The system of reimbursement from the NHS incentivises pharmacy owners to buy generics as cheaply as possible, allowing them to make a profit, while ensuring the NHS pays less for drugs than health services in almost any other country.

However, this arrangement is under threat by the branded generics some clinical commissioning groups (CCGs) are encouraging GPs to prescribe.

Common drugs for which a branded generic exists include metformin, co-codamol, quetiapine, atenolol and some inhalers. A pharmacy might buy one packet of atenolol for 50p. If the Drug Tariff reimbursement price is £1, the pharmacy will make a 50p profit.

The Drug Tariff creates a competitive environment in which generics are sourced at the lowest price. Category M of the tariff is designed to allow the community pharmacy network to retain £800 million a year from the profit on generics, and to enable the Department of Health and Social Care (DH) to claw back any profit above this annual figure.

Take the atenolol example above. If the branded generic version, Aimolol, has been prescribed, pharmacies will be forced to buy Aimolol at the supplier’s price. If, instead of buying atenolol for 50p, a pharmacy must buy Aimolol priced at 90p, the pharmacy will only be reimbursed for the supplier’s price, so cannot make a profit.

Someone unfamiliar with the complexities of pharmacy funding might question why pharmacies should complain about being unable to profit from the NHS reimbursement of drugs.

The answer is that this profit is part of their overall remuneration for providing services to the public. And the public benefits when pharmacies are incentivised to buy drugs as cheaply as possible.

The wider implications of prescribing branded generics include:

1. If pharmacies make less profit than the annual £800m they can retain, the DH will have to make up the balance. Any profit generated by pharmacies above that figure is clawed back by the DH to spend elsewhere in the NHS, so any loss of profit from branded generics may cost the DH tens of millions of pounds a year.
2. The growth of branded generics undermines the function of the generics market and reduces its competitiveness.
3. The use of branded generics varies across the country. Pharmacies in some parts of England face a double whammy that sees them unable to make the same level of profit as pharmacies elsewhere, but suffer the same clawback if profits across the board exceed £800m.
4. Profits made by pharmacies can be used to develop their premises and services, so investment in community pharmacy falls when money is lost to branded generics.
5. The more brands that appear, the more stock pharmacies hold. This increases wastage if commissioners swap from one branded generic to another at short notice, as they often do.
6. The more branded generics are prescribed the more fragile the supply chain becomes, as it depends on a product having a single supplier reliant on economic factors rather than patients’ needs.

CCGs and other commissioners may benefit in the short term from the use of branded generics. So do the suppliers. But pharmacies lose out and the knock-on effects will disadvantage patients.

Over the coming months, the Association of Independent Multiple Pharmacies (AIMp) will be collaborating with a range of stakeholders to explore all the issues involved in the use of branded generics and make representations accordingly.

Leyla Hannbeck is chief executive of the AIMp, and Peter Cattee is chair of the organisation