Funding

Published on: 15th February 2022 | Updated on: 15th March 2022

Community pharmacy funding is complex but can be loosely broken down into fees for the services they perform and profit they are allowed to keep after shopping around for the best prices for drugs.

Pharmacies have had massive success in driving down medicine prices for the NHS. However, the total national funding for community pharmacy was reduced in 2016/17 and has remained relatively unchanged since.

Community pharmacies receive around 90% of their income from the NHS and what they do receive has to fund their premises, staff and all other operating costs. Also, inflation in recent years has led to higher costs for pharmacies and their workload has increased significantly during the pandemic.

PSNC Briefing: Community Pharmacy Funding and Capacity
This PSNC Briefing describes the current situation regarding community pharmacy funding and capacity, including information that was used in recent negotiations with HM Government.

A breakdown of the contract sum

National NHS community pharmacy funding (the ‘contract sum’) comprises two key elements – fees (remuneration) and retained margin (part of reimbursement) which can be defined as follows: 

  • Remuneration: This is the fees and allowances paid to pharmacies for the professional services they provide.
  • Reimbursement: This reimburses the cost of the medicines that pharmacies supply to patients. Pharmacies first must purchase these medicines, usually from medicines wholesalers, and they are then reimbursed for them by the NHS, generally according to the Drug Tariff, which sets out prices for many medicines and a ‘discount deduction’ scale.

The difference between reimbursement and purchase price constitutes ‘retained margin’ which pharmacies are allowed to keep as part of their agreed funding subject to a collective agreed total (currently £800m).

Remuneration

The ‘fees’ or ‘remuneration’ element of funding covers a number of services and their associated fees. All fees and allowances are funded from NHSE&I budgets.

Every community pharmacy, whether it is a distance selling pharmacies or located within a local community, is paid according to the same Community Pharmacy Contractual Framework (CPCF) – this is the framework which sets out all the services that they must provide for the NHS – and with the same fees. These include:

Single Activity Fee (SAF): The SAF is a payment made per prescription item dispensed. This fee is paid to pharmacies each time they dispense a prescription item to a patient. Prescription volumes and associated fee levels are kept under constant review by the Department of Health and Social Care (DHSC) and PSNC to ensure the full delivery of funding agreed under the CPCF.

Transitional Payments (TP): Banded payments to help fund engagement with local healthcare systems, implementing new working practices and staff training to support new services, as well as ongoing change. They are based on dispensing volume and clinical service activity, and minimum requirements must be achieved in order to receive the full payment.

Services: In addition to the core services, there are a growing number of other clinical services within the CPCF. As of August 2021, there are the following:

  • New Medicine Service (NMS);
  • Community Pharmacist Consultation Service (CPCS);
  • Discharge Medicines Service (DMS);
  • Flu Vaccination Service;
  • Hepatitis C testing service;
  • COVID-19 lateral flow device distribution service;
  • Pandemic Delivery Service (currently commissioned until 31st March 2022);
  • Appliance Use Reviews (AURs); and
  • Stoma Appliance Customisation (SAC).

Community pharmacies can choose to provide any of these services as long as they meet the requirements set out in the Secretary of State Directions, with the exception of the DMS which is a mandatory Essential Service. Note, funding for the Flu Vaccination Service comes from NHS England’s Section 7A public health budget, and funding for the COVID-19 pandemic related services comes from other public health budgets.

2A-2F Fees: This refers to Part IIIA of the Drug Tariff, where a number of professional fees are described. These are payments to cover the dispensing of specific products such as unlicensed medicines, certain appliances, oral liquid methadone, Serious Shortage Protocols, Schedule 2 and 3 Controlled Drugs, and expensive items.

Pharmacy Quality Scheme (PQS): This scheme makes payments to community pharmacies that are meeting Gateway and Quality criteria. Payments are made to eligible pharmacies depending on how many of the Quality criteria they have met (the number of ‘points’ earned).

Find out more at: psnc.org.uk/PQS

Pharmacy Access Scheme (PhAS): PhAS is a scheme with the stated aim of ensuring that a baseline level of patient access to NHS community pharmacy services is protected. Qualifying pharmacies receive an additional payment. Find out more at: psnc.org.uk/PhAS

Delivery of Retained (or 'Purchase') Margin

Purchase margin is the margin made when pharmacies are able to purchase medicines for NHS patients at prices below those at which the NHS reimburses them for those medicines. This is also known as ‘retained margin’ and it is measured annually with a ‘Margins Survey’ jointly conducted by DHSC, the NHS and PSNC.

Monitoring the value of the purchase margin being delivered to pharmacies is complex: in each financial period PSNC and DHSC agree a figure based on the results of the Margins Survey. This survey examines prices paid for a representative sample of medicines by a number of independent community pharmacies, and analyses prices and wholesaler discounts gathered from invoices collected from pharmacies to estimate how much margin has been made during the year.

The Margins Survey is carried out retrospectively and the results from the survey are used to inform changes to the Drug Tariff, in order to ensure the correct delivery of margin to the community pharmacy sector.

Further information is available at: psnc.org.uk/categorym

PSNC negotiates with the Department of Health and Social Care (DHSC) and NHS England and NHS Improvement (NHSE&I) on behalf of all NHS community pharmacies in England. Learn more about PSNC.

For more information on this topic please email commsteam@psnc.org.uk