Category M is one of the most important mechanisms that controls the amount of purchase profit income pharmacists derive from the pharmacy contract, but it’s often said to be one of the most complex.

In the second article of the series, Pete Kelly, Managing Director, Accord UK, helps to break it down and explains the key essentials that every pharmacist needs to know to get the most out of Category M.

 

1. What are Category M medicines?

Products in Category M generally have two distinctive features – they are multi-source and widely available generic medicines. This usually means that they are the highest volume generics. The biggest portion of the volume of the UK is medicine in category M constituting of about 1.2 billion packs of medicine a year.(1)

 

2. What is the drug tariff and why is it important for Category M?

The drug tariff is produced monthly by the NHS Business Services Authority (NHSBSA) on behalf of the Department of Health and Social Care (DHSC). The tariff outlines:(2)

• what will be paid to pharmacy contractors for NHS services provided either for reimbursement or for remuneration

• rules to follow when dispensing

• value of the fees and allowances pharmacists will be paid

• drug and appliance prices pharmacists will be paid

Category M medicines were introduced into the Drug Tariff in April 2005 in England and Wales as a way of balancing the amount of retained margin in pharmacy and as part of drug tariff reform at the time. As part

of the community pharmacy contractual framework, the DHSC and the Pharmaceutical Services Negotiating Committee (PSNC) agreed pharmacy are guaranteed to retain £800 million i.e., the profit pharmacies can earn on dispensing generic drugs through cost effective purchasing.(3)

3. How does Category M work?

The prices and volumes sold are collected by DHSC every quarter, from manufacturers and wholesalers. These form the basis of understanding if prices overall have moved up or down.

In simple terms, let’s say the average selling price is a pound. Based on the weighted volumes, the DHSC work out where they need to set the reimbursement price at to allow for £800 million margin on top of the selling price allowing for distribution etc.(4)

The prices in Category M are adjusted based on what happens to selling prices. If selling prices go up, then the tariff generally goes up too and therefore should the selling price go down, then so does the tariff. Obviously, this is across more than 600 lines and multiple suppliers for each medicine, so the data is complex.

However, the impact is not immediate. For example, in Q2 of the calendar year, the DHSC take the industry sales in Q1 (between January and March), and they calculate whether prices have gone up or down against the previous quarter and what the impact of that was. These analyses in Q2 inform what the tariff looks like in Q3. The process is repeated every quarter, resulting in a lag between what pharmacists may experience in a quarter and how it impacted the tariff further down the line.(3)

Once a year, the overall margin and discounts are reviewed and corrected to ensure that the £800 million retained margin is on track.(3)

 

4. Are pharmacists getting a good deal with the retained margin?

From the Oxera report, conducted in 2019, we know that the UK benefits from the lowest generic prices across Europe when compared to the five largest mature generic markets and this has been in part driven by pharmacists making the retained margin work hard, and being incentivised to buy well.(4)

However, the retained margin was announced in 2014 for implementation in 2015 at £800m. It has remained the same ever since, despite more products added to the Category M basket and volumes have grown in that time. The retained margin per product therefore goes down over time. Since Q4 2015, the tariff price per pack in Category M has dropped by 27% to approximately only £1.57 per pack now1. An increase in the allowable return would ensure the model is sustainable.(5)

 

5. Why is it important for pharmacists to understand Category M?

The £800 million retained margin incentivises pharmacists to buy well for the NHS, as it encourages pharmacists to choose good value generic medicines, and to drive uptake at loss of exclusivity for example. By saving the NHS money through buying cost effective generics, pharmacists play an important role in helping the NHS afford new and innovative medicines for patients and in return they make a profit. It is a symbiotic relationship where when done properly, everyone benefits.

The retained margin is a significant part of a pharmacy’s income, so understanding how the DHSC are tracking and correcting the tariff is important as part of the financial forecasting per pharmacy. It is important to keep abreast of changes as medicines can change categories, which can have a major impact on reimbursement prices.

For example, if a medicine comes off patent, a pharmacist will make a considerable margin on the previous reimbursement price, but they need to keep a close eye, as at some point that medicine will cross over into Category M and the reimbursement price will tumble. A well-versed Category M pharmacist who has been monitoring closely is likely to predict that change and will have adjusted stock inventory in preparation.

 

6. In a recent C+D article, Bharat Shah called to make the data simpler and comparable – what are your thoughts?

I agree it is very useful for pharmacists to be able to view data to help them understand the trends and there are helpful resources out there.

For example, we have a dedicated section on our Accord Partner Platform around Cat M with a number of resources developed and regularly updated for pharmacists, including CPD modules, our ‘Category Matters’ report, simple infographics, and an interactive savings calculator.

It is also important to note that outside of Category M there are other reimbursement reforms impacting how products in Category A, C and the discount scale all work. Again, Accord can help with materials and understanding these changes and how they may impact pharmacy as we appreciate how important this content is.

 

Pete Kelly Bio

Pete Kelly is the Managing Director for Accord UK and chair of the British Generics Medicines Association (BGMA). Accord is one of the largest generic and biosimilar manufacturers in Europe, and in the UK currently supply 1 in 5 of all generic medicines. Pete has worked in the pharmaceutical industry for more than 20 years, the last 15 years being at Accord in a number of senior commercial roles. Alongside his chair role at the BGMA, Pete has previously chaired the BGMA Economic and Commercial working group.

 

Veeva JN - UK-04173 Date of prep – June 2022

 

References

1. Accord UK Category Matters, ‘The World According to Accord Generic Reimbursement’, April 2022 https://www.accordpartnerplatform.co.uk/wp-content/uploads/2022/03/Category-M-Report-Apr-2022-Final.pdf Last accessed: June 2022

2. NHS Prescription Service ‘Drug Tariff’ https://www.nhsbsa.nhs.uk/pharmacies-gp-practices-and-appliance-contractors/drug-tariff Last accessed June 2022

3. PSNC, ‘Retained margin’ http://psnc.org.uk/funding-and-statistics/funding-distribution/retained-margin-category-m/ Last accessed: June 2022

4. The supply of generic medicines in the UK – A study by Oxera (2019) https://www.oxera.com/wp-content/uploads/2019/06/Oxera-study-on-the-supply-of-generic-medicines-in-the-UK-26-June-2019.pdf Last accessed: June 2022

5. Accord data – Cat M & A review