July 30, 2019
  • Rushport Advisory

Branded Generics Hurt Pharmacy Contractor Profits – Now you have a chance to do something about it!

There has been a lot written about the new 5 year funding settlement that has been agreed for pharmacy, but I am not sure why, as it is simply the same pot of money for the next 5 years and inflation in costs means that it is really a reduction in funding every year. Add in a few services that we know nothing about yet and that’s it really.

What should have interested pharmacy contractors much more is the Community Pharmacy Drug Reimbursement Reforms Consultation and the potential changes to the Consolidation Regulations. These could have a far bigger impact on the profits that pharmacy contractors make and they are also areas where contractors can have an affect on their own reimbursement (compared to the funding settlement which is just dictated), so I wanted to look at this in a bit more detail and encourage anyone who is interested to reply to the relevant consultations.

Firstly – Community pharmacy drug reimbursement reforms – Consultation

The DoH has launched its consultation on reimbursement and you can read the whole document on their website. It really is worth reading as it sets out in simple terms how pharmacy contractors get paid and looks at some of the associated problems. There is a lot to digest and interesting proposed reforms on “specials”, but I want to focus on “branded generics”. Branded generics may as well be a four letter word for most contractors. In simple terms, if a GP prescribes a branded generic then the pharmacy contractor makes little or no margin. That would be fair enough if branded generics were prescribed nationally, but they are not. CCG’s implement these schemes and do all they can to force GP practices to comply with them. One large health centre pharmacy I know well estimates that they lose over £5,000 per month in profit compared to if the practice prescribed generically instead. The DoH consultation document describes it really well as follows;

3.10 Some suppliers and manufacturers of branded medicines, including branded generics, price their products below the Category M reimbursement price. This can have a distorting effect on prescribing decisions because the branded version then appears cheaper, which encourages CCGs and prescribers to prescribe the product by brand rather than generically. To take the simplest example of how this might work in practice, when a GP prescribes a medicine, the software that they use will generally inform them of the Drug Tariff reimbursement price of the medicine. It will also generally inform them of branded versions of the medicine that are available and their prices. It may therefore look to the GP that a branded version represents good value to the NHS because its list price is significantly below the Drug Tariff reimbursement price.

3.11 In reality, however, the branded medicine may well be more expensive to the NHS because it does not contribute (or contributes very little) to the £800 million medicine margin under the CPCF. This in turn leads to a shortfall in medicine margin that will need to be factored elsewhere into reimbursement prices. This also leads to an unequal distribution of medicine margin amongst pharmacy contractors, and it also means that the NHS overall will lose money because some reimbursement prices will have to be set higher than it would have done – to the ultimate detriment of CCGs as a cohort.

3.12 In addition, where CCGs recommend prescribing the branded product because they see it as cheaper to them, pharmacy contractors in the CCGs’ catchment area do not have equitable access to medicine margin as they do not retain medicine margin on brands. This also means that not all CCGs contribute equally to the £800 million medicine margin under the CPCF. So, an individual CCG may benefit from the amount apportioned to it in relation to a particular transaction, but CCGs as a cohort and the NHS overall will lose out

In other words – “some CCGs are getting a big benefit here while the pharmacy contractors are losing out and the CCGs pretend that it is saving the NHS money, but it isn’t”.

Whilst the devil is always in the detail, the DoH is proposing two reforms which are;

  • Change the distribution of medicine margin added to generic medicines in Category M to ensure that the generic medicine does not look more expensive than the branded version and the reimbursement price better reflects the actual purchase price.
  • Change the deduction scale to split it into two separate scales, one for generic medicines and one for branded medicines.

Pharmacy contractors (or at least those who really understand how they are paid) will likely have a mixed reaction to these proposals. If you are in an area where the CCG is doing its best to put branded generic deals in place, then you will love these proposals, but if you don’t see branded generic prescriptions very often then you might not be too bothered (you should be).

Overall I am in favour of the proposals because they offer a fairer system of remuneration and I hope that those who have been unfairly affected by branded generic prescribing take the time to reply to the consultation.

There is one idea that I think the consultation sadly misses. I think the DoH should just ban branded generic prescibing altogether unless their is a clinical need for a particular brand to be used. That would be much more simple and very effective.

See my other post for information on the Consolidation Regulations Reforms