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Accountant: Contract will benefit multiples, while independents close

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"On average each pharmacy should receive £225,392, plus reimbursement costs"
"On average each pharmacy should receive £225,392, plus reimbursement costs"

The five-year pharmacy funding settlement will benefit medium and larger multiples at the expense of independents, accountant Umesh Modi has told C+D.

While there are “some positives” (see below) for independent pharmacies, Mr Modi said, he predicted that frozen funding – exacerbated by inflation – will mean they struggle to deliver the clinical services-focused agenda set out in Monday’s contract.

Read C+D’s breakdown of the contract, and then see Mr Modi’s predictions in full below:

First, the positives…

The direction of travel has been towards clinically based pharmacy services and this new contract confirms as much. The contract at least gives certainty of funding for the next five years. This will allow contractors to review their position and see if they wish to invest in their business, innovate, recruit more staff, and build the infrastructure – including IT – to enable them to become efficient with dispensing, but release resources and time to provide more services.

I believe the medium-sized and larger multiples will benefit the most, as they have the resources and skillset to bring about changes in their operations to accommodate for the new working practices.

It is also refreshing to note that, at last, something will be done to ensure that NHS reimbursements will be improved to smooth out the cashflow problems that many contractors are currently facing.

…and the negatives

While there is certainty of funding for the next five years, and on average each pharmacy should receive circa £225,392 (£2.592 billion divided by 11,500 pharmacies), plus the drugs reimbursement costs, it does not take into account inflation or increased cost of providing the clinical services.

With Brexit the biggest elephant in the room, if we exit the EU without a deal it is expected that our inflation rate is likely to increase to around 4%, from the current 2%. Furthermore, more staff will be required to provide clinical services at an increased cost, and if the funding is at the same monetary level, contractors will see their margins go down and profits reduce too.

This will have a significant impact on many independents, who will simply not be able to invest in their business to provide the type of service that the government or NHS is seeking. This is a counter-productive measure, unless the funding is increased or at least kept up in line with inflation.

Independents can’t increase efficiencies

While the government believes that there will be increased efficiencies through IT and so reduce the dispensing time, many independents don’t have the time to deal with the day-to-day administrative burden of running their pharmacy, let alone bring about the efficiencies that are being sought. For independents, it’s also proving difficult to recruit new staff at the salary they can afford. Therefore, the vision to provide the clinical services is lost without adequate funding.

More closures to come

Medium and larger multiples will benefit at the expense of independents, as they will be able to claim more from the total funding pot of £2.592bn and less of the pie will go to the independents. I think this will result in more pharmacy closures. First in rural areas and then in other parts – thus access for the vulnerable patients will be curtailed. First it was the post office closures, then the banks and now the pharmacies. The poor in the community will continue to suffer.

Even though the establishment payment is going to be scrapped, the overall funding of £2.592bn has been retained, but, as mentioned above, the mix of payments will change and those providing services will benefit more and the rest will get less. Small monthly transitional payments or a £900 payment in December 2019 will do nothing to ease the cashflow problems many contractors are facing.

Umesh Modi is a chartered accountant and tax advisor, and a partner at Silver Levene LLP

1 Comments
Question: 
How do you think your pharmacy will cope with the new funding contract?

Leon The Apothecary, Student

A fantastic insight by Umesh Modi.

It does highlight a weakness with the administration in Pharmacy, as quite rightly stated, it takes up a large amount of time.

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