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£15m-a-month category M clawback to have ‘severe’ impact

The £15 million reduction will represent a drop of 17-18p per item

The latest reduction in category M payments will have a “severe impact on community pharmacy”, Pharmaceutical Services Negotiating Committee (PSNC) chief executive Sue Sharpe has warned.

Category M prices will be reduced by £15 million per month for a 12-month period from August, which will "correct overpayments of retained margin for both 2015-16 and 2016-17", the negotiator announced yesterday (July 18).

This will represent an average drop of around 17-18 pence per item on current drug tariff prices, although the impact on individual pharmacies "could differ" according to their "dispensing mix", PSNC said.

PSNC “considered carefully”

Ms Sharpe said the negotiator considered the Department of Health’s (DH) proposals “very carefully”, before eventually “agreeing unanimously”.

“Spreading the recovery of the excess margin over 12 months is helpful. But as the DH acknowledged, the impact on community pharmacy will be severe in the light of the funding cuts,” Ms Sharpe said.

She stressed that PSNC “scrutinises the DH’s assessments of margin delivery very closely”.

“We also remain concerned about fair access to margin and local manipulation of the market,” Ms Sharpe said. “The DH has recognised these issues and agreed to work with PSNC to resolve them.”

Businesses under pressure

PSNC’s funding and contract subcommittee chair Peter Cattee said: "It is always difficult when the margins survey shows that contractors have received more than the allowed margin in any given year."

This is “particularly the case” in a year in which businesses have come under a "huge amount of pressure", Mr Cattee said.

“PSNC debated this matter for some time, and we felt that the priority was to spread recovery over as long a period as possible,” he added.

The August price list is available on the NHS Business Services Authority website.

The latest clawback follows a £48 million reduction in category M payments between June and September 2016, which Boots' parent company blamed in January for a 0.5% decrease in pharmacy sales.

The Twitter reaction
35 Comments
Question: 
How will the category M reduction affect your business?

nader Siabi, Community pharmacist

Bad contract and bad management has come to bite us again. The contract was ill judged by the PSNC under the leadership of Sue Sharp and now the consequesnces combined  cuts will be the last nail on the coffin. Shame on you PSNC management. You got your pension pot fatter and fatter while sold the profession for cheap. 

S Morein, Pharmacy Area manager/ Operations Manager

Simple reason why PSNC accepted unanimously is that the adjustment being sought is actually less than the excess profits being made by contractors. Examine so many of the pharmacies for sale by transfer agents showing gross margins significantly in excess of 40%, on an item cost of nearly £10 i.e. £4 per item profit. When the PSNC indicative tables including purchase profits show that these same pharmacies should be returning less than £3 per item. These are not isolated contractors but a significant proportion of pharmacies.

nader Siabi, Community pharmacist

Is this why you work for greedy contractors !!? you have no clue what goes on with costs do you. By the NET does not mean MESH just in case if this confuses you!!! There is a college near me teaches idiots basic maths. I can recommend you if you want!!!!

Sue Per, Locum pharmacist

I think Mr Siabi, you are in denial, and you should be first pupil to enrol in the class!!. The evidence is in the open forum --For ltd companies, the Companies House.

 

Dave Downham, Manager

For limited companies below £12m turnover, there is nothing to see. Also the way different companies calculate gross margins and presents differs so much as to be irrelevant. Happy to be proved wrong.

S Morein, Pharmacy Area manager/ Operations Manager

Do please enlighten us to the different ways that companies calculate gross margin. I am sure HMRC inspectors of taxes would be very pleased to learn that auditors of company's accounts are so generous in ignoring statutory reporting requirements. As for the profits contractors make just visit any transfer agents site and look at the accounts available with their extraordinary gross and net profits all for a significant number of years prior to placing for sale. And unless there is an attempt to defraud the buyer these accounts have to be accurate as I am sure you have heard of something called full disclosure?

Dave Downham, Manager

Where to start? 

1. Audits are only required for businesses in excess of £10.2m revenue, so you are looking at companies 10 branches plus. Also, if you are below £12m, you only have to file abbreviated accounts.

2. There is no statutory definition of gross margin. As an example, a dispenser could be a cost of sale thus reducing gross margin, or under the widest definition, a distribution cost, or administration. Also, what about consumables? Locums? Take your pick where you put these.

3. HMRC are not concerned with gross profit, just adjusted taxable profit which is wholly different from the net profit published

4. Transfer agents show high profit margins - who'd have thought they make allowable adjustments to improve the look of the business or sellers make efforts to hammer down on spend immediately before sale. That's akin to painting over a damp patch before selling a house.

5. Full disclosure - big deal. You interpret the numbers how you want.

The bottom line - be it gross margin, contribution, net  or profit retained earnings - is coming down. You can opine all you want if they are excessive or not, but some businesses  - not charities, not "not for profit" organisations - are going to be hurt badly.

S Morein, Pharmacy Area manager/ Operations Manager

Mr Downham have you ever bought or sold a pharmacy? What do you think the contract of sale covers? Vast tranches of waranties and covenants all that in minutae cover the accounts disclosed, their accuracy and the truthfullness of the replies given to disclosures required. It is shocking that you feel that is acceptable to effectively withold the truth in a binding contract. 

 

Dave Downham, Manager

Wow, that's put me in my place, Ms Morein. I should have more faith in the accountants of a business to be impartial and not use entirely lawful assumptions and accounting policies to manipulate the presentation of the accounts. I should believe that solicitors are solely independent of who pays their bills and are only after the fair middle ground. I should have confidence that banks truly understand pharmacy business and are not taking advantage of low interest rates to offer substantial loans over and above what a business is worth. I can rest assured that valuers are not at all swayed into justifying a valuation that suits the ends of all parties.

Meanwhile, in the real world...

Sue Per, Locum pharmacist

Margins and net profirts are engineered to suit. The fact remains, "NHS" cow's udders are so engorged, that is more than ample to suckle, and hence the contractors remians latched to the "NHS" contracts, otherwise we would be witnessing mass dersertion and closures..

That is the tangible evidence.

Das Bhambra, Community pharmacist

This is where brain power comes in! Gross profits are not what you are left with as a contractor that would be the net profit!!!! So out of that £4 you have to pay for everything else. Why don't you report the net profits on all these 'greedy' contractors! Give everyone the full picture and not just your biased view! 

 

S Morein, Pharmacy Area manager/ Operations Manager

Visit any sales agents website Das and you will see the extraordinary levels of net profits. All of which have to detailed accurately as all buyers will perform a thorough financial due dilligence and any attempt to decieve is of course a fraud.

Dave Downham, Manager

According to NHS digital, average net ingredient cost was £8.13 for 2015/6. Also, gross margins per transfer agents will be necessarily embellished and will include non-dispensing services such as establishment fees, MURs, etc so as usual you are talking out of your post amended as it breaches forum rules.

Ilove Pharmacy, Non Pharmacist Branch Manager

Ssshh. Contractors don't want everybody to know that.

Seal Patel, Community pharmacist

Ms Sharpe said the negotiator considered the Department of Health’s (DH) proposals “very carefully”, before eventually “agreeing unanimously”.
They didnt really consider it carefully. Sue Sharpe has run pharmacy budget into the ground, constantly agreeing to cutbacks, constantly degrades the profession and has a led to a decrease in patient safety. The sooner she goes the better, absolute shambles of a job she has done over the years. 

 

Valentine Trodd, Community pharmacist

Why are soon-to-be-retired Sue and the PSNC referred to as "the negotiator"? Doesn't ever seem like there's much negotiating going on.

S Morein, Pharmacy Area manager/ Operations Manager

Plenty of negotiating. The amount being returned is significantly less than the excess amount contractors received over the period. Ms Sharpe and her team should be congratulated for such an outcome.

Susan M Shepherd, Community pharmacist

I would be interested to see details of  the basis on which the PSNC agreed to this.

If the large multiples, with their full vertical integration are already talking about losses as a result, what hope the independent pharmacy? The move towards the "amazonization" of medicines supply is getting ever closer, with everyone's presciption arrivng by post, including CDs, insulins, bulky dressings etc. Or are we meant to go click and collect from the boxes appearing in the streets? Great so long as you are mobile and not suffering from dementia. How many emergency hospital admissions and patients will die as a result?

Farhat Ahmed, Locum pharmacist

Can any of the younger pharmacists advise, when I was at university there was no such thing as category M clawback, are the pharmacy current students given finance lectures so that they can understand how we are paid by the NHS.

Somebody, go ahead and treat me as if I am really really desperately dumb, but please explain to me in everyday language exactly how the clawback system is designed to work. If I pay a builder to do a job for me, once I have paid him I don't then go back to him and say "listen matey i have overpaid you so give me some money back"

How many of you reading this article can HONESTLY say that you understand the system.

It's actaully not too different to the systems run by first line wholesalers, I am absolutely convinced that the pricing structures are there to con us out of money. In just the same way that I don't understand category M clawback, I equally do not understand the pricing structure set by my wholesaler.

Anybody else in the same boat or am I the only thick pharmacist out there?

 

 

Sue Per, Locum pharmacist

The Latter !!!

Jonny Johal, Pharmacy Area manager/ Operations Manager

"Con" is a strong word, and not appropriate. The whole idea of clawbacks stem from the old days when certain companies and 'wholesale buying groups' chose to ignore Wholesale Price Maintainance in an attempt to increase profits. We had a situation at one time when the actual cost of drugs is much much lower than the 'cost' reimbursement claimed for by pharmacies, the Dept of Health didn't use the word "con" then. They quite rightly think, then, that if pharmacies can get their drugs cheaper, that saving should also be passed onto the taxpayer and the clawback schemes were borned. As far as the wholesalers go, had everybody stuck to wholesale price maintenance, we would be in a very different world today.

NIRMAL BAJARIA, Superintendent Pharmacist

Completely agree with you Farhat. As a small independent I have seen plenty in the last 32 years but never this bad. They need to start with a clean slate and stop over complicating matters every time.

Andy Burrells, Community pharmacist

I got one lecture on the Tariff in maybe 2013(?). Considering it's place and importance in CP it should hold more priority.
The problem is, I don't think many people really understand it and as it is a dynamic document, how do you assess learning?

As far as understanding Cat M goes, I think its worthwhile hiring a great accountant as they're the only people who can manipulate numbers to the level required to keep a pharmacy business on an even keel these days

Sarah Smythe, Information Technology

Yes Farhat , I think everybody agrees with you on all counts , its basically a "bloody con" and your analogy sums it up perfectly.

Jonny Johal, Pharmacy Area manager/ Operations Manager

The multiples will move to protect their profits, therefore employee pharmacists and staff will pay the price. :-(

Sarah Smythe, Information Technology

Dear dear. Looks like there will only be Boots Pharmacists in the stores soon ( as all the other staff will have been disposed of in the Boots inimitable way ) . Yes the pharmacists will be doing MUR's, NMS, runnung out of consulting room to serve , dispense, dish out the daily gallons of Methadone and clean the floors. Ooops, I do apologise , forgot that most do that now .

Ilove Pharmacy, Non Pharmacist Branch Manager

Wrong, it will be 17year old Pharmacy apprentices. 

Paul Samuels, Community pharmacist

I won't cry for the footwear chain--they still expect everything & more from their pharmacists--however where will they go as there appears to be little employment outside unless you want to work for a pittance.

R G, Pharmacy Buyer

How comforting that the PSNC "agreed unanimously" will the PSNC take a similar cut in wages? WHo got the original calculations wrong? Where is the mystery pharmacy contractor advisor to DoH who told them pharmacies make enormous Gross Profits. Did he too get it wroong!  

Dave Downham, Manager

"Ms Sharpe said the negotiator considered the Department of Health’s (DH) proposals “very carefully”, before eventually “agreeing unanimously”."

How big a cut is needed before the negotiator "is in majority agreement" or at the very least "accepts reluctantly"?

On another point, this means that someone got their sums wrong by £180m. Are they still in a job?

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