August Category M reductions – timescale of impact on contractors

August Category M reductions – timescale of impact on contractors

September 26, 2017

Community pharmacy contractors should be aware of when their payments will be impacted by the reductions in Category M prices implemented in the August Drug Tariff.

At the beginning of October, a pharmacy would receive an advance payment for the dispensing month of August. This is an estimated payment, taking into account the pharmacy’s number of declared items for August, and the pharmacy’s average item value (AIV) from dispensing month of July. Because AIV will have dropped in August in line with the reductions in Category M prices in that month, the advance for August is likely to overstate the value of August’s prescriptions.

Subsequently in November, the pharmacy will receive the balancing payment for August, and the advance payment will be recovered. This means that the 1 November payment is the point at which the impact on contractors will be most significant as the balance for August will be lower than the recovery of the advance.

A worked example is illustrated below for an average volume pharmacy, whose AIV is reduced by 17p per item from dispensing month of August:

Below is a simple table illustrating payment timelines for upcoming months:

Payments made in Recovery of advance from Total of account for Advance for
September June June July
October July  July August
November August August September
December September September October

 

PSNC strongly advises contractors to analyse the impact on their finances. PSNC Director of Pharmacy Finance Mike Dent said:

“This is an extremely challenging time for contractors; particularly given the Government’s acceptance that its funding cut, which community pharmacy strongly opposed and campaigned against, would lead to some pharmacy closures. We recommend that contractors seek professional advice, from their accountant in the first instance.”

We hope the resources below will also help contractors to better understand and plan.

PSNC Briefing 057/17: How recent changes will affect your payments
This briefing summarises the changes to funding delivery and outlines what those changes mean for your income for 2017/18.

Cashflow calculator
This tool can help contractors to calculate the impact of both the funding imposition and the Category M price reductions on their pharmacy’s cashflow.

Further information can be found at: psnc.org.uk/incometables



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