Pharmaceutical Services Negotiating Committee (PSNC) has made representations that pharmacy contractors in England are experiencing cash flow issues. In light of the concerns expressed, there will be an increase to the Advance Payment which will be paid to contractors at the end of October for NHS pharmaceutical services provided in September of 15p per prescription item. The full and final payment for services provided in September will be reconciled as per usual processes at the end of November.
Why might pharmacy contractors be experiencing cash flow issues?
The cash flow issue is caused by a combination of:
- Increased purchase prices of a number of generic medicines;
- The £15 million per month reduction made to medicine margin in reimbursement prices from August onwards.
Both of these impact the payment to contractors at the end of October. That payment is made up of the reconciliation payment for August’s NHS pharmaceutical services, where the advance paid in September was based on July’s higher reimbursement prices (before the reduction to medicine margin) and their advance payment for September’s NHS pharmaceutical services which will be based on August’s lower reimbursement payment. This causes a ‘double dip’ in the October payment to make good the higher advanced payment made in September, based on July’s higher reimbursement prices.
It is not unusual for pharmacy contractors to experience a reduction to medicine margin. How is this different from any other margin reduction?
When generic reimbursement prices are reduced to reduce margin, typically the underlying generic purchase prices are constant. However, on this occasion, since generic reimbursement prices were reduced, there has been some significant increases in generic purchase prices as, for example, demonstrated by the significant number of concession prices. Reimbursement prices should catch up as they in the main reflect the market. However, in the meantime there is a potential short term cash flow issue for some pharmacy contractors.
It seems like the mitigating measure is only deferring the occurrence of the ‘double dip’. How is this supposed to help?
The aim of the increase to the advance payment is to smooth out the effect of the ‘double dip’, so it would not have a big impact on pharmacy contractors’ cash flow.
Is it a one-off amendment to the advance payment or will it continue beyond October?
The amendment has only been confirmed for one month.
How will this amendment impact on Clinical Commissioning Groups?
The advance payment for NHS pharmaceutical services provided in September will be reconciled as per usual processes at the end of November. Therefore it will be cost neutral to the NHS.