difficult
for contractors to maintain the required level of purchase profits under
the new contract,” he explains.
A GSK spokesman comments: “GSK has delivered price cuts to the
NHS that are equal to the discount removed by changes to our overall
trading terms. We designed these changes so they can be cost neutral
for pharmacists but obviously it’s for the various UK health authorities,
working with pharmacy representative bodies, to decide how to allocate
those savings.” But pharmacists are concerned that because the
mechanism by which the savings will be reinvested is yet to be determined,
the money might never reach pharmacy. The spokesman adds that GSK is
also investing new money in its +Plus medicines support service. Two types of price change
GSK’s revised prices fall into two categories: removal of discount
on products with no price competition and reduction of the list price
of others. In England and Wales, those products for which GSK is no longer
offering discount were added to the zero discount (ZD) list. But what
happens if another pharmaceutical company decides to follow GSK’s
lead? Will the Department of Health be happy to put another tranche of
products into the ZD list?
“The NPA believes that if this is the case then it will be hugely
impracticable to manage a large ZD list. And more importantly if everyone
starts taking
discounts out of the system how are pharmacies going to gain access to
the £500m guaranteed purchase profits in the new contract?” asks
Mr D’Arcy. Unfortunately the DoH was not able to provide an answer:
asked what action the DoH would take if other companies cut their discounts,
a spokeswoman said: “We are not prepared to speculate at this time.”
In Scotland and Northern Ireland, neither health department has bowed
to pressure to expand the ZD list. A spokesman for the Scottish Executive
says: “The Executive has not changed its position on the ZD list
in the light of the GSK/IVAX action. It is, however, intending to consider
the appropriateness of the ZD category in general.”
Frank Owens, chairman of the Scottish Pharmaceutical General Council,
says: “GSK has removed an unidentified level of discount. It is
entirely understandable that the Scottish Executive would not wish to
add the affected products to the ZD list. To do so would only serve to
expose future Government administrations to more difficulties, should
other large pharmaceutical companies take similar unilateral decisions.”
However, the Scottish Executive spokesman was able to offer some reassurance. “The
companies’ decision is particularly unhelpful at this stage in
the negotiation of the new community pharmacy contract but it will not,
however, materially affect the substance of the negotiations which are
about the future of community pharmacy practice,” he says. One
option the Executive is considering is an earlier than planned proprietary
discount inquiry and, in the longer term, an examination of the nature
and scope of discount arrangements.
There is another problem. Chris Armstrong, of Armstrong Pharmacy in Sheffield,
explains: “I assumed that normal discounts would remain on those
products not being transferred to the ZD list but this is not the case.” Some
products now have no discount, yet clawback is still applied. “GSK
is offering some discounts if we negotiate a generic substitution deal.
So effectively GSK is bullying us into signing one of these deals or
else we are looking at a substantial loss.” The PSNC is aware of
these product-specific discount deals. “However, reimbursement
prices and clawback together will be adjusted to provide the guaranteed £500m
purchase profits,” Mr Dent comments.
The GSK spokesman responds: “This is a dynamic market place and
there has always been an element of swings and roundabouts inherent in
the clawback system. That said, we endeavour to make our deals as competitive
as possible for pharmacists.”
One of the problems that independents have always faced is that they
do not have the buying power enjoyed by multiple pharmacies. It is widely
speculated, if not expected, that multiples have already negotiated new
deals with GSK. But some pharmacists have taken a stand. Ron Shiels,
director of Albapharm, Scotland’s largest buying group, is waiting
for the outcome of meetings between the Scottish Executive, the SPGC
and GSK before it decides whether or not to accept the deal GSK has offered. Future concerns
Should pharmacy have foreseen GSK’s action? After all, GSK is a
business, too. It is protecting its profits. Maybe pharmacy should have
been more alert: it is certainly aware that it might happen again. “If
two or three major companies follow suit, then we will need to talk to
the Government about how to deliver the guaranteed money to pharmacy,” says
Mr Dent. However, he comments that GSK’s agency scheme puts the
company in a unique position. “If other companies want to revise
prices in a big way, it would be not just be a case of changing the product
price but also the distribution,” he says. Through the agency scheme,
GSK pays a wholesaler to distribute its products rather than selling
the products to the wholesaler. This means that GSK retains more control
over pricing and is one of the reasons its products were added to the
ZD list A (no endorsement required). This was not achieved by IVAX, whose
products were added to list B (endorsement required if no discount).
Mr Dent comments that, ultimately, such action could lead to some fundamental
changes being needed to ensure provision of the guaranteed national contract
funding. |
The
Pharmaceutical Journal