How are contractors in England coping with the cuts to pharmacy funding so far, and what are the coming months likely to have in store? Could some contractors reach tipping point with their business finances?

It’s news to no one that the funding cuts imposed on community pharmacy by the government have been a massive strain on contractors throughout England, but it looks as if they are biting even harder than expected. The National Pharmacy Association says contractors report experiencing cuts closer to 20 per cent, rather than the 12 per cent initially estimated, and this has led to an investigation into whether this is a widespread issue and what the reason for this discrepancy could be.

So, how tough is it out there? Leyla Hannbeck, chief pharmacist and director of pharmacy at the NPA, says the nature of the cuts, with all of the 2016/17 funding reduction concentrated in last quarter of the financial year, has “further increased the hardship on community pharmacies in England”, with many contractors reporting a knock-on effect of cash-flow issues, and some having to forgo their salary in order to ensure their pharmacy can continue to operate.

Numark’s director of marketing Mandeep Mudhar says the cuts are “absolutely biting”, with pharmacists falling into three camps. “We’ve got a third who have prepared with pre-emptive steps in place, changed their staff mix, reduced staffing costs or put together a plan to grow revenue through services – and these have probably been more ready for the drop in income, although I expect they were still surprised by how much more it was,” he says.

“Then there is a middle third, who thought they’d suck it and see, maybe because they felt they had some slack in the business that would make it up. These pharmacists are probably only redefining their business plans now, but they are on the back foot a little as this will be reactive.

“Then there’s the final third, who were either too busy to think about the funding cuts or just didn’t want to face it, and they are now scratching their heads in shock.”

Rekha Shah, chief executive of Kensington, Chelsea and Westminster LPC and pharmacy lead for London-wide pharmacy vaccination services, agrees that almost everyone is finding it harder than anticipated.

“Even the most savvy contractors who planned for the expected cut to hit are suggesting that they have got it all wrong and that the drop in their NHSBSA reimbursement was much higher than they had expected based on the information provided to them and us,” she says.

In fact, she says those who thought things would balance out the following month got an even bigger surprise as the same level of drop continued again.

She says: “It’s the phasing but, at the same time, the fact that the clawback (for previous over-payment) is still continuing simultaneously, and then the impact of the rise in business rates (which is high in central London) has not helped either. Furthermore, as a result of the greater than expected drop in payment, the average item fee dropped drastically and, as this is used to calculate the forward payment for the following month, the result is that this is also a smaller figure.”

Ms Shah says she is “hopeful” that the payment for April, which is due at the end of June, will be a little better. “Remember that April falls in the new financial year and the cut is spread over the full 12 months (rather than the four in the previous year),” she says. “We are hopeful that the quality payments will also be paid at the end of June and that may help provide some slight ease to manoeuvre.”

While this sounds less gruelling compared with how the 2016/17 funding cut was implemented, Ms Hannbeck remains cautious. “For the 2017/18 financial year, a further £95 million is being removed from the global sum following the £113 million reduction that occurred for 2016/17,” she says. “Although this will be distributed over a 12-month period, and so will have a less pronounced effect on the monthly NHS revenue reduction for contractors compared to the 2016/17 funding cut, this is still a significant cut to funding for community pharmacy.”

Among other things, it could lead to pharmacy owners being unable to maintain their current staffing levels, having to reduce their supplementary hours, or reducing services such as free deliveries and medicines compliance aid provision for non-eligible patients, as these services may no longer be economically viable.

Before this, Ms Hannbeck says some pharmacies were able to absorb the costs for these services, but she believes many will struggle to continue this provision given the additional cut in funding. “With the High Court ruling recently stating that the cuts imposed by the government, although heavily criticised, were considered to be lawful, it is also unlikely that there will be any changes to funding until the next contractual arrangements are released,” she says.

The long view

For those willing – and able – to ride out the longer-term uncertainties, Celesio UK’s head of healthcare policy and strategy, Clare Kerr, says business owners need to be prepared to make tough decisions on how they manage this change. “We must look to the future,” she says. “How can we adapt to create a successful industry with the ongoing challenges presented to us?” she adds.

While Mr Mudhar believes it is “still open to question as to whether any pharmacies will shut”, he says reacting to the situation by simply looking at how to cut costs may not be the best approach.

“Instead of, say, reducing staff numbers, we would, say, focus on revenue generation,” he says. “For example, we know that many pharmacies are still not maximising their income through MURs, or private travel and flu vaccination clinics, and not all are utilising the commissioned flu service properly. Even if it is an investment you need to make to get a service going, then I’d say have the faith it will yield a longer-term return and make it. We need confidence to ride through these tough times, but we also need careful planning rather than knee-jerk reactions.”

Margaret MacRury, chair of the Company Chemists’ Association (CCA), says as well as the funding cuts, other significant financial effects, such as the apprenticeship levy and business rate increases make these “challenging times and companies will need to adapt to absorb these ongoing costs”, which is why the ability for businesses to flex under these conditions is key.

For example, in recent years, she says many CCA members have invested in consultation rooms and were already providing elements of the quality payments agenda, and are “positively engaged” in delivering the criteria.

Positive outcomes

Ms Hannbeck agrees that one positive coming from the reduction in pharmacy funding in England has been the number of community pharmacies that have engaged with the quality payments scheme.

Early reports suggest that about 11,000 pharmacies have submitted a quality payments declaration for the April review point, which she says “shows that community pharmacy as a sector is working hard to reduce the effects of the funding cuts and improve the overall quality of service offered to patients”.

And Ms Kerr comments that the introduction of the quality payments scheme is a step towards community pharmacy becoming “better integrated with other parts of the NHS…to support a more clinical offering in the future”, and sees this as another opportunity to “build a new relationship with the Department of Health and NHS England to educate them about all that pharmacy can contribute to alleviate some of the burden on the NHS and achieve better patient outcomes”.

Over at Well, nurturing these connections is also on the to-do list. Janice Perkins, pharmacy superintendent at Well, says reforming links with DH should be a priority: “Now the general election is over, we can focus on rebuilding relationships with the NHS, and start to influence the future direction of pharmacy [as well as] focusing on the areas that are in our direct control, and where we can make a difference to our patients.”
Ms MacRury says the CCA is keen to highlight opportunities that further raise the profile of the sector to new MPs and “demonstrate where community pharmacy can support patients and provide accessible, high-quality healthcare as part of the wider NHS team”.

In the near future, she says the organisation is also “looking forward” to hearing the response from the government on the Clinical Services Review conducted by Richard Murray, and also to the report from the All Party Pharmacy Group based on a series of evidence sessions, which was published just before parliament was prorogued.

“It is important to demonstrate that community pharmacy is about much more than dispensing alone and this is the starting point of doing just that,” she says.

“We now need to build upon this and we are looking to work with colleagues from across the sector to reset the dialogue with the NHS and the Department of Health, to build a brighter future for community pharmacy, patients and a sustainable NHS.”

Time and again community pharmacists have proved their resilience, and although the impact of these cuts is slicing even deeper than expected, it is conversations such as these with the DH and NHS England that are vital to raise – and maintain – awareness about what community pharmacy can do.