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Expert view: How much the cuts could cost your pharmacy

Exclusive
Umesh Modi: Contractors should speak to their bank managers as soon as possible

The average contractor stands to lose tens of thousands of pounds by 2018 as a result of the government’s slash to pharmacy funding, a leading accountant has warned.

The “devastating news” that the 12% cut to pharmacy’s global sum in England will go ahead in December, will put some contractors “at risk of financial ruin”, Umesh Modi, a partner at accountancy firm Silver Levene told C+D on Monday (October 24).

The Department of Health (DH) confirmed last week (October 20) that the funding cut for 2016-17 will amount to £113 million from December. 

Based on an average of "around" 11,500 pharmacies in England, Mr Modi estimated that the average contractor will lose £9,800 in profits for the four month period from December 2016-March 2017.

They stand to lose a further £18,000 when the funding is reduced by 7.4% on current levels in 2017-18, he said. "So the total loss over two years is as much as £27,800."

Mr Modi advised concerned contractors to "speak to their bank manager as soon as possible" to arrange a loan or overdraft facility "to see them through the difficult coming months".

“It is also important to make sure [you’re] on top of [your] targets with medicine use reviews, the new medicine service and flu jabs, to maximise services income,” he added.

As part of the proposals, the DH announced a pharmacy access scheme – first proposed to ensure “geographically important” pharmacies are not forced to shut their doors as a result of a cut to the sector's funding. However, just one in 10 pharmacies will benefit from this.

 “Difficult decisions” 

Mr Modi said pharmacy contractors would have “no choice” but to offset the impact of the drop in funding, by potentially reducing staff numbers, lowering opening times to just core hours, or charging for collection and delivery services. 

Contractors may have to make the “very difficult decision” to reduce services for the most vulnerable patients, such as preparing dosette boxes for free, he added. 

In an exclusive C+D poll which ran on the website October 18-21, 29% of respondents said they would reconsider filling dosette boxes or monitored dosage systems on behalf of patients as a result of the drop in funding.

Pharmacy service levels will suffer “considerably”, Mr Modi stressed, “which means patients will bear the brunt” of the government’s cuts, as will A&E departments and GP surgeries.

At the Avicenna conference in Wales earlier this month, Sigma Pharmaceuticals warned that independents could face an additional £2,400 profit loss in the wake of Brexit. Read the full story here.

The C+D Twitter conversation around the funding cuts is still ongoing. Follow #CDcutschat to catch up on the discussion or to share your views, and look out for more coverage online and in the magazine in the coming weeks.

23 Comments
Question: 
How will the cuts impact your pharmacy's finances?

Adewale Samuel ANIGILAJE, Community pharmacist

S Morein - Your submission are pathetic .I am a new contractor and the figures been posted here which you doubt reflect the difficult times which awaits everyone-not only contractors. If you think this is about contractors and that you are a Locum-I can see £12/hour staring at you!

M Yang, Community pharmacist

I guess reduced opening hours will become the norm in England pretty soon. Closing for an hour each day will mean around £2000 less per year to be paid to each employee. The employees won't be happy at the reduced salary, on the bright side you'll get to shut the door for an hour and have an uninterrupted lunch!

Shaun Steren, Pharmaceutical Adviser

Multiples had already slashed staff hours well before the announcement of cuts, so that was profit maximisation and not a response to a reduced income. Staff levels are now so minimal that it would be very difficult to cut further.

They can most certainly target pharmacist wages. Taking a 45k wage down to 36k-38k is a realistic option in my opinion. Staff wages are mostly national minimum or slightly above, so little can be trimmed there. 

MUR/NMS bullying has still not achieved the profit maximisation so strongly desired by area managers. In any given area there are many branches that still do not achieve the 400 MURs and have 'low' NMS. I think with more aggressive performance management and bullying the employee pharmacist demographic can be changed dramatically so only 'big number' pharmacists remain in employment, with a cull of those who are not target driven machines. This would certainly bring in a few more thousand per year. 

With the natural increase in items each year and static staff hours, workload can continue to increase to produce greater unit's of profit at zero extra cost. 

Combine all these things and think you will find your missing thousands. 

Dave Downham, Manager

Classic lose-lose then, or at best lose-stay same

Sue Per, Locum pharmacist

Usual alarmist tone from Mt Modi, for five yrs running!! Have yet to see any pharmacy close, or asking prices drop.

 

S Morein, Pharmacy Area manager/ Operations Manager

It's more than 5 years of alarmist nonsense on here from the usual suspects who exclaim that the "network" is about to collapse due to almost any change in reimbursement. Yet the "network" thrives.

Dave Downham, Manager

I'm sure a straw poll of both employee and owner pharmacists wouldn't produce the phrase "thrive" both currently or prospectively. It won't collapse overnight, it is being slowly throttled.

S Morein, Pharmacy Area manager/ Operations Manager

 

Total loss of 27800 over 2 years ie approx 14000 per year. With the notional average profit from NHS dispensing services 220000 per annum (PSNC figures -so in all liklehod an under estimate) plus income from other NHS and OTC services contractors are hardly about to go bankrupt.

The nonsense 12% claim when its is in reality a 4% annual reduction coupled with the 7.4% from current levels ie an addition 3.4% reduction for the second shows how contractors manipulate figures to plead poverty that will not exist.

 

Chandra Nathwani, Community pharmacist

Its not £27800 over 2 years! It is this sum over 16 months. £220,000 figure is an average, and like with all averages there are winners and losers. No clues to guess where single handed owners fall. With 40% of the £220,000 coming from purchase profits, if your dispensing does not reflect the "average" cat M spread than you lose. Also if you get MDS weekly scripts than your purchase profit is reduced by 1/4 as it is spread over 4 items. (The 3 extra dispensing fees may not even cover the cost of providing MDS). So the average figure of £220,000 is probable around £190-£200k.

Take rent and rates of £35k, utilities around £5k, insurance and accounting £6k. For average scripts you need 3.5 staff at around £20k + NI. So thats around £75k (before workplace pensions adding upto 3% on top). Add a locum or second pharmacist to cope with MDS/Holiday Cover/Services of say £45k. Thats £166k. £200k minus £166k leaves £34k for owner propriotor working 55 hours a week. That is around £12 per hour! (After 35years in the profession)

This is BEFORE the cuts and BEFORE and finance costs or return on capital employed not to mention the drop in goodwill value which was ones pension pot. (No NHS pension for contractors)  Now if a pension company collapsed and caused a loss of £200k in pension pot value it would be a news story.

BUT.........its upto you to believe what you wish to believe.

Ps OTC trade which did contribute around 30-40% of T/O is now down to around 5-10% in most small pharmacies.

S Morein, Pharmacy Area manager/ Operations Manager

As an aside why should the global sum take into account the excessive goodwill values paid for contracts? 

Chandra Nathwani, Community pharmacist

I don't expect it to. I bought my pharmacy 26 years ago and had to secure bank loans to do so. During this time there has never been a drastic fall in earnings like now. So there was an "expectation" that any investment one  makes in this business will pay for itself. I know any business is a risk and I  took mine.  But no one could have predicted this level of cuts so quickly, not even Warren Buffett. 

 

 

Jupo Patel, Production & Technical

Sounds like you're a lucky one. By my understanding you've lived the good times before a light was shone on the nice profits enjoyed by conractors So be thankful. And despite 'armageddon' you could sell tomorrow for a healthy profit.

Sue Per, Locum pharmacist

Your figures certainly dont stack up. publish your p&L accounts and i may just about believe you. I bet you wont!!, because your figures are engineered.

Simon MEDLEY, Community pharmacist

looks about right to me........   my gross profit    212308, including counter sales at 15%  t/o so about 190 tops from nhs

profit for year  66174.... but thats not including  rent as i've invested in the freehold- but bear in  mind thats with the  '' over payment  '' thats being clawed back by cat m

so take out a pharmacist wage and there's not a lot of wriggle room  for investement

Jupo Patel, Production & Technical

I would suspect that like many single handed business owners the books are nicely 'cooked'. Mr Nathwani would probably sooner poke both his eyes out than allow any third party scrutinize his books.

Chandra Nathwani, Community pharmacist

You have a very poor view of people. Pleople are inherently "Good" as it is their true nature to be so.  One reason why many in our and other profession do their work "karma" without expectation of "riches"  beyond their wildest dreams is because it makes them "happy". The  debate is if our ability to do our duty in our chosen path is at jeopardy. 

Chandra Nathwani, Community pharmacist

I am not trying to persuade you to believe anything! Believe what you want.My belief is that the financial attrition is a goal changer. From personal ownership of pharmacy (what little there is left) to multiple ownership. No  one on this forum aspires to that because then pharmacy will be fully an  employee  profession.

 

Jupo Patel, Production & Technical

Very difficult to know who to believe isn't it?

Dave Downham, Manager

Not really - try spending more than 5 minutes looking at the impact assessment should highlight the veracity Mr Mowat's utterings.

Valentine Trodd, Community pharmacist

Doh, will have to put the 66 plate Bentley on hold then... life is so unfair for contractors!

Chandra Nathwani, Community pharmacist

I hope you don't think it is fair to decide who owns a pharmacy from the size of their pocket. 

And I don't like Bentley.

 

Jupo Patel, Production & Technical

More scare stories.....

Chandra Nathwani, Community pharmacist

Trick or treat!

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