Cost of Service Inquiry
Cost of Service Inquiry
PSNC and the Department of Health (DH) agreed that it was necessary to undertake a new joint Cost of Service Inquiry in 2010. PricewaterhouseCoopers (PwC) was appointed by the DH and PSNC to conduct the inquiry and the final report was published in July 2011. The joint Cost of Service Inquiry was intended to form the evidence base for negotiations for future funding. It was essential that the costs of the range of pharmacy businesses were captured fully, as well as the costs of future developments in the community pharmacy service. Initial views of the results were reflected in the 2010/11 funding settlement.
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Why did community pharmacy have a Cost of Service Inquiry (CoSI)?
Cost inquiries are an important part of our negotiations on community pharmacy funding – the inquiry that underpinned the negotiations leading to the 2005 community pharmacy contractual framework (which introduced MURs and other changes to the national framework) was undertaken in 2003, for example. Periodic surveys were agreed as part of that framework and these help us continually assess the costs to pharmacies of delivering NHS services. The inquiries never give an answer on funding; they just give a starting point. PSNC analyses and tests the results extensively, using the findings to shape the arguments that are used to make the case for the best possible funding settlement for pharmacy contractors.
Who carried out the 2010 inquiry?
When the 2010 CoSI was commissioned, PricewaterhouseCoopers were selected after a beauty parade of potential providers. PwC have undertaken work in the past for PSNC, for example as part of the work towards the 2005 contractual framework, and they have undertaken studies for the large multiples, so they are very familiar with community pharmacy.
Although the CoSI was commissioned and paid for by the DH, it was overseen by a Steering Group that included members of PSNC’s staff and contractors on the committee, and we were able to nominate two expert advisors. We nominated two professors: an expert economist and a small business expert. There was also a CoSI Working Group which met more frequently than the Steering Group to monitor and advise on implementation issues, and members of PSNC sat on this, together with representatives from the DH and PwC.
How was the COSI carried out and what did it find?
The inquiry was carried out through a survey which was completed by a range of pharmacy businesses across the independent and multiple sectors in March 2010. The resulting COSI report outlined the average costs per pharmacy branch (including fair return, a portion of head office and common costs and also the cost of enhanced services) and allocated NHS costs per item dispensed by a pharmacy. Separate costs were given for the independent and multiple sectors.
Before the COSI was carried out PSNC flagged the immense difficulty of obtaining accurate data on the costs borne by independent pharmacies, whose owners will do much work outside business hours, may use family members to help who are not officially employed, may decide not to take full salaries for their work, etc. This was reflected in the results of the COSI which shows massive cost variations between the independent and multiple sectors. Costs for small and large multiples and supermarkets are broadly comparable, and costs for RDLMs – multiple-owned pharmacies that have high retail turnover – are far higher.
PSNC Briefing 019/14: The Cost of Service Inquiry (COSI) (September 2014)
This PSNC Briefing summarises information about the most recent community pharmacy Cost of Service Inquiry, its findings and their use in the community pharmacy funding negotiations.