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Judge: Pharmacy profits analysis used for funding cuts was 'very weak'

A DH lawyer said the profit analysis was "in no way fundamental" to the funding cuts decision
A DH lawyer said the profit analysis was "in no way fundamental" to the funding cuts decision

An analysis of the profitability of pharmacies used by the government to justify the funding cuts was “clearly very weak”, a High Court judge has said.

In an analysis published alongside its 2016 announcement of the 12% cut to pharmacy funding in England, the Department of Health and Social Care (DH) referred to data which it claimed showed pharmacies “run at a 15% operating margin”.

Lord Justice Gary Hickinbottom – one of three judges presiding over pharmacy's appeal against the funding cuts this week – asked the DH’s lawyer James Eadie QC what the purpose of referring to this “very weak” data was.

Alison Foster QC – the lawyer representing the Pharmaceutical Services Negotiating Committee (PSNC) at the appeal – claimed the 15% figure had been “referred to in numerous submissions” by the DH to justify the funding cut.

The DH’s reliance on such material was “unlawful” as it was “fundamentally flawed and misleading”, she claimed in documents outlining her argument.

DH: 15% figure “in no way fundamental”

Mr Eadie claimed the 15% figure was “in no way fundamental to the whole edifice” of the DH’s decision to implement the funding cuts.

But Judge Sir Jack Beatson asked: “Why should we say it's not central [to the decision]?”

Lord Justice Stephen Irwin added: “It may not be surprising if the [pharmacy] minister [David Mowat, at the time] read this and nothing else before he made his speech” announcing the funding cuts.

15% figure “cannot be marginalised”

Addressing Mr Eadie in the Royal Courts of Justice yesterday, Ms Foster said: “You did rely on [the data], it was important, it cannot be marginalised.”

Documents used by the DH in the “early stages of discussion” about the funding cuts referred to a profit margin of pharmacies of 7%, she added.

Mr Eadie argued that the DH took into account a range of factors – which amounted to a “fat document” – before implementing the funding cuts.

Basis of the appeal

When granting PSNC permission to appeal his decision to uphold the funding cuts in June 2017, Judge Justice Collins said: "While naturally I am not persuaded that I failed in any of the respects alleged… I recognise the real effect of the cuts on pharmacies and the apparent reliance on the 15% [figure] and the non-disclosure [of how this figure was reached]".

This 15% figure “was referred to and seemingly relied” on in the DH’s own impact assessment of the funding changes, Mr Collins said at the time.

However, even the government has since “accepted that it is not appropriate to rely on the 15% figure”, the judge noted. 

C+D digital reporter Thomas Cox (@CandDThomas) reported live from the court for the duration of the funding cuts appeal. Catch up on events from the first day here, and yesterday’s proceedings here. You can also follow the action on Twitter using the hashtag #CutsInCourt.

6 Comments
Question: 
What do you make of the judges' comments?

Amjad Khan, Senior Management

The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc. However imo, 7-15% which are the figures being touted, are not great margins. The independents are probably around the 7% whilst the multiples (all of which are vertically integrated wholesalers) are probably towards the 15%

SIMON MEDLEY, Community pharmacist

so the DoH thinks that my pharmacy with a t/o of around 650,000 before pharmacy cuts, makes an operating profit of around 97,500   !!- not even if I can find a pharmacist to work for free or learn to eat thin air  !...  what a load of clueless clowns

Dave Downham, Manager

All true...but 15% of a small number is a small number whereas 15% of a bigger number is a bigger number, which makes this such a meaningless statistic.

Dave Downham, Manager

15% of what? Who says its too much? What is acceptable? Total bs statistic in isolation even if it's true, of which I have my severe doubts, and I don't mean "balance sheet".

SIMON MEDLEY, Community pharmacist

Is this alleged 15% gross, net ? And does it include otc as well as nhs ? 

Does the DOH know the difference or even care ?

C A, Community pharmacist

It includes meal deals... which the DH think should be enough to subsidise the NHS... right?

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