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DH imposes ‘knee jerk’ generic discount deduction rate hike to 20%

The government has “imposed” an increase to the discount deduction rate for generic medicines from 17.52% to 20%, the pharmacy negotiator has said.

The Pharmaceutical Services Negotiating Committee (PSNC) this week (March 28) said that the change – which it had previously “rejected” – is a “knee jerk” reaction and could cause cashflow problems for contractors.

The news came as part of the Drug Tariff for next month, which contains changes to the discount deduction system to come into effect from April 1.

PSNC said that the new Drug Tariff includes “changes that PSNC rejected and are subsequently being imposed”.

Read more: PSNC: Review of price concessions ‘the priority’ for pharmacy contractors

When contractors are reimbursed for the cost of medicines dispensed against NHS prescriptions, a deduction is made to their payments known as a “discount deduction”.

This assumes the amount of discount contractors receive to avoid the additional workload of pharmacy teams having to calculate and declare exact levels for each individual item dispensed.

The latest discount rates were agreed between PSNC and the Department of Health and Social Care (DH) in summer 2022 as part of reforms to drug reimbursement, the negotiator said.

Read more: DH to bring in new ‘fairer’ discount scale to reduce dispensing at a loss

Under the reforms that took effect from October, the previous single discount scale was split into three separate groups for generic medicines, branded medicines and appliances to minimise dispensing at a loss.

The agreed rates were 17.52% for generic medicines except those under price concession, 5% for branded medicines and those under price concession and 9.85% for appliances.


“Imposed” changes


But now, the DH has increased the discount deduction rate for generics from 17.52% to 20%, PSNC said.

The negotiator said that “following pressure from NHS England (NHSE), ministers have now chosen to impose changes to the previously agreed discount deduction arrangements”.

The changes will come into effect from April 1 but “will be kept under review”, it added.

Read more: NPA ‘very concerned’ over deduction scheme’s impact on independents

PSNC told C+D that if the rate remains at 20%, contractors’ cashflow will be negatively affected by around £500 per month.

This impact will ultimately be accounted for in the margin survey so contractors won’t lose money, although it will put further strain on pharmacy businesses at a time when they are already under pressure, it added.


Designed to “smooth variation”


PSNC’s director of pharmacy funding Mike Dent said that the arrangements announced in August had been “the result of a long and meticulous negotiation” between the DH and the negotiator.

The new system “was designed to deliver a fairer distribution of margin” across the sector and “take into account the impacts of dispensing mix” on contractors, which “varies significantly”, he added.

Read more: New deduction scheme will not lose the average contractor money, says PSNC

“By design, the new system would help smooth the impact of these variations among contractors and over time,” he said.

Mr Dent explained that “some variation” in overall discount deduction was “expected” due to the “unpredictable nature of NHS prescribing policies”.

However, the ongoing margin survey conducted by PSNC and the DH measuring retained buying margin at the pharmacy level “would ensure that the impacts of any variation were fully accounted for”, he said.


“Knee jerk reaction”


“In practice, we have seen that discount deduction has varied slightly from anticipated levels and this has resulted in a short-term impact on central NHS cashflow, to which the NHS has reacted,” Mr Dent added.

He said that the increase in the generic discount deduction rate to 20% “is a knee jerk reaction to a system working as designed”, with the changes “imposed based on a very limited period of analysis”.

“Once again, pharmacy contractors will now be forced to bear the impacts of short-term policy-making by central NHS and the government,” he added.

Read more: Wholesaler: Contractors risk losing out in transition to new discount scale

PSNC has been informed that while the generic discount rate will increase, the transition from the old system to the new “will continue as per the previously outlined timeline but subject to review”, he said.

Meanwhile, the “impacts on discount deduction will be assessed again in a quarter’s time, which of course adds to contractors’ uncertainty”, he added.


“Painful new blow”


The National Pharmacy Association (NPA) also reacted angrily to the imposed changes, saying they will “lead to further cash-flow problems for England’s beleaguered community pharmacies”.

“It would appear that money is being siphoned away from pharmacies in order to tidy NHSE’s spreadsheets,” NPA chair Andrew Lane said.

Read more: BGMA: NHS must complete drug reimbursement reforms or face higher bill

“But in the real world there are real businesses, real bills, real bank accounts and real patients impacted by this untimely development,” he added.

“For some pharmacies, this could be the straw that breaks their back,” he said.

“NHSE is imposing this change with precious little warning and apparently no regard for the impact on pharmacies, for whom this is a painful new blow.”

C+D approached the DH and NHSE for comment.


Flat fee payment


At the same time, PSNC also announced the value of a new “flat fee” payment to be introduced from next month in the new Drug Tariff.

The introduction of the payment from April 2023 – paid to all contractors who dispense at least 101 items a month up to a national total of £70 million on an annual basis – had been agreed as part of the year four and five pharmacy funding settlement.

Read more: £100m in excess margin written off as DH stands firm on flat funding deal

The value of the payment “has now been determined at £533 per month” but is “subject to change throughout the year depending on the overall level of funding delivery to community pharmacies” as is the case for all payments, PSNC said.

“This will be carefully monitored by PSNC and the DH and any funding changes will be communicated to pharmacy contractors as soon as they are known,” it added.

Read more: PSNC ‘deeply concerned’ as pharmacies contend with record price concessions

A new category will also be introduced into Part II of the Drug Tariff covering “drugs for which discount is not deducted” from next month, granting zero discount status to concession lines, PSNC said.

This follows an agreement between the negotiator and the DH that all concession lines will be considered as “group items for discount not deducted” (DND) or zero discount (ZD) items, it added.

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