Historical funding arrangements

Published on: 12th September 2014 | Updated on: 1st April 2022

Prior to the 2010 Cost of Service Inquiry a vital element in the new contractual framework was the ‘Formula for Future Years’, which was designed to ensure that annual adjustments maintained the value of the contract. The components that informed annual adjustments were:

  • The GDP deflator, the Government’s measure for underlying inflation
  • Increases in dispensing volume, at marginal cost
  • Increases in staff salaries in excess of GDP deflator levels
  • An efficiency assumption, which assumes some ability to make efficiencies and is consistent with efficiency targets in the NHS as a whole

In addition to the above, adjustments to the sums were also made to reflect costs necessitated by significant additional regulatory burdens on contractors. Regulatory burdens were assessed on a retrospective basis. Information on regulatory burden can be found here.

Consideration was also given to the levels of retained buying profit and any other factors, for example recognition of BSA underpayments.

The uplift mechanism was reviewed as part of the 2010 Cost of Service Inquiry.


Summary of previous years funding settlements

CPCF funding arrangements 2018/19

On 22nd October 2018 it was announced that community pharmacy funding levels will be maintained for 2018/19, with total funding set to £2.592bn. This will be split, as previously, to deliver £1.792bn in fees and allowances and £800m in medicine margin.

£m
Fees & allowances 1,792
Retained buying margin 800
Total funding 2,592

Changes to Fees and Allowances

In order to deliver the £1.792bn in fees and allowances, the Single Activity Fee will be set to £1.26 from the November 2018 Drug Tariff, but this will remain under review throughout the rest of the year.

For further information about the SAF see our Dispensing and Supply Factsheet: Understanding the Single Activity Fee

Changes to reimbursement prices to recover excess margin

Category M prices will reduce by £10m per month from November 2018 for the next five months (until March 2019). This is to repay excess margin earned by pharmacies in previous years, in particular 2015/16 for which the results of the margin survey show that there was a significant over-delivery of margin.

Decision to accept funding for 2018/19

After rigorous analysis of funding and margin delivery rates and a very difficult debate at the October PSNC meeting, PSNC unanimously agreed to accept the funding offer from DHSC on the grounds that:

  • Community pharmacy is in the very early stages of rebuilding a constructive working relationship with HM Government, its only payer, and needs to demonstrate its desire to move away from the adversarial relationship that has halted progress for the past two years.
  • Previous plans revealed through the Judicial Review process had been to reduce community pharmacy funding by £33m this year.
  • In the context of widespread austerity and immense financial pressures on the health service, and pending substantial discussions on the long term future of community pharmacy, maintaining funding levels was felt to be the priority and the best likely offer.
  • The agreed levels of margin recovery have been set to repay a conservative estimate of excess margin and has been spread over the longest period possible to avoid greater shocks to the market.

In accepting the offer, PSNC expressed to HM Government its deep concerns about the financial pressures facing community pharmacy contractors and the fact that they would increasingly be unable to reinvest, given pressures from rising staff costs and business rates.

PSNC stressed the need for its goodwill in accepting this funding offer to be recognised in future negotiations, and also called for progress to be made in amending the current margin delivery system to smooth adjustments, and to remove the inequity in delivery caused by the proliferation of branded generics, as recognised by DHSC.

PSNC has expressed its desire to begin negotiations on community pharmacy funding for 2019/20 and beyond as soon as possible, and our intention remains to work towards a multi-year settlement that will give more certainty for contractors about future funding. This will necessarily involve substantive discussions with HM Government about its ambitions for community pharmacy in the long term and PSNC is keen to explore ideas about the development of pharmacies’ role in line with the emerging NHS long term plan which we have sought to influence working together with the other pharmacy organisations.

Further Information and FAQs

To help community pharmacy contractors and others to understand the impact that this funding settlement will have on their businesses and the background to its agreement we have produced a number of briefings and resources:

PSNC Briefing 055/18: How the 2018/19 funding settlement will affect your payments – information for contractors

PSNC Briefing 056/18: Background information on community pharmacy funding and the 2018/19 funding settlement

PSNC Briefing 057/18: Funding 2018/19 – Frequently Asked Questions

Cashflow Calculator

The Cashflow Calculator below, which includes Indicative Income Tables, has been developed to help contractors estimate the impact of the recent funding reductions on their payments.  The tool includes the reduction in Category M reimbursement prices from November 2018, and the reduction in the Single Activity Fee (SAF) also from November 2018.

Cashflow Calculator and Indicative Income Tables (Microsoft Excel)

2016/17 & 2017/18 Funding Imposition

On 20th October 2016 the Government imposed a two-year funding package on community pharmacy, with a £113 million reduction in funding in 2016/17.

This took total funding to £2.687 billion for 2016/17. This was a reduction of 4% compared with 2015/16, but meant that contractors saw their funding for December 2016 to March 2017 fall by an average of 12% compared with November 2016 levels.

This was be followed by a reduction in 2017/18 to £2.592 billion for the financial year, which saw funding levels from April 2017 drop by around 7.5% compared with November 2016 levels.

Changes to Fees and Allowances

A Single Activity Fee (SAF) was introduced which incorporated and replaced the Professional Fee, Practice Payments, Repeat Dispensing Fee and EPS Monthly Allowances. For December 2016 to March 2017 the SAF was set to £1.13 per item.

The SAF then rose in April 2017 to a level of £1.25 per item.

The SAF rose again in November 2017 to a level of £1.29 per item.

Establishment Payments were reduced from Dec 2016 by 20% compared to 2015/16 levels. The following table outlines the payment level from Dec 2016 to Mar 2017:

Items per month Payment per month
2,500 – 2,829 £1,552
2,830 – 3,149 £1,613
3,150 + £1,673

From April 2017 Establishment Payments were further reduced, by 40% compared to 2015/16 levels. The following table outlines the payment level from April 2017:

Items per month Payment per month
2,500 – 2,829 £1,164
2,830 – 3,149 £1,210
3,150 + £1,255

For further information about the SAF see our Dispensing and supply factsheet understanding the single activity fee (updated)

Quality Payments

Beginning in 2017/18, £75 million of the CPCF funding was allocated to Quality Payments. At two specific review points during the year, pharmacies needed to declare which of the various criteria they were compliant with, in order to accumulate quality points. A total of 100 points were available during 2017/18, and payment was made to eligible contractors depending on how many points they achieved. The value per point was initially expected to be set at £64.

However, it was likely that some pharmacies may not meet the criteria for Quality Payments, which would result in a portion of the allocated £75 million not being delivered. Therefore after the two review points, there was a reconciliation process during which remaining funding from the originally allocated £75 million was divided between qualifying pharmacies based on the number of points they have achieved.

Following reconciliation the final value per point was calculated to be £71.71.

For further information about Quality Payments please see our dedicated Quality Payments page:

Quality Payments

Pharmacy Access Scheme

As part of the package, DH confirmed the introduction of a Pharmacy Access Scheme (PhAS), with the stated aim of ensuring that a baseline level of patient access to NHS community pharmacy services is protected.

Qualifying pharmacies received an additional payment, intended to protect those pharmacies from the full effect of the reduction in funding from December 2016.

For further information about PhAS please see our dedicated PhAS page:

Pharmacy Access Scheme

Impact on contractor income

PSNC produced the indicative income tables and calculator below to allow contractors to assess the impact of the changes on their business.

Indicative income tables

Indicative income calculator (including cashflow calculator)

More Information

PSNC Briefings and slide deck on the changes

PSNC Briefing 057/16: Funding imposition for 2016/17 – Information for Contractors

PSNC Briefing 058/16: Funding imposition for 2016/17 – Frequently Asked Questions

PSNC slide deck on the changes for LPC use (PowerPoint)

PSNC slide deck on the changes (PDF)

On-demand webinar: Funding changes 2016/17 and 2017/18

The Department of Health (DH) documents

DH has published the following documents related to the changes:

Community pharmacy in 2016/17 and beyond: Final package

Impact assessment

Community pharmacy in 2016/17 and beyond: The pharmacy access scheme

DH list of pharmacies eligible for PhAS

2015/16 Funding Settlement

The details of the changes in contractor funding for 2015/16 are set out below.

2015/16 Agreement

A settlement of £2.8bn is agreed for the period 2015/16. This comprises of £2b to be delivered through fees and allowances, and £800m to be delivered through retained buying margin.

£m
Fees & allowances 2,000
Agreed buying profit 800
Total funding 2,800

Changes in Fees and Allowances

There will be no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment and EPS Allowances.

The levels of Practice Payment contractors receive are changing from September 2015.  The following table outlines the Practice Payments effective from 1st September in England:

Number of items per month

Practice Payment for 1st September 2015 to 31st March 2016

Contribution in Practice Payment for EA for 1st September 2015 to 31st March 2016

Up to 1,099 £350 £350
1,100 – 1,599 £3,268 £700
1,600 – 2,499 £4,575 £875
2,500+ 54.7p 6.6p per item

Fees and Allowances from November 2015

Following close monitoring of funding delivery following the above changes to fees and allowances, it has been determined a further change to Practice Payment levels is required to deliver the correct amount of funding for 2015/16. As such following table outlines the Practice Payments effective from 1st November in England:

Number of items per month

Practice Payment for 1st November 2015 to 31st March 2016

Contribution in Practice Payment for EA for 1st November 2015 to 31st March 2016

Up to 1,099 £250 £250
1,100 – 1,599 £2,407 £500
1,600 – 2,499 £3,369 £625
2,500+ 56.4p 6.6p per item

Changes to Services

A flu vaccination service – a new Advanced Service – will launch in September 2015.  From then, community pharmacies will be able to offer NHS flu vaccinations to adult patients aged 18 and over at the time of vaccination, who are defined as at risk in the Annual Flu letter.  Fees for flu vaccinations will come from national flu budgets, i.e. in addition to and outside of the £2.8bn and with the total delivered dependent on uptake of the service.

More details on the flu vaccination service are available in the briefing below, and a service specification and guidance for flu vaccinations are being developed and will be published in due course.

More information

For the full wording of the 2015/16 funding announcement, and detailed briefings on the aspects of the settlement please click the following links:

PSNC Briefing 034/15: Community Pharmacy Flu Vaccination Advanced Service

PSNC Briefing 035/15: Changes to the Community Pharmacy Contractual Framework (CPCF) 2015/16

PSNC Briefing 036/15: The 2015/16 Settlement Agreement and Funding

PSNC Briefing 037/15: Contractor FAQs on additional 2015/16 settlement elements

PSNC Briefing 038/15: PSNC Update on negotiations on a national Minor Ailments Advice Service

2014/15 Funding Settlement

The detail of the changes in contractor funding for 2014/15 are set out below. These changes will be published in the October 2014 Drug Tariff and take effect from 1st October 2014.

2014/15 Agreement

A settlement of £2.8bn is agreed for the period 2014/15. This comprises of £2b to be delivered through fees and allowances, and £800m to be delivered through retained buying margin.

£m
Fees & allowances 2,000
Agreed buying profit 800
Total funding 2,800

The settlement figure of £2.8bn recognises the additional margin that contractors have earned and retained in previous years (typically in the region of £250m), accounting for the apparent increases in the allowance for retained buying margin.

In order to deliver the allowed purchase margins, Category M prices will be increased by £10m per month from October 2014. This equates to an increase in average item value of around 12 pence.

Changes in Fees and Allowances

There will be no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment and EPS Allowances. From November there will be a reduction in the Practice Payment of around 17 pence per item in order to ensure that the £2bn in fees and allowances is delivered, accommodating volume increases and the inclusion of funding for the New Medicine Service. Using current predictions of prescription volumes this is expected to apply until the end of March 2015.

Overall impact of changes

The impact of these adjustments will be to reduce income available to the average contractor by £870 in the second half of 2014/15. This is calculated as follows:

£60m increase through Category M, and
£70m decrease through Practice Payments
Leads to overall £10m decrease

£10m / 11500 (number of Community Pharmacies) = £870 per pharmacy.

More information

For the full wording of the 2014/15 funding announcement, and detailed briefings on the aspects of the settlement please click the following links:

2014/15 Funding Announcement

Summary of CPCF changes

PSNC Briefing 015/14: Changes to Contractual Requirements

PSNC Briefing 016/14: Advances Services (MURs and NMS)

PSNC Briefing 017/14: Purchase Margin and Margin Reforms

PSNC Briefing 018/14: The Settlement Negotiations and the Negotiating Process – background information for contractors

PSNC Briefing 019/14: The Cost of Service Inquiry (COSI)

2014/15 Additional Payment

In recognition of the reduction in margin available to contractors in the early months of this financial year, NHS England will make an additional payment to pharmacies with their March payments – i.e. along with the final payment for the March 2015 dispensing month which is made in late May/ early June.

The payment will be calculated as an additional fee for each pharmacy, based on professional fee numbers. The fee will be 3.3 pence for each professional fee paid from April 2014 to December 2014.

In a joint statement, PSNC and NHS England said:

“It remains our intention to smooth the delivery of funding to community pharmacy contractors as much as possible. This additional fee has been agreed in light of the predicted under delivery of margin in 2014-15.”


FAQs

Q. When will the additional payment for March 2015 be paid?
A. The additional fee will be paid along with your final payment for the March 2015 dispensing month. The usual payment timescales mean this payment will be made in late May/ early June.

Q. How do contractors claim the extra payment?
A. Pharmacy contractors do not need to do anything to claim the additional payment – it will be calculated based on the professional fees paid to them between April and December 2014 and added to their March payments by the Pricing Authority.

Q. Will Welsh pharmacy contractors receive the additional payment for March 2015?
A. The Drug Tariff contains payment and reimbursement information for both English and Welsh pharmacy contractors and, unless specified otherwise, will apply to both English and Welsh pharmacy contractors. Part IIIA of the April 2015 edition of the Drug Tariff explicitly states that this additional payment is applicable to both English and Welsh contractors.

Q. How much is this payment worth in total and to each pharmacy? 
A. Across the sector the additional payment to contractors will be worth around £25m. The amount each pharmacy receives will depend on the number of items they dispensing from April 2014 to December 2014. For contractors dispensing average prescription numbers the payment will be around £2,000 – £2,200.

Q. My pharmacy was open between April 2014 and December 2014, but its NHS code (commonly known as the F code) changed during this time – will I still receive the additional fees?
A. In this scenario, the contractor must contact the Pricing Authority to determine whether they are eligible for the additional fee. The team to write to is as follows:

NHS Business Services Authority
Customer Payment Team
Stella House, Goldcrest Way
Newburn Riverside
Newcastle upon Tyne
NE15 8NY

Q. My pharmacy had a change in F code between April 2014 and December 2015; when do I need to notify the Pricing Authority of this change?
A. 
Contractors should write to the address published in the Drug Tariff Part IIIA(3) (see address above) as soon as possible. However, if the request is received after 15th May and a payment is due, this will be made with a subsequent month’s payment at a later date as it cannot be made with your final payment for March 2015 (paid in June 2015).

Contractors are reminded that the deadline for any payment queries is 18 months after the month in question, therefore in this instance 30th September 2016. However, the sooner a notification of a change in F code is sent to the Pricing Authority, the sooner any required adjustments can be made.

Q. My pharmacy was open between April 2014 and December 2014, but has since closed – will I still receive the additional fees?
A. Any pharmacy account (determined by an NHS or F code) which ceased to exist prior to 1st March 2015, and therefore not submitting a claim for payment for the March 2015 dispensing month, is not entitled to the payment.

2013/14 Funding Settlement

Funding Negotiations Update

Earlier in the year PSNC announced that it was seeking a multi-year funding agreement with the Department of Health (DH) and NHS Commissioning Board (NHS CB) to give contractors more certainty in funding. These negotiations were based on the Cost of Service Inquiry (CoSI) published in 2011. Work continued to determine what a CoSI – based settlement would look like and to establish what funding was actually been delivered to contractors under the current system. In previous years the margins survey has revealed that margins earned were well in excess of the agreed funding levels and contractors have retained the excess margin earned in year, with adjustments to prevent that excess continuing into the following year. The Department of Health made clear its wish to move to a more transparent system where all NHS earnings are accounted for, and revised arrangements formed part of the COSI negotiations.

Funding and remuneration changes from April 2013

Although negotiations on pharmacy funding based on the COSI had not concluded, the DH made a number of changes to funding in April 2013. These included:

1) An increase in the practice payment payable by 8p per item.

This followed the 15p reduction in October which was made to adjust for the over – delivery of funding in the period from April to September 2012.

2) 100% advance payments.

Historically, contractors received an 80% advance payment each month for the most recent month’s submitted prescriptions. The balance was then paid in the following month. From the May 2013 statement (paid at the beginning of June), payments changed to include a 100% advance payment meaning that contractors were refunded for medicines dispensed more promptly. This means that contractors saw a higher than normal payment in June, but this was a one – off. This change also had an impact on the working capital that pharmacies will require in future and this was picked up in the on-going COSI negotiations.

3) Introduction of the Government’s Supply Chain Finance Scheme.

The Pharmacy Early Payment Scheme, operated by Citibank, which allows contractors to receive advance funding on attractive interest terms, was introduced from April and may be helpful to many contractors. Details were published at the end of 2012. Contractors need to register for the scheme, and ensure that their bundles are received by the NHSBSA by set dates in order to access the early payments.

4) Introduction of new methadone fee arrangements.

These were settled following lengthy and complex examination and discussions, to ensure that contractors will always cover their costs when dispensing oral liquid methadone. Information about the fee arrangements, including endorsing guidance, can be found elsewhere on the website.

Safeguarding Payments

When the global sum was devolved to PCTs in April 2010, PSNC expressed concern that trusts might try to influence prescribing periods to interfere with the distribution of funding through dispensing fees. To prevent this, the committee negotiated safeguarding arrangements that would assist contractors facing increased costs of supplier invoices and the reduced prescription volume that could occur. The safeguarding arrangements have meant that there have been few instances where changes to periods of treatment have been made. The Drug Tariff now includes revised provisions so that additional payments can be made where dispensing volumes fall because periods of treatment increase, and to the best of the contractor’s knowledge there is no reason apart from increased prescription duration (either directly or indirectly instigated by a Clinical Commissioning Group), that would have contributed to the larger than normal suppliers bill or reduced prescription volume.

Additional changes from April 2013

1) Cost centre codes

Previously, where prescriptions did not include prescriber codes and the prescriber could not be identified by NHS Business Services Authority (NHSBSA), costs were fair shared among PCTs. In the new NHS, the NHS CB will not have authority to fair share costs among new commissioners such as local authorities, so the NHSBSA, when it prices prescriptions, must be able to identify the cost centre and to recharge the costs. From April 2013, where a contractor provides the drugs or appliances ordered on any NHS prescription form, (except forms issued by a Dental Practitioner), the NHSBSA may return the prescription form to the contractor (as a referred back) if there is no prescriber code(s) present. If the code can be identified, this should be added to the form and returned. If the contractor has been unable to identify the code, the prescription should be endorsed to that effect, and returned. In either case, the prescription will be paid when resubmitted. Contractors are therefore advised to check prescriptions at the time of dispensing, and attempt to identify and insert codes where any are missing. Where codes are missing, there will be a delay in payment for them. PSNC will carry out an assessment of the additional burden that this will place on pharmacies, and there is recognition by the DH that this will form the basis of a claim for additional remuneration. Initial checks suggest that the frequency of missing codes should not be large, but PSNC and the DH agreed to keep this new provision under review.

2) Specials documentation

Contractors dispensing specials are required to send copies of certificates of conformance or analysis to the NHS CB.

Category M changes from October 2013

Adjustments are were made to Category M generic reimbursement prices from October informed by the assessment of medicine margin in 2012/13. The adjustments reduced medicine margin by £40 million (ie £20 million per quarter) for the period October 2013 to March 2014. This equated to 8.3 pence per item.

This adjustment was agreed between the Department of Health (DH), which remains responsible for determining drug reimbursement prices, and PSNC.
An October adjustment is in keeping with usual practices and this adjustment was being made at this stage with the aim of maintaining smooth funding flows and avoiding significant corrections for pharmacy contractors and the NHS.

The level of adjustment made was considered prudent, especially in the context of on-going funding negotiations for 2013/14.

PSNC, DH and NHS England remained fully committed to those on-going negotiations and good progress was being made.

It was felt that it was important to reach the right agreement, even if this takes some time.

2012/13 Funding Settlement

The detail of the changes in contractor funding for 2012/13 are set out below. These changes were published in the October 2012 Drug Tariff and took effect from 1st October 2012.

2012/13 Funding Agreement

An interim funding settlement of £2,486m was put in place for the period 2012/13.

£m
Fees & allowances 1,986
Agreed buying profit 500
Total funding 2,486

In previous years it was possible to agree total funding in time for this to be delivered through adjustments made from the October Drug Tariff onwards. But as the 2012/13 funding agreement was to take into account the results of the Cost of Service Inquiry (COSI), it was not possible to complete the negotiations in time.

As such the Department of Health made interim funding changes at this stage which were delivered by implementing adjustments to the Drug Tariff from October.

The changes took into account the provisional results of the 2011/12 margins survey, which showed that pharmacies’ retained purchase margin exceeded the sum allowed by £235 million in the previous financial year.

Changes in Fees and Allowances

There was no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment and EPS Allowances. The arrangements for the following fees and allowances changed with effect from 1st October 2012:

i) Establishment Payments

From October 2012 the level of the Establishment Payment remained unchanged however there has been an increase in the payment thresholds of 3%.

2,430 – 2,749 items p/m £23,278 per annum (1/12th per month)
2,750 – 3,059 items p/m £24,190 per annum (1/12th per month)
3,060 + items p/m £25,100 per annum (1/12th per month)

ii) Practice Payments

From October 2012 the threshold to receive the Practice Payment, other than a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Act, rose by 3% to 2430 items per month.

For contractors dispensing over 2430 items per month, the Practice Payment for the top level decreased to 58.2p per item.

Up to 1,099 items p/m £300 for Oct 12 to Mar 12
1,100 – 1,599 items p/m £2,980 for Oct 12 to Mar 13
1,600 – 2,429 items p/m £4,172 for Oct 12 to Mar 13
2,430 + items p/m 58.2p per item for Oct 12 to Mar 13

 

Settlement elements

The settlement arrangements included:

A reduction in Category M prices of £72.5 million per quarter from October 2012;

A £10m CIP package for pharmacy contractors, to recognise the impact of prescription payment inaccuracies.

More information

Explanation of the 2012/13 interim funding arrangements

2011/12 Funding Settlement

The detail of the changes in contractor funding for 2011/12 are set out below. These changes were published in the October 2011 Drug Tariff and took effect from 1st October 2011.

These changes applied to England. Check the Drug Tariff for more details for changes to Wales.

2011/12 Funding Agreement

Total contractor funding increased to £2,486m, as well as a one off supplement of £40m.

£m
Fees & allowances 1,986
Agreed buying profit 500
One off supplement 40
Total funding 2,526

The 2011/12 settlement was intended to reflect an interim years funding. PSNC voiced concerns about the impact of cuts in reimbursement prices on pharmacy cash flow and viability, and urged the Government to offer funding that provided stability for contractors, pending the conclusion of negotiations following the Cost of Service Inquiry (COSI). These concerns were listened to and accepted by the Minister in agreeing the settlement.

Changes in Fees and Allowances

There were no changes to the fee levels of the dispensing fee, additional fees, repeat dispensing payment, and EPS Allowances. Transitional payments ceased in England from April 2011. The arrangements for the following fees and allowances changed with effect from 1st October 2011:

i) Establishment Payments

From October 2011 the level of the Establishment Payment remained unchanged however there was an increase in the payment thresholds of 3%.

2,360 – 2,669 items p/m £23,278 per annum (1/12th per month)
2,670 – 2,969 items p/m £24,190 per annum (1/12th per month)
2,970 + items p/m £25,100 per annum (1/12th per month)

ii) Practice Payments

From October 2011 the threshold to receive the Practice Payment, other than a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Act, increased by 3% to 2360 items per month.

For contractors dispensing over 2360 items per month, the Practice Payment for the top level increased to 73.5p per item.

Up to 1,099 items p/m £100 for Oct 11 to Nov 11
1,100 – 1,599 items p/m £1,255 for Oct 11 to Nov 11
1,600 – 2,359 items p/m £1,756 for Oct 11 to Nov 11
2,360 + items p/m 73.5p per item for Oct 11 to Nov 11
Up to 1,099 items p/m £200 for Dec 11 to Mar 12
1,100 – 1,599 items p/m £2,632 for Dec 11 to Mar 12
1,600 – 2,359 items p/m £3,685 for Dec 11 to Mar 12
2,360 + items p/m 77.1p per item for Dec 11 to Mar 12

Settlement elements

The settlement included:

A reduction in Category M prices of £39 million per quarter from October 2011 to March 2012;

Removal of the Transition Payment; In England, Transitional Payments ceased from April 2011. In October 2010 PSNC secured agreement from DH to postpone recovery of £20m excess margin until 2011/12. The removal of the Transitional Payment was intended to recover part of this £20m. The remainder was been recovered by a reduction in the Practice Payment level from April 2011. Detailed payments levels were set out in Part VIA of the Drug Tariff.

From April 2012 generic medicine prices (Category M) reduced by an additional £40 million per annum;

A number of changes to drug reimbursement arrangements, including introduction of a ‘Specials’ Tariff from November 2011, and other changes later in the year;

A CIP package of £20 million for pharmacy contractors, to recognise the impact of prescription payment inaccuracies.

2010/11 Funding Settlement

The detail of the changes in contractor funding for 2010/11 are set out below. These changes were published in the October 2010 Drug Tariff and took effect from 1st October 2010.

These changes applied to England and Wales.

2010/11 Funding Agreement

Total contractor funding increased to £2,486m.

£m
Fees & allowances 1,986
Agreed buying profit 500
Total funding 2,486

Changes in Fees and Allowances

There was no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment, transitional payment and EPS Allowances. The arrangements for the following fees and allowances changed with effect from 1st October 2010:

i) Establishment Payments

From October 2010 the level of the Establishment Payment remained unchanged however there was an increase in the payment thresholds of 3%.

2,300 – 2,599 items p/m £23,278 per annum (1/12th per month)
2,600 – 2,889 items p/m £24,190 per annum (1/12th per month)
2,890 + items p/m £25,100 per annum (1/12th per month)

ii) Practice Payments

From October 2010 the threshold to receive the Practice Payment, other than a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Act, rose by 3% to 2300 items per month.

For contractors dispensing over 2300 items per month, the Practice Payment for the top level remained at 70.9p per item.

Up to 1,099 items p/m £300 for Oct 10 to Mar 11
1,100 – 1,599 items p/m £3,600 for Oct 10 to Mar 11
1,600 – 2,239 items p/m £5,040 for Oct 10 to Mar 11
2,300 + items p/m 70.9p per item for Oct 10 to Mar 11

Settlement elements

i) Formula uplift

The formula uplift recognised volume growth at marginal cost, general and staff cost inflation, and an efficiency discount imposed by the DH. This generated an increase in core funding of £22m. This was lower than previous years due to low inflation.

ii) Regulatory burden

The regulatory burden component compensated contractors for the costs of increased activity arising from changes in regulations. The increase for 2010/11 included funding for:

NPSA Guidance on Lithium and use of NHS Number;

Quota shortages – an incremental amount made available;

The regulatory burden component of the annual uplift formula has added £18m to core funding. Uplifts of £15m, £25.5m, £17m and £9m have been agreed in the previous four years.

The final figures include a recovery of an overpayment on fees of £4m in the previous year.

iii) Retained buying profit

The joint 2009/10 survey into retained buying profits was completed, providing information on the actual buying profit available in 2009/10.

The results of the margins survey for 2009-10 showed excess margin of £276m. This reflected the decision of the previous Government to leave £65m on account pending examination of the reliability of the 2008-9 margins survey results, and up to £125m for future infrastructure costs. The 2009-10 survey results were consistent with the margin levels revealed previously.

iv) Recovery of funding paid in 2009/10

Future infrastructure costs totalling £90m were agreed resulting in a recovery of £35m. The £65m left on account was also recovered by the Government.

Funding delivery

After recovery of the £100m surplus funding, total funding allowed for the year was £2.486bn. The first half of the year delivered funding in excess of the required rate, and funding delivery needed to be reduced by £140m in the second half of the year. The Minister made a concession, allowing a carry-forward of £20m of this into 2011-12 to smooth the impact. Consequently there was a reduction in reimbursement prices in October 2010 of £60m per quarter, with a further reduction of £10m per quarter from April 2011-12 to deal with the under recovery this implied. The carry forward of £20m into 2011-12 was recovered through fees and allowances.

2009/10 Funding Settlement

The detail of the changes in contractor funding for 2009/10 are set out below. These changes were published in the October 2009 Drug Tariff and took effect from 1st October 2009.

These changes applied to England and Wales.

2009/10 Funding Agreement

Total contractor funding increased to £2,318m.

Funding for the National Contract is distributed through a variety of fees and allowances along with an element of guaranteed purchase profit. The arrangements for 2009/10 are summarised below:

£m
Fees & allowances 1,760
Agreed buying profit 500
Excess buying profit earned in first half of 2008/09* 40
Pre-registration training 18
Total funding 2,318

*Using the results of the joint PSNC/DH survey into retained buying profit, it has been estimated that there was an excess of £40m purchase profit earned against target levels in the first half of 2009/10. This figure was used in considering funding levels for the second half of the year but was provisional pending the outcome of the 2009/10 retained buying profit survey.

An excess of £270m purchase margin was identified. It was agreed that £125m of excess purchase profit would be retained by community pharmacy for the provision of one-off infrastructure costs, including preparing for EPS Release 2, Information Governance, and business continuity planning, to sustain the effective delivery of community pharmacy services. An additional £65m of excess purchase profit remained on account. The remaining £80m was treated as excess.

Changes in Fees and Allowances

There was no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment, transitional payment and EPS Allowances. The arrangements for the following fees and allowances changed with effect from 1st October 2009:

i) Establishment Payments

From October 2009 the level of the Establishment Payment remained unchanged however there was an increase in the payment thresholds of 3%.

2,240 – 2,529 items p/m £23,278 per annum (1/12th per month)
2,530 – 2,809 items p/m £24,190 per annum (1/12th per month)
2,810 + items p/m £25,100 per annum (1/12th per month)

ii) Practice Payments

From October 2009 the threshold to receive the Practice Payment, other than a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Act, rose by 3% to 2240 items per month.

For contractors dispensing over 2240 items per month, the Practice Payment for the top level remained at 70.9p per item.

Up to 1,099 items p/m £300 for Oct 09 to Mar 10
1,100 – 1,599 items p/m £3,600 for Oct 09 to Mar 10
1,600 – 2,239 items p/m £5,040 for Oct 09 to Mar 10
2,240 + items p/m 70.9p per item for Oct 09 to Mar 10

Settlement elements

i) Formula uplift

The formula uplift recognised volume growth at marginal cost, general and staff cost inflation, and an efficiency discount imposed by the DH. This generated an increase in core funding of £87m. This was comparable with previous years.

ii) Regulatory burden

The regulatory burden component compensated contractors for the costs of increased activity arising from changes in regulations. The increase for 2009/10 included funding for:

Costs associated with CIP;

Changes to CD regulations;

EPS system upgrade costs;

NPSA Alerts on anti-cancer and opioid;

Quota shortages;

ICO model publication scheme.

The regulatory burden component of the annual uplift formula added £15m to core funding. Uplifts of £25.5, £17m and £9m have been agreed in the previous three years.

iii) Retained buying profit

The joint 2008/09 survey into retained buying profits was completed, providing information on the actual buying profit available in 2008/09.

The survey showed that actual purchase profit levels were exceeding the target level and as a consequence, pending the results of the margins survey for 2009/10, Category M prices were reduced by 20m per quarter which equates to approximately 9p per item. This change was intended to ensure that in the second half of this financial year, only the agreed levels of purchase profit income were delivered to contractors.

2008/09 Funding Settlement

The detail of the changes in contractor funding for 2008/09 are set out below. The changes were published in the October 2008 Drug Tariff and took effect from 1st October 2008.

These changes applied to England and Wales.

2008/09 Funding Agreement

Total contractor funding increased to £2,231m.

Funding for the National Contract is distributed through a variety of fees and allowances along with an element of guaranteed purchase profit. The arrangements for 2007/08 are summarised below:

£m
Fees & allowances 1,648
Agreed buying profit 500
Excess buying profit earned in first half of 2008/09* 65
Pre-registration funding 18
Total funding 2,231

*Using the results of the joint PSNC/DH survey into retained buying profit, it has been estimated that there was an excess of £65m purchase profit earned against target levels in the first half of 2008/09. This figure was used in considering funding levels for the second half of the year but was provisional pending the outcome of the 2008/09 retained buying profit survey.

Changes in Fees and Allowances

There were no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment, transitional payment and EPS Allowances. The arrangements for the following fees and allowances changed with effect from 1st October 2008:

i) Establishment Payments

From October 2008 the level of the Establishment Payment remained unchanged however there was an increase in the payment thresholds of 3%.

2,180 – 2,459 items p/m £23,278 per annum (1/12th per month)
2,460 – 2,729 items p/m £24,190 per annum (1/12th per month)
2,730 + items p/m £25,100 per annum (1/12th per month)

ii) Practice Payments

From October 2008 the threshold to receive the Practice Payment, other than a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Act, rose by 3% to 2180 items per month.

For contractors dispensing over 2180 items per month, the Practice Payment level increased from 34.5p per item to 70.9p per item from October 1st 2008.  In addition, from October 2008 to March 2009 inclusive, a supplementary payment of 30.2p per item was added, bringing the Practice Payment for the period, October 2008 to March 2009 to 101.1p per item.

Up to 1,099 items p/m £300 for Oct 08 to Mar 09
1,100 – 1,599 items p/m £2,625 for Oct 08 to Mar 09
1,600 – 2,179 items p/m £7,180 for Oct 08 to Mar 09
2,180 + items p/m 101.1p per item from Oct 08 to Mar 09

Previously 10% of the Practice Payment was deemed by HMRC to be subject to VAT. This reflected specific sums that were paid to contractors via the Practice Payment covering the disposal of unwanted medicines and signposting. The increase in the Practice Payment from October represents increased funding to cover the cost of dispensing medicines which is zero rated. From October 2008 onwards the following VAT apportionment levels applied to Practice Payments:

Treatment Element Value to Sep 08 script payments Value from Oct 08 script payments
Standard rated Disposal of medicines, Signposting 10% of Practice Payment 4% of Practice Payment
Exempt Promotion of Healthy Lifestyles, Support for Self-care 33% of Practice Payment 14% of Practice Payment
Zero rated Support for People with Disabilities 19% of Practice Payment 66% of Practice Payment
Outside scope Clinical Governance 38% of Practice Payment 16% of Practice Payment

iii) Advanced Services

The fee for Advanced Services (Medicines Use Reviews and Prescription Interventions) rose from £27 to £28 and the maximum number of reviews per pharmacy remained unchanged at 400 per year, for those pharmacies that made arrangements to provide Advanced Services before 1 October 2008. A contractor who completed his full allocation could receive a maximum income of £11,200. More detailed information on Advanced Services can be found in Part VIC of the Drug Tariff.

iv) Pre-registration Training Grants

From 1 October 2008, the pre-registration grant increased by £2000 to £18,440 per year.

For existing pre-registration trainees, contractors were entitled to monthly payments at the old rate for the time a pre-registration trainee was employed before October 2008 and monthly payments at the new rate for the time a pre-registration trainee was employed after October 2008.  Payment was made by PCTs in arrears so there was likely to be a lag time before the increased payment rate was seen on a contractor’s Schedule of Payments. The lag time was dependent on the PCT’s internal payment authorisation processes and can vary from PCT to PCT.

Settlement elements

i) Formula uplift

The formula uplift recognised volume growth at marginal cost, general and staff cost inflation, and an efficiency discount imposed by the DH. This generated an increase in core funding of £71m. This was comparable with previous years.

ii) Regulatory burden

The regulatory burden component compensated contractors for the costs of increased activity arising from changes in regulations. The increase for 2008/09 included funding for:

CIP – extra time required to sort prescriptions, declaring out of pocket expenses on the FP34C Form and increased costs associated with the secure transport of prescriptions to the PPD;

Changes to CD regulations – extra time associated with record keeping and costs of new registers;

EPS – workload incurred by pharmacists in relation to obtaining and re-newing smartcards; and

NPSA alerts – extra time associated with complying with the NPSA alerts on paraffin containing products and anti-coagulation. In addition, in 2007, the NPSA published a patient safety alert on ‘promoting safer measurement and administration of liquid medicines via oral and other enteral routes’. This included an NPSA recommendation that because more complex medication regimens are now being administered at home, primary care dispensers should be in a position to issue a range of oral syringes. As a minimum, a 1ml, 5ml or 10ml syringe should be supplied depending on the dose prescribed. Previously it was only a contractual requirement for pharmacies to supply the 5ml syringe in certain scenarios. In November, the Drug Tariff was amended to require pharmacies to stock and provide 1ml and 10ml syringes in certain scenarios. The regulatory burden component of the annual uplift includes consideration of the additional costs of these syringes.

The regulatory burden component of the annual uplift formula added £25.5m to core funding. Uplifts of £17m and £9m were agreed in the previous two years.

iii) Transitional Funding, pending new Cost Inquiry

PSNC strongly and consistently made the case to the Department of Health that contractors were suffering an unsustainable shortfall in funding. Consequently the Minister agreed a transitional payment of £150m to help contractors with their financial problems and to maintain stability as we moved forward towards implementation of the White Paper. This was subject to an agreement to undertake a cost of service inquiry as soon as possible, ideally to inform 2009-10 funding negotiations. DH officials agreed with PSNC that the methodology must be fully reviewed to ensure that the cost of the aspirational “White Paper pharmacy” is identified, as well as the gap between that and present costs.

iv) Stock loss and PPD underpayment

As in previous years, funding was also agreed to compensate contractors for underpayments made by the NHSBSA Prescription Pricing Division. This was separate from the negotiations between PSNC and the Department of Health and the NHSBSA on the accuracy of the PPD’s new pricing system, the Capacity Improvement Programme. Funding was also agreed to compensate contractors for stock losses.

v) Pre-registration Training Grants

PSNC sought an increase in funding for pre-registration training of £2,000 per trainee. The DH agreed to pay this in full, representing an additional £2m. Part XIII of the Drug Tariff was updated from October 2008.

In the past, funding for the pre-registration grant came in part from pharmacy contract funding and in part from central Department of Health funds. This changed so the pre-registration grant was charged back solely to pharmacy contract funding. Additional funding was added to the pharmacy contract funding arrangements to compensate for this administrative change.

vi) Retained buying profit

The joint 2007/08 survey into retained buying profits was completed, providing information on the actual buying profit available in 2007/08.

 The survey showed that actual purchase profit levels were exceeding the target level and as a consequence, pending the results of the margins survey for 2008-09, Category M prices were reduced by 32.5m per quarter which equates to approximately 16p per item. This change was intended to ensure that in the second half of this financial year, only the agreed levels of purchase profit income was delivered to contractors.

More Information

Letter sent to all contractors 5/9/08

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