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Pharmacy clawbacks are a perverse windfall tax

With the outcome of England's community pharmacy contract still up in the air, let's hope the government doesn't decide to impose another clawback on an already beleaguered sector, says Andrew Lane

We all know there are deep flaws in the community pharmacy contractual arrangements in England.

The retrospective elements of pharmacy funding are a barrier to investment and careful planning. They are hardly an optimal underpinning to implement new clinical services and modernisation. What’s more, they are inherently unfair.

The regular clawback of ‘excess profits’ is actually nothing of the sort, especially given the prevailing economic circumstances facing pharmacies. Instead, it’s a kind of perverse windfall tax – taking money from family-owned businesses which are operating at a loss.

This approach is particularly unfair to independents; it is harder for them to secure the best medicine prices in the first place yet these clawbacks, whenever they happen, are applied equally across the board. Furthermore, they don’t benefit from the averaging effect that allows multiples to effectively hedge their risk.

Read more: Pharmacy bodies plea to protect ‘exhausted and starved-of-funding’ sector

Community pharmacy in England is in desperate financial straits. This was clearly evidenced in the National Pharmacy Association (NPA)-commissioned EY report that determined in 2020 that the NHS was underfunding the sector by £500m per year.

The NPA has since commissioned  David Taylor to examine the increased pressures created by today’s very high inflation and his report is due this autumn. The situation is most certainly getting worse.

Learning so far after the event that the sector has earned above its annual threshold for margin then having a clawback imposed when inflationary pressures have eroded any short term benefit makes no sense.

Read more: 72% of English pharmacies will be in deficit by 2024, report predicts

It would be one thing for the government and NHS England & NHS Improvement to tell us there is no new money available come the anticipated contract announcement. But if it chooses to organise another retrospective raid on pharmacies this year, this would demonstrate a complete disregard for the sector’s increasingly dire financial reality.

It would be a double whammy – 0% new funding and a raid on funds already committed by the Treasury.

For some it could be the last, fatal blow to their pharmacy business. If that happens, we will take no pleasure in reminding government and NHSE&I that we saw it coming.


Andrew Lane is chair of the National Pharmacy Association (NPA)


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