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‘Pharmacy's hub-and-spoke model: we must consider the profound business impact’

With hub-and-spoke dispensing across different legal entities looming on the horizon, I’m yet to be convinced of the benefits of merging two different business models with differing priorities, warns Ian Strachan

The merits of hub-and-spoke dispensing are shrouded in misconception and a profound ignorance to the fundamentals of operating at the spoke.

Let’s firstly examine the rhetoric that operating a hub-and-spoke model will help change the existing pharmacy business model – and potentially shed staff costs – by freeing up time for pharmacists and pharmacy technicians to focus on offering more clinical services to patients. This will be achieved by giving around 70% of the “hassle” of assembly to the hub.

To my mind, there are three obstacles that have not yet been satisfactorily addressed:


1. Margin


The current contract is under-funded. Without subsidy – which is highly unlikely – the pharmacy network is not sustainable long term. No hub, as far as I am aware, has opened its cost base to show an “open book” approach to purchase or any shared margin scheme. Even if the hub was prepared to share its basket margin by 50:50, I find it incomprehensible to imagine a pharmacy (spoke) operating above water.


Read more: NPA: ‘Vast majority’ of independents ‘still sceptical’ about hub and spoke


Even those pharmacies without weighty gearing are incurring unforeseen cost inflation right now. Just about everything from workforce to packaging, from fuel to stationery, is in a state of flux and uncertainty. To my mind, it is inconceivable that any slice of profit share would likely put pharmacies in a favourable position.

The hubs are telling us we will benefit from the reduction in stock holding, which could amount to around 30,000 items per pharmacy. That’s true, but then there’s nothing to stop every pharmacy in the country doing this from today. It doesn’t require hub and spoke to reduce your stock holding.

"We are already dispensing from tote to owing basket. Very little goes on the shelves"

At Strachans, we are already dispensing from tote to owing basket. Very little goes on the shelves these days, except, of course, for fast movers and essentials.

The reality is there is a fixed cost to running a community pharmacy. My view is a pharmacy must continually revisit its costs to remain at the crease. Purchase margin is certainly up there, so relinquishing this piece of jigsaw would seem counterproductive to me. 

The hubs are branded as saviours, investing in technology and IT to give us the opportunity to develop our clinical offering. Again, this is true. But those investments were largely made prior to 2014, when the large multiples assured the then CEO of NHS England Simon Stevens that the aspirations of Keith Ridge to automate two thirds of the sector were possible. Why does this matter? Because the government’s fixation with hub-and-spoke dispensing across differing entities is about to be legislated.


Read more: ‘Hub-and-spoke: Why modern doesn't necessarily mean machines'


I have no problem with driving a business case to automate monitored dosage systems or even operate models of assembly within a company, but this is very different to what the government is expecting.

It is only the sheer diligence and professionalism of pharmacy teams everywhere that is holding this sector together. My fear is that this disruption to businesses and the loss of essential margin could crush many pharmacies rather than become their saviour.


2. Assembly fee


So, this is the fee the hub will charge the spoke for the privilege of assembling their prescription. Many numbers have been bandied around, ranging from 50p per item to £1.30 an item. A pharmacy dispensing more than 7,000 items a month and incurring a fee of say £1.20 may well incur more than £6,000 a month in fees.


Read more: Timeline: Pharmacy’s love-hate relationship with hub-and-spoke


Whatever a fair cost is to assemble, that number is largely irrelevant. There simply isn’t the headroom to maintain the current cost base from a position of further erosion to profits. Of course, the hubs will argue that centralised dispensing will create the bandwidth to deliver more services and effectively bring in more service fees. But does anyone really believe that they will recoup the assembly fee from services right now?


3. Data


The collation of patients’ details is a culmination of a lifetime’s hard work. Care, professionalism and a build-up of trust with patients. Hub and spoke is big business, with patient data sitting across differing entities. Such information represents a huge unknown to community pharmacy. 

These challenges, to my mind, must be overcome if hub-and-spoke dispensing is to become the norm. Until they are, I will continue to raise questions and seek assurance that this is the appropriate model for the future of pharmacy.


Ian Strachan owns Strachan Pharmacy, which has four branches in North West England, and was National Pharmacy Association chair from 2014-2018.

Last year, C+D's Big Debate asked whether independent pharmacies can ever truly benefit from a hub-and-spoke dispensing model. Head to the Big Debate room to read what people had to say and join the discussion.

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