Category M reimbursement prices to increase from August 2018

Category M reimbursement prices to increase from August 2018

July 19, 2018

Announcement Summary

Contractor Information

Category M reimbursement prices will increase by £15 million a month from August 2018, the Department of Health and Social Care (DHSC) has confirmed.

The increase is because DHSC has agreed to cease the £15 million per month reduction in prices that had been in place to recover estimated excess margin delivered to pharmacies in 2015/16 and 2016/17.

These reductions had been in place since August 2017 and had been set to continue. This was because the latest Margins Survey results from 2016/17 suggest that there was over-delivery of margin in that financial year, with some excess yet to be recovered by DHSC.

The decision to cease the Category M price reductions to recover margin now was a result of negotiations with PSNC in which we raised concerns about the impact of price reductions on contractors’ cash flow.

However, underlying Category M prices will continue to be based on manufacturers’ data so prices will still reflect the lower purchase prices that led to the additional reduction in prices seen in the July Tariff.

The Category M reimbursement price list for August 2018 can be found here. Prices have been uplifted by an average of 16% which equates to an increase in Average Item Value (AIV) of between 19 and 20 pence per item on all items.

PSNC Director of Pharmacy Funding Mike Dent said:

“The decision to cease margin recovery in the short-term in light of PSNC’s representations about contractors’ cash flow is very positive and reflective of the collaborative relationship that we are trying to rebuild with the DHSC.

PSNC will be working, through the negotiations on funding and in discussions with the Department, to get the best possible deal for contractors and to ensure that any future mechanisms to correct margin delivery are as manageable as possible in terms of cash flow.”

This was discussed at PSNC’s July 2018 meeting. A summary of all the topics discussed at that meeting is available here.

Frequently Asked Questions

Q.What is happening to Category M reimbursement prices in August?
Category M prices are affected by two factors:

  • the underlying manufacturers’ data; and
  • the margin required to make the supply chain work effectively.

In August, the underlying prices will carry on at levels introduced in the July Tariff, but prices will increase because the margin recovery has been removed. Prices will therefore be £15 million higher than they would otherwise have been had DHSC not agreed to suspend the recovery.

Q. For what months will these prices apply?
There will be a new Drug Tariff for August which will spread the £15 million uplift (because margins recovery has ceased) across the Category M products. This will apply for September as well.

Q. What will happen to prices from October?
In October there will be a new Drug Tariff based on manufacturers’ data.  At the moment the timing or quantum of any future adjustments are not known.

Q. How much excess margin has still not been recovered by DHSC?
A. The results of the Margins Surveys for 2016/17 and 2017/18 are still being analysed and discussed with DHSC. The survey for 2017/18 is taking far more work than usual because of the need to deal with the very many price concession lines set throughout the year.

Q. Is there any update on the funding negotiations and how does all this feed into those?
There is no update – funding negotiations for 2018/19 have not yet begun. The changes to Category M prices are part of PSNC’s ongoing work to ensure that the full amount of community pharmacy funding is delivered to contractors.

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