After announcing a new discount deduction system, PSNC has developed a web tool to help community pharmacy contractors estimate the impact on their payments.
The calculator is intended to illustrate the changes to the discount deduction that a pharmacy could experience during the transition to the new regime from October 2022 to January 2024, when the new system will go into full effect. PSNC’s calculator requires contractors to enter information about their individual pharmacy dispensing mix (i.e., the breakdown of reimbursement by devices, brands and generics) to estimate the level of impact the new discount deduction system will have. The impact on individual pharmacies cannot be estimated without using issuance mix data, so estimates that do not take this into account are not reliable.
PSNC Discount Deduction Transition Calculator
Before contractors can use PSNC’s calculator, they must first access their dosing mix data. If you are not aware of this, you may be able to obtain this information from your system supplier, or you can use the Prescription Item Reports (“PIR”) available from the NHS Business Services Authority (NHSSBSA) to estimate your figures. Read more about the PIR and how to use it.
The purpose of the discount changes
For years, many contractors have been frustrated with the way discount is applied to their accounts and have often expressed concerns about the general nature of its application to PSNC. That is why we have been looking for ways to distribute the margin more fairly among the community pharmacies for some time, advocating a split discount scale. This aims to make deductions fairer among contractors by taking into account the issuance mix of individual contractors.
The new arrangements will rebalance the deduction for generic and branded drugs, while generally deducting the same amount of discount from the pharmacy sector as before. Currently, generics make up about 30% of the total reimbursement, while brands make up more than 60% of the reimbursement. Reducing the brand rebate deduction to 5% will help reduce long-term loss provision issues for these items, including branded generics.
However, to reduce the deduction on brands, there needs to be an increase in generics to balance that and keep the changes cost neutral. The generic increase to 17.52% is still well below the typical generic margins measured in the Margin survey independent pharmacies.
The results of the Margin Survey also show that contractors make a margin on average on products for which concession prices have been awarded, although not at the same level as the margin on non-concession lines. Therefore, the committee agrees that any generic that has been granted a concession will receive the 5% branded rate for that month, rather than the full discount level being applied, as is currently the case.
Advising about the changes
The five-year Community Pharmacy Contractual Framework (CPCF) included a commitment to consider a series of reforms in drug reimbursement schemes. As part of a public consultation on the reforms, DHSC proposed to ‘split’ the existing deduction scale into separate scales for branded and generic medicines. This was intended to recognize that brands typically do not receive the same discount level as generics, and many brands subsequently sold at a loss.
DHSC indicated that splitting the scale would, on average, improve fair access to drug margin for community pharmacies. Overall, a very large majority (70%) of respondents, including PSNC, agreed with the proposal, which would result in a more equitable distribution of margin and reduce issuance of lossy brands. The responses to the consultation have sparked discussions between DHSC and PSNC about implementing these changes.
View the government’s response to the consultation, including an impact assessment
Continue the changes
Both PSNC and DHSC have conducted extensive research into the pharmacy margin survey and other data sources in considering these proposals. While ultimately striving for fairer access to drug margin in the community pharmacy sector, the contractors on the PSNC committee have collectively decided that this is the right choice.
The changes mean that pharmacies that have been disadvantaged by the current unfair system will be helped by the high levels of brand prescribing, but conversely the pharmacies at the other end of the spectrum that have benefited from the unfair system (at the expense of others) will lose that advantage . This is essentially a leveling up for all pharmacies.
To protect the pharmacies that benefited, the changes will be phased in over a longer transition period to give those pharmacies time to adapt to their new circumstances. This was deemed necessary, even though the pharmacies that would benefit most from the change would not immediately see the benefit.
In addition, no evidence was found for a relationship between the size of a pharmacy and the amount of margin obtained, so the fact that larger pharmacies applied more deductions was another unfair aspect of the current system being corrected.
Fin McCaul, PSNC committee member and independent contractor, said:
“As part of the proposed reforms to drug fee reimbursement, these changes to the rebate deduction will help correct a system that has long been wrong and unfair. Analysis by PSNC and NHS England/DHSC found that margins do not grow with scale, so moving from scaling to flat rates is critical. The change also corrects for brand and generic mix caused by local prescribing habits. It is also important to note that those low-priced generics will no longer be subject to the same level of deduction as other generics.”
More information about the changes to discount deductions, including worked examples and FAQs, can be found in two PSNC briefings:
PSNC Briefing 027/22: Discount Deduction Scale Changes Explained
PSNC Briefing 028/22: FAQ about the changes in the discount deduction scale