What is the discount deduction?
When pharmacies get reimbursed for medicines dispensed against NHS prescriptions, they receive their payment minus a deduction, known as “discount deduction”, PSNC explained in a factsheet.
This is to account for an assumed discount they received when they placed their medicines orders with wholesalers. At present, this discount varies depending on the value of the products pharmacies dispense in any given month.
Currently, there is just one deduction scale, which ranges from 5.63% to 11.5%. “This means that in the existing system, pharmacies with lower monthly reimbursement experience a lower rate of deduction and pharmacies with higher monthly reimbursement experience a higher rate,” PSNC explained.
It is expected that the overhauled system will give community pharmacies “fairer access” to medicines margin, according to analysis by PSNC and the Department of Health and Social Care (DH).
The current system is “disadvantageous” for pharmacies that dispense a higher volume of branded medicines, which typically do not attract the same level of discount as generics and can result in contractors dispensing at a loss, the negotiator explained.
Read more: DH moves onto next stage of community pharmacy drug reimbursement reform
Rather than continuing to be based on “one set value” for all items dispensed, the new discount deduction system will see the introduction of three deduction groups:
- Appliances, meaning products listed in Part IX of the Drug Tariff, will be deducted at 9.85%
- Generic medicines, meaning category A and M products in Part VIIIA of the Drug tariff, will be deducted at 17.52%
- Branded medicines will be deducted at 5%.
However, these changes will not be introduced overnight. The transition to the new system will begin in October and is expected to conclude in January 2024, “when contractors’ discount deduction will be calculated solely using the new fixed rates for each group”, PSNC specified.
Why is this new system being introduced?
In its consultation on reforming medicines reimbursement in community pharmacy, the DH suggested introducing two separate deduction scales for branded medicines and generic medicines.
The DH suggested that doing so would generally improve fair access to medicine margin for contractors, and its discussions with PSNC about bringing in these changes concluded this summer, the negotiator wrote.
Read more: UK reimbursement model a challenge, says Lloydspharmacy parent company
Commenting on the upcoming changes, PSNC member and contractor Fin McCaul said: “The discount deduction scale has been a point of contention for contractors for many years, and PSNC has long been pushing to remedy this.”
The changes should “improve equity of access to margin and manage the distortions presented by branded medicines, which just don’t have the same level of discount available as generics”, he added.
Almost two thirds (72%) of those who responded to this proposal in the DH’s consultation agreed with the suggested reform, but some commented that any change to “the deduction scale should not leave the average pharmacy contractor worse off”.
