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'Unexplained' growth in wholesaler profits tied to generics shortages

NAO: Direct relationship between shortages and 4 out of 10 concessionary prices in October 2017

The National Audit Office (NAO) has identified “unexpected growth in wholesalers’ margins” while investigating last year’s “unexpected increase” in generics prices.

The NAO launched its investigation – the results of which were published today (June 8) –  to find out why “significant unbudgeted pressure” had been placed on clinical commissioning groups (CCGs) by rising prices of “certain” generic medicines bought by pharmacies.

“Unprecedented” rise in concessionary requests

The price rises led to an “unprecedented rise in the number of requests from pharmacies for concessionary prices”, from fewer than 150 requests a month before May 2017 to a peak of 3,000 in November, the NAO said.

In total, the Department of Health and Social Care (DH) granted 709 price concessions in 2017-18, compared with just 282 the previous year.

The NAO cited 100mg tablets of antipsychotic quetiapine as an example, which “at its peak” had a concessionary price of £113.10, “70 times higher than its previous set price of £1.59”.

Causes of price increases

The DH had identified a direct relationship between shortages – caused by the “suspension of some manufacturers’ licences and a fall in the value of sterling”, among others – for four out of 10 medicines granted concessionary prices in October 2017, the NAO said.

But the DH also identified “increases in manufacturers’ prices, [and] unexpected increases in wholesalers’ margins, which it could not fully explain”.

The DH had to “rely on voluntary arrangements to obtain market information”, the NAO noted, and had “identified that a lack of transparency from these arrangements could lead to ‘gaming/manipulation of…pricing’ or ‘collusion’ between organisations in the supply chain”.

“The DH did not identify that this type of behaviour influenced the 2017-18 price increase,” the NAO stressed. “However, its ability to rule this out would have been limited.”

A DH analysis had also demonstrated that concessionary prices it had granted “were set higher than necessary above wholesalers’ selling prices”, the NAO said.

Supply issues affecting pharmacies

The DH had also received “intelligence from a variety of sources about how supply issues were affecting pharmacies’ ability to obtain medicines”.

However, “the [DH] does not know how many patients experienced problems getting their prescriptions”, it stressed.

The DH has since changed how it calculates concessionary prices so they are based on manufacturers’ – rather than wholesalers’ – prices, the NAO said.

New powers to demand information

The NAO pointed out the DH will have new powers – “expected to come into force in July” – to “control the price of generic medicines and obtain sales and other information from manufacturers and wholesalers”.

Last month, the government confirmed that all manufacturers and wholesalers of specials will be required to provide the government with pricing information when new regulations come into effect this year. The announcement followed allegations by The Times that Boots had colluded with wholesaler Alliance Healthcare on the price of specials – allegations parent company Walgreens Boots Alliance “firmly rejected”.

Read a full copy of the NAO's report here.

Have you noticed an increase in generics prices?

SydBashford Sold&Retired&DeRegistered, Community pharmacist

We all knew this was going on... the wholesalers ripping off independents to make sure their own groups kept profits up. I don’t think the DOH will do anything. Now price concessions are based on manufacturers prices to wholesalers, their view will be if that if your wholesaler is charges too much then shop around... independents will be the ones that suffer for years, ultimately, it will force more borderline pharmacies closed which is their ultimate aim anyway. Those that survive, and don’t benefit from increased script numbers from a nearby closed pharmacy, will continue to strive on reduced borderline income. Guaranteed purchase profit is likely to dissapear as DOH will not want to foot the hike in prices that we get charged. It’s gonna be a complete mess.... gonna be a long term 5-10yr process to bring stability to community pharmacy I reckon. 

Ashley Cohen, Community pharmacist

Should wholesalers not have enforced ‘clawback’ on their excess profits. I feel they have benefited whilst contractors have been penalised (yet again) for no fault of their own.

I personally am fed up with having to source stock at considerable loss to line the pockets of large wholesalers who manipulate price increases. 

Really? Wow, Superintendent Pharmacist

So the report is again showing that the system is perverse and favouring the multiples once again. What the hell have manufacturers prices got to do with anything when you can only buy it for double that?? Its nothing to with me, yet I should be punished for it?!

Absolutely nuts the whole thing is!

Clive Hodgson, Community pharmacist

I think we would hope for more than just a clawback. I hope DH/NHS counter fraud are looking into this market manipulation of generics by certain wholesalers to ascertain if any laws have been broken and if so to bring prosecutions against the companies and their directors. We are talking about very large sums of money.

If two or more wholesalers have been acting together as a cartel to fix the generic market then they could be prosecuted under existing anti-competitive legislation. Penalties include fines of up to 10% of worldwide turnover and up to 5 years imprisonment and disqualification of being a director of a company for individuals.

A.S. Singh, Community pharmacist

Unfortunately the NHS is powerless to stop wholesalers doing this. When money is involved moral and ethics normally take a back seat.


 MHRA who govern wholesalers are not interested in clamping down on this sort of activity. Unfortunately no law has been broken so nothing will be done to stop them, maybe the NHS will use pharmacy as the whipping boys to claw back what they deem as excess profits while wholesalers are laughing quietly amongst themselves

Clive Hodgson, Community pharmacist

This report merely confirms what was already the logical conclusion that certain wholesalers have been making millions of pounds by manipulating the generic drug supply. All this at the expense of the NHS and taxpayer. It is not clear what the legal position is to this market manipulation. The ethical and moral position is however very clear. Ripping off the NHS is not acceptable.

I suspect that for certain large pharmacy multiples who are vertically integrated the excess profit made by their wholesaling division will have substantially offset the effects of the funding cuts to their high street branches. If this is so, then perversely the funding cuts will have actually strengthened their retail position by disproportionally weakening the independent and small chain pharmacies. Was it not rather curious that the response to the cuts by the large multiples was so muted?

Reeyah H, Community pharmacist

Spot on! And guess what - they’ll get away with it! 

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