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Interim funding agreement could force closures

Business The latest round of category M clawbacks could force pharmacies to close, with 100-hour pharmacies and independents being particularly vulnerable to the threat, industry experts have forecast.

The interim funding agreement could force pharmacies to close in 2013, financial experts forecast this week as contractors saw shortfalls of up to £7,000 in their first affected NHS statements.

Independents and 100-hour pharmacies would be particularly vulnerable to "severe difficulties" as the 45p reduction in average item value took full effect over the next few months, accountants told C+D, and some would "almost certainly" face closure.

"There will be a number of pharmacies, especially small and 100-hour, that will face severe difficulties in the coming months and will almost certainly be forced to close" Umesh Modi, Silver Levene

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Andy Harwood, director at finance company Pharmacy Partners, said some contractors were down by £5,000 to £7,000 in October prescription payments received at the end of December. And although large multiples would have many other revenue streams to fall back on, he stressed nobody would be immune.

"Across our portfolio, some [pharmacies] got hit quite hard and some not at all, and there's no continuity across the sector – it's very much case by case," Mr Harwood told C+D. "The general observation is it's going to get tougher, so the next payments are going to be similar."

"A number of pharmacies, especially small and 100-hour, will face severe difficulties in the coming months and will almost certainly be forced to close," added Umesh Modi, partner at accountancy firm Silver Levene.

Pharmacy brokers agreed 100-hour businesses would be particularly vulnerable. While Hutchings Consultants predicted many of these would now close "sooner rather than later", MediEstates said the conditions would "test the longevity of 100-hour pharmacies in particular".

Graham Phillips, owner of Manor Pharmacy Group (Wheathampstead) Ltd, Hertfordshire, also expressed fears for independents. "Multiples... just need to show stakeholders an overall return [on investment], but the independent has to pay back the capital it borrows with interest," he told C+D.

The final 2012-13 funding settlement, taking into account the cost-of-service inquiry, is still under discussion between PSNC and the Departmnet of Health.


Interim funding in numbers

2.49 billion total interim funding for 2012-13

72.5 million category M clawbacks per quarter

45p reduction in average item value

15p reduction in practice payments per item


How will the category M clawbacks affect your business?

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14 Comments

Brian Austen, Senior Management

Small independents need to federate to reduce their operational costs for example if you did choose to use the loss leader of offering a free delivery service to entice patients from the multiples (who often offer delivery but don't do much of it) why not fund it through several independent "single-handers" paying for and utilising the service together.
New ways of working together efficiently are required. Too many independents are consumed with competing with everyone else or don't have the will to work with others.
There are 2 sayings that I like:
Work smarter, not harder
If you always do things the same way, you will always get the same result.

Amal England, Public Relations

Category M claw backs have been devastating. But its not just category M reductions, funding in services is in decline, fees from services is decline. There have been bankruptcies, which do not highlight the problem we face- our professionalism is in terminal decline leading to wages being halved in the next 10 years. Which other profession, after a four year degree, works for free with high stress levels, no appointment necessary, free advise and then treated like dirt. To avoid major obliteration of pharmacy, pharmacists need to standup and take united action - hard and fat.

Amal England, Public Relations

correction.....hard and fast. (Smartphone not so smart user)

Tim B, Locum pharmacist

As long as some add on services for example, freeprescription collection and delivery, continue to be free then we are seen as making a healthy profit. Charging for these activities is long overdue; even tesco make a charge to deliver groceries. Likewise for providing medicines in a tray. Why are other professional services also given free of charge. What is wrong in making a profit from these activities??

I hope to see the day when pharmacists stand united and declare enough is enough. Dare I suggest some form of industrial action??

Killian Johnston, Superintendent Pharmacist

well, in reply to super locum, we in northern ireland are in an extremely bad position here, and due to this goodwill value has fallen. here there are no bankruptcies because this is an owners livlihood! You do everything you can not to go bankrupt, because if you do...what do you do? There are no jobs here for locuming, so there are cases here of owners sellign their cars to fund their business. We are in a worse position over here than our colleagues across the water, but maybe you are looking at yoru future when you look at us. I have now worked 72 hour weeks every week since last april, no days off during the week, one weeks holidays during the summer, and that has been it so far. So S morein, do not presume because there are no bankruptcies, that everything is perfect, if it was your business, that you had sunk your life's work and savings into, would you let it fold without a fight? without doing everything you can before that might happen? I think not, I think you need to be better informed before you can make such off the cuff comments

Super Locum,

So we can expect Goodwill values of pharmacies to fall?
Not likely!
If there is such a dire forecast then why don't contractors sell up?
there's still plenty of profit in pharmacy, nobody is fooled with this scaremongering!

N Williams, Work for a health/commissioning consultancy company

Yes Super locum, Goodwill values have fallen dramatically and thats why contractors dont sell up as they are not worth anything like they were. The banks react to these drop in profits and wont fund purchasers due to the continued risk of further losses.

Neeraj Salwan, Superintendent Pharmacist

S Morein please feel welcome to come run my pharmacies, take on the debt, fight tooth and nail for fees & services you work your butt off for just not to be reimbursed by the Pricing Bureau who normally make mistakes on a regular basis, fight the banks who after taking their monthly loan payment leave nothing for you to pay the bills, try and keep up with inflation such as minimum pay, rising utility costs, mandatory pension contributions etc. Come on down and see how much fun it is running pharmacies, sounds like you haven't experienced any off this yet, I'll let you have a free trial!

Pillman Forever, Community pharmacist

Well anyone in business, doing more work for the same money, so effectively less money for the same work done last year, the dilution of the global sum and retained profits, comes to a point when expenses ate greater than income...... Which in time can only result in closures, unless you have money growing on trees in the contractors garden

S Morein, Pharmacy Area manager/ Operations Manager

The usual bankruptcy fantasy. Every year the same nonsense, yet every year contractor profits rise. And every year there are no bankruptcies.
Contractors are in the unique retail situation of zero new entrants effectively a monopoly. Yet they still think they should be rewarded for an element of risk! The only risk is complacency due to poor service.
Since the new framework was introduced fees have risen over 30% per item. So concentrate on delivery not moaning about fictional monetary pressures.

Tien On, Community pharmacist

Absence of evidence is not evidence of absence. You need to take up NS offer of the free trial to manage your own business, to appreciate the enormous pressures before making such ill-informed statements.
Some sick businesses could be on life-support, grasping at straws, maxing out their credit terms, selling the family silver,etc,,, holding to dear life. Because the alternative is no better.
These SMEs, or family businesses fight for survival. Large corporates have the luxury of blowing all the shareholders money, and walk away into administrations without consequence. Small businesses have personal debts, and the banks will want your soul, even if you bail out. Declaring bankcruptcy isn't going to make those problems go away.

James Hutton,

Not factually correct - typical of Pharmacists "head in the sand" mind set. Move into the 21st century, cast off your aversion to understanding modern business and embrace some modern methods of finance which will reduce the impact of the situation.
JR. West Yorks

Small Pharm Owner, Other pharmacy staff

Whether we see bankruptcies or not where is the incentive to invest in order to keep providing a high quality service. Reimbursements are going down, costs up and this combined with stock shortages, political uncertainty of where pharmacy is heading and the mounting bureaucracy it is a tough time for contractors! Look where opening the market to new entrants got us....countless new pharmacies diluting a dwindling global sum whilst providing the same services to the community which were already available.

Old Timer, Manager

the amount spent on vehicles ,fuel and drivers wages to deliver items at no charge sends a huge signal to the Government that pharmacy is still well paid and further cuts possible.Think its time we made a stand .

.

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