Creating certainty from uncertainty

We continue to live in an increasingly uncertain world, Brexit, Trump and DH pharmacy funding cuts.

Since the original announcement by the DH on 17 December 2015 it has been an uncertain time for pharmacy owners and operators as to firstly whether the funding cuts would come in, secondly the amount of the cuts and impact on individual pharmacies and thirdly the timing of the cuts.

The announcement by the DH in October titled “Community pharmacy in 2016/17 and beyond” has provided some certainty but has also left many of us wondering about the Single Item Fee (“SIF”) for 2017/18 and beyond.

I think what is now beyond doubt is that the cuts will now take place and will hit the cash flow of retail pharmacy businesses from the 31 January 2017 payment. This payment date reimburses contractors for November 2016 dispensing and services and includes the advance payment for December 2016 dispensing and services.

Even despite the lobbying from the retail pharmacy sector and the huge amount of support shown by the public in supporting the online petition to halt the cuts, I would be very surprised if the DH now had a change of heart. We have heard that a retail pharmacy group, who wishes to remain anonymous, is preparing to mount a legal challenge but I expect that this will not delay the cuts.

Therefore the answer to the first point is pretty well established and has been on the radar for almost a year now.

The second point as to how this will impact on individual pharmacies and groups is also known, subject to the moveable feast on the SIF (more on this later). The establishment payment is being phased out and a reduction for the full entitlement for 2016/17 will be £1,675 resulting in a reduced payment of £1,673 for each of the months of December 2016 and January 2017 to March 2017 (“the Period”). The larger impact will be the SIF which for the Period is likely to be set at £1.13 per item dispensed and replaces the Dispensing Fee of 90p per item, the Practice Payment of 56.4p per item, the Repeat Dispensing Fee of £125 per month and the Monthly Electronic Prescription Service (EPS) payment. This amounts to a reduction of 33.4p per item for the Period. Based on a pharmacy dispensing 6,000 items this is a reduction in income of £10,488 for the Period. The impact of the cuts for 2017/18 is estimated to amount to £21,268 (assuming the Quality Scheme payment is claimed) which is much larger than the average cuts of £15,000 per pharmacy we had expected.

Well, at least we now have some certainty and can begin to plan. But can we? The Pharmaceutical Services Negotiating Committee (“PSNC”) has helpfully issued a calculator and you will note that in 2017/18 the SIF is set at £1.24 an increase of 9p. It seems that the DH now has a simple mechanism to distribute the Global Sum as it can adjust the SIF up or down. This creates certainty for the DH but how does a retail pharmacy operator estimate turnover and profitability from year to year? Is this really any different from the Cat M cuts?

The third point appears to be quite simple as I have pointed out I would expect to see the impact of the cuts on cash flow in the 31 January 2017 payment when the advance payment for December 2016 is likely to be lower to take account of the cuts to professional fees.

It appears to me that the DH have done what they have been warning to do for some time. It is now more important to try to claw back some of the cuts to ensure MUR and NMS reviews are undertaken.

Another new introduction will be the Quality Payment whereby qualifying pharmacies can obtain a payment for each point achieved up to a maximum of 100 points per year. Each point is expected to be worth £64 resulting in an annual payment of £6,400. This depends on take up and if take-up is low qualifying pharmacies could get up to £124 per point. Retail Pharmacies will need to address their standard operating procedures (“SOP”) and I expect the multiples and larger groups to be at an advantage as they only need to roll out the same SOP to each of their pharmacies. If independent pharmacies are not reaching MUR and NMS quotas will they implement SOPs to ensure they are eligible for this source of income?

The Pharmacy Access scheme will benefit 1,356 pharmacies detailed on the list published on 20 October 2016. The payment will be £2,900 per month for each month in the Period and then £1,500 per month in 2017/18. Inclusion on the published list is subject to review and appeal.

The PSNC calculator is showing a monthly increase in drug reimbursement costs for 2016/17 of £900 per month and this is something that contractors will need to monitor closely by reviewing FP34 statements and the drug tariff to highlight any increase in average ingredient reimbursement.

Unfortunately, the outlook is likely to be more uncertainty and continued review and analysis of FP34 forms will be vital to understanding the true impact of the cuts. In the medium term if the number of retail pharmacies reduced significantly it could lead to higher reimbursement for pharmacies that can trade through the cuts.

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