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Mean average pharmacy — In all the calculations we have prepared, this is defined as a single pharmacy branch that is dispensing the national average number of prescription items each month (that is, the total number of items dispensed in the period the NHS statistics relate to divided by the number of pharmacies the NHS has a contract with to dispense medicines (pharmacy contractors), not including us or pharmacies which have a contract with the NHS to dispense appliances). In 2019/2020 the average number of items each pharmacy contractor dispensed each month was 7,274.

Establishment fee — This is a fee the NHS pays to each individual, licensed pharmacy branch operated by a pharmacy contractor. There are three tiers of establishment fee based on the number of items each pharmacy branch dispenses. As we only have a single location, we only receive one fixed fee, which is the highest tier of £7,536 a year (£628 a month). These figures are based on funding fees for 2019/2020.

Quality payment — This is based on a total fixed budget of £75 million split between pharmacy branches and based on a pharmacy achieving certain quality standards and targets. As there are an estimated 11,995 pharmacies in the UK, each pharmacy branch has the potential to receive a payment of £6,253 each year (£521.05 a month). As we have only one location, we can only receive one payment. A large high-street pharmacy with several branches could receive this fee for each branch they dispense from.

Transitional payment fee — This is a fee the NHS pays to each individual, licensed pharmacy branch operated by a pharmacy contractor. The fee recognises costs associated with changes such as putting into practice the Falsified Medicines Directive (FMD) and joining primary care networks (PCNs). There are six tiers of transitional fee based on number of items each pharmacy branch dispenses. As we only have a single location, we only receive one fixed fee, which is the highest tier of £10,000 a year (£833.33 a month).

Clawback — This is a discount each pharmacy gives to the NHS based on the total value of the medicines it dispenses. The clawback rate depends on the value of medicines each pharmacy branch dispenses (not the overall pharmacy company). The NHS claims its highest level of clawback from us (11.5%), whereas for the mean average pharmacy, the clawback rate for 2019/2020 was 9.95%.

Retained medicine margin — This is the amount of profit that pharmacies are allowed to make on the drugs they dispense, assuming that the drugs are bought in a cost-effective way. The retained medicine margin is one component of the overall pharmacy budget in the UK. In the year to March 2020, the estimated retained medicine margin is £800 million of the total pharmacy budget of £2.592 billion.

Introduction to the NHS Pharmacy Payment Scheme

The NHS pays all pharmacies it has a contract with to dispense NHS prescriptions in the same way, through a combination of:

  • fixed fees based on the number of locations (branches) a pharmacy has; and
  • variable fees which depend on the volume and the specific drugs a pharmacy dispenses.

You can find more about this here.

According to the Government we were the pharmacy provider that was paid the lowest amount in NHS fees per item in 2017/2018.
(Source: Parliamentary questions accessed in November 2018.)

We are the pharmacy provider that is paid the lowest amount in NHS fees for each item dispensed because we dispense more prescription items than anybody else from a single location, and spread the fixed fees over a much higher number of prescription items dispensed.

In October 2018, Steve Brine MP (Parliamentary Under Secretary of State for Public Health and Primary Care) provided official government information on the cost difference per prescription item based on different types of pharmacy.

The table below has been taken from the response to a parliamentary question posed in October 2018 (see link above), and shows that we (referred to as the 'maximum' provider in line with the information the NHS holds about pharmacies in the NHS Dispensing contractors' data) are paid 27p less in fees by the NHS for every item dispensed, compared with the mean average pharmacy.

Number of Prescription Items Dispensed 2017/2018 Total Fees relating to Essential Services* 2017/2018 Average fee per prescription item 2017/2018**
Maximum (Pharmacy2U) 2,925,671 £3,869,711 £1.32
Mean Average 87,996 £140,235 £1.59
*We have calculated total fees as the sum of all essential service fees, including establishment payments and quality payments. It excludes any advanced service fees as these are payments for activity not related to dispensing. Any funding received via retained medicine margin, and any payments relating to the Pharmacy Access Scheme have similarly been excluded from this analysis and so would need to be separately considered. N.B. Original data contained anomaly of a single unit dispensing one item for a fee of £1.29. This single unit has not been included in our comparison
**Source: Parliamentary Questions October 2018

As stated in the above footnote from the Government, the calculation does not include any differences in retained medicine margin between us and the mean average pharmacy. This is the amount that each pharmacy gives the NHS as a discount (known as a clawback) on the total value of the medicines it dispenses. The clawback for specific prescription items dispensed varies from 0% to 11.5%, depending on the value of the items dispensed.

We give the NHS the maximum clawback of 11.5%, whereas the mean average pharmacy gives the NHS a clawback of 9.95%. This means we earn 64p of retained medicine margin for each item we dispense, compared with the 78p of retained medicine margin the mean average pharmacy makes, being paid 14p less by the NHS on each item we dispense. Detailed clawback rates are listed in section 5 of the monthly published NHS Drug Tariff guide.

So on top of the 27p fee difference reported by the Government in the table above, we are paid a further 14p less by the NHS in retained medicine margin that was not included in the Government's calculation, making the total fees difference to the NHS 41p per item when compared with their fees relating to the mean average pharmacy.

We were paid £7.26 million less by the NHS between April 2014 and March 2020 compared with the total fees of dispensing the same number of items through the mean average pharmacy.

The table below shows our total fee difference for each year broken down by our average fee difference per item multiplied by the number of items that we dispensed.

Financial year Average fee difference per item (to two decimal places) Number of items dispensed Total yearly fee difference
2014/2015
(see notes 2 and 5)
£0.40 591,712 £236,685
2015/2016
(see notes 2 and 5)
£0.41 876,798 £359,487
2016/2017
(see notes 2 and 5)
£0.36 1,321,185 £475,627
2017/2018
(see notes 1 and 5)
£0.41 2,925,671 £1,199,525
2018/2019
(see notes 2 and 5)
£0.38 5,308,208 £2,032,643
2019/2020
(see notes 2 and 5)
£0.40 7,449,537 £2,956,044
2020/2021
(see note 3)
£0.38
(see note 4) Total £7,260,011

Note 1: The fee difference of 41p per item in 2017/2018 is in line with the explanation above (a combination of the 27p fee difference published by the Government, plus a 14p fee difference on retained medicine margin).

Note 2: We have calculated the fee difference per item in all those years in a similar way to the fee difference for 2017/2018 that is shown in Appendix 2 below.

Note 3: We have calculated an estimated saving for the current financial year based on funding in 2020/2021 using items dispensed in 2019/2020.

Note 4: The total is based on data for the full financial year, from April 2014 to March 2020.

Note 5: Fees used for calculations are those in place at the end of the financial year.

Appendix - Notes on how the NHS fee difference per item is calculated

NHS fee difference calculations explained for 2019/2020

The estimated total fee difference of £2,956,044 is based on a difference of 0.40p per item (when compared with how much the NHS pays the mean average pharmacy for each item) multiplied by 7,449,537 (the number of items we dispensed between April 2019 and March 2020). We worked out the 0.40p fee difference by adding the 0.26p fee difference in essential services fees as confirmed by the Government (see above) to the 14p fee difference in retained medicine margin that was not included in the Government's calculation.

The retained medicine margin is worked out using the difference between our clawback rate and the clawback rate of the mean average pharmacy. Our clawback rate is 11.5%. We have calculated the mean average pharmacy's clawback rate of 9.95% in 2019/2020 using the total number of items dispensed by all pharmacy contractors in 2019/2020 (according to NHS data), and the Pharmaceutical Services Negotiating Committee's (PSNC's) estimate of the average fee the NHS pays for each item dispensed (£8.70). This gives us a total budgeted retained margin of £800 million.

Our calculation of NHS fee difference per item

Our calculation of the NHS fee difference per item uses the actual dispensing figures of all pharmacy contractors (according to published NHS dispensing information) in 2019/2020, and the relevant dispensing fees and drug payment rates for the year 2019/20. The Government's calculations for 2017/2018 have confirmed that the major elements of our calculation are accurate, with our own calculation giving a fee difference per item of 38p (3p per item lower than the Government's calculation of 41p). The figures we have used in our calculation for 2019/2020 are set out below. We have used the same method in all the other years.

Establishment fee difference £0.08
Transactional payment charges £0.11
Quality payment charges £0.07
Retained medicine margin difference £0.14
Total fee difference £0.40

Establishment fee difference per item explained

Monthly establishment fee (paid by the NHS to pharmacies) Number of items dispensed each month Monthly establishment fee per item
Pharmacy2U £628 ÷ 620,795 = £0.0001
Mean average pharmacy £628 ÷ 7,274 = £0.086
NHS fee difference per item £0.08 (to two decimal places)

Transactional payment fee difference per item explained

Monthly quality payment (paid by the NHS to pharmacies) Number of items dispensed each month Monthly quality payment per item
Pharmacy2U £833 ÷ 620,795 = £0.0013
Mean average pharmacy £780 ÷ 7,274 = £0.107
NHS fee difference per item £0.11 (to two decimal places)

Quality payment fee difference per item explained

Monthly quality payment (paid by the NHS to pharmacies) Number of items dispensed each month Monthly quality payment per item
Pharmacy2U £521 ÷ 620,795 = £0.0008
Mean average pharmacy £521 ÷ 7,274 = £0.072
NHS fee difference per item £0.07 (to two decimal places)

The figures in the above table assume that all pharmacies meet the requirements to receive the quality payment.

Clawback fee difference per item explained

Monthly income Clawback rate Monthly NHS clawback amount Number of items dispensed each month Clawback per item
Pharmacy2U £5,399,095 x 11.5% = £620,896 ÷ 620,795 = £1.002
Mean average pharmacy £63,263 x 9.95% = £6,295 ÷ 7,274 = £0.865
NHS fee difference per item £0.14 (to two decimal places)
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