It's good that the National Audit Office (NAO) has looked at the issue of NHS spending on generic medicines in primary care, because I think many community pharmacists – myself included – have been alarmed about the current state of the medicines supply chain.
I was not at all surprised to see that the report “identified unexpected increases in wholesalers’ margins” in 2017-18. When I resigned from the National Pharmacy Association (NPA) in April, I made it clear that I thought that wholesalers were exploiting the situation. This report confirms that this is the case. Independent community pharmacy contractors have suffered the double whammy of increased costs and increased workload to obtain medicines through this period
However, what the report doesn’t consider is the impact of stock shortages on pharmacies, including those extra costs to source stock, and the dispensing at a loss which happens when a concession price is not granted.
I can’t help but think that vertically integrated operators have used this situation to negate the impact of pharmacy funding cuts on their organisations. There is a fundamental tension which readers need to understand: pharmacies have an incentive to drive prices down to beat the average and make a profit, while wholesalers want to keep prices – and therefore profits – as high as possible.
[In England], pharmacy dispensing profits are capped and regulated at £800 million. This is not the case for wholesaler profits. Inside a vertically integrated operation there is a strategic imperative to make as much wholesale profit as possible, because it is not capped. This is why I believe it is time for us to consider radical action.
It may be unthinkable to consider breaking up the vertically integrated companies, but that might be in the taxpayer’s long-term interest. I struggle to see what public benefits vertical integration has delivered. The NAO's report says that concessions have cost the taxpayer around £315m in 2017-18.
It may be time for the Competition and Markets Authority (CMA) to launch a full market study into the wholesale sector. Saying this will make me public enemy number one with the wholesalers, because theirs is big business. The last thing multi-billion pound multinational corporations want is regulatory oversight.
I think we are at the point where it is sensible to consider ditching purchase profit as a mechanic to deliver funding to pharmacies. We are seeing more and more manipulation of this mechanic by clinical commissioning groups and now by wholesalers. It doesn’t lead to fair funding distribution.
We are a care-based sector, we should be rewarded for providing care.
