Distribution of medicines: background

Distribution of medicines: background

There have been a number distribution changes in recent years by leading UK medicine suppliers. Previously all medicines were distributed through a number of competing wholesalers but in March 2007, Pfizer began supplying prescription medicines solely through one wholesaler, Alliance. A number of other suppliers made similar changes to their distribution arrangements and it is anticipated that more will continue.

For details of all the current distribution arrangements of UK medicine suppliers, please visit this page.


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PSNC online survey on Pfizer's distribution arrangements

In a 2007 survey, community pharmacy contractors shared their experiences of the changes to Pfizer’s distribution arrangements in an online survey on the PSNC website.

Of the pharmacy contractor representatives who responded:

  • 72% said order cut-off times have deteriorated;
  • 73% said predictability of delivery times have reduced;
  • 88% said staff time costs in reconciling invoices had increased;
  • 84% said changes to the delivery arrangements for Pfizer products had adversely affected their ability to provide a service to patients; and
  • 5% indicated that they had switched to Alliance for the supply of non-Pfizer products.

PSNC representatives met with OFT officials to brief them fully on the concerns of contractors and to share the results from the online survey.

OFT report into manufacturers' distribution arrangements

In December 2007, the Office of Fair Trading (OFT) published its market study into the distribution of medicines in the UK. During the OFT Investigation, PSNC made strong representations to the OFT opposing sole distribution arrangements which limit competition in the wholesale market as well as choice for pharmacy contractors.

The OFT considered the impact on the sector of Pfizer Limited’s exclusive DTP scheme using only Alliance, and the likely impact of other manufacturers introducing DTP schemes and/or reducing the number of distributors they use. The OFT found that was a significant risk that such arrangements would result in higher costs to the NHS potentially running into hundreds of millions of pounds. The OFT also found that such schemes could affect services to pharmacies and patients through, for example, longer waiting times to receive medicines.

Financial impact of DTP schemes

The OFT recommended that the Department of Health make further changes to the Pharmaceutical Price Regulation Scheme (PPRS) to ensure that NHS medicines costs do not increase as a result of changes in distribution, and followed on from the OFT recommendations from February 2007 to reform the PPRS.

The OFT put forward two options to prevent an increase in NHS costs:

  1. To reduce list prices in the PPRS framework by an amount equivalent to the average discounts received by pharmacies. The price agreed under the PPRS would be that at which medicines are sold to pharmacies. If this proposal was adopted, changes would be required to be made to the reimbursement arrangements, for example the discount deduction arrangements may be removed or changed and changes may be required to established payment mechanisms to compensate pharmacies for lost purchasing profits.
  2. Pharmaceutical suppliers offering a minimum list price discount to pharmacies. This would accommodate both DTP and the traditional wholesale model. This option would also require changes to be made to the reimbursement arrangements.

The OFT’s preferred option is number 1.

Impact on service levels

The OFT also recommends that, if the Government is concerned about reductions in service standards to pharmacies, it should seek the agreement of manufacturers to adopt minimum service standards. Government should ensure that it pays less if service standards are reduced.

The OFT also found that any future widespread use of exclusive distribution arrangements might lead to longer-term competition concerns and it will monitor the situation with the prospect of future investigation, if appropriate.

Government response to the OFT report

The Government agreed with the OFT that the impact on NHS costs from such schemes could be addressed through the current renegotiation of the Pharmaceutical Price Regulation Scheme (PPRS). On services, the Government was unconvinced of the need to bring forward legislation to clarify service standards at this stage, but have said they will keep this matter under review and may consider taking action at a later date in the event that this becomes necessary.

PSNC is continuing to receive reports of supply issues linked to changes in manufacturers’ distribution arrangements. We would encourage pharmacy contractors to continue to report problems that impact on patient care and we will ensure this is fed in to the Department of Health to support their ongoing monitoring work.

FAQs

Q. The level of discount being offered by Pfizer is lower that I currently receive from my full line wholesaler, surely this is detrimental to contractor funding?
A. Under the pharmacy contract, pharmacies in England are guaranteed £500m of purchase profit income. The £500m is calculated by reference to the profit that independent pharmacies can earn.

The purchase profit income is measured by invoice inquiries, collection of invoices from a sample of independent pharmacies, to identify actual levels of discount they are receiving. So in calculating the purchase profits available to independent pharmacies, they will take full account of any changes in the average discount levels for Pfizer products that independents earn. If full line wholesalers adjust their statement discounts to reflect the removal of Pfizer purchases, this will also be picked up. Once the exercise is completed, any necessary adjustments will be made to reimbursement prices or to the discount scale to deliver the promised £500m.

The contract funding arrangements are fundamentally different from the old contract where there were no guarantees around purchase profit income and no protection for contractors from significant changes in the market affecting purchase profit income.

Related resources

More information about contract funding, including the profit monitoring arrangements, can be found in the Funding Section of the website.



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