The detail of the changes in contractor funding for 2008/09 are set out below. The changes were published in the October 2008 Drug Tariff and took effect from 1st October 2008.

These changes applied to England and Wales.

2008/09 Funding Agreement

Total contractor funding increased to £2,231m.

Funding for the National Contract is distributed through a variety of fees and allowances along with an element of guaranteed purchase profit. The arrangements for 2007/08 are summarised below:

*Using the results of the joint PSNC/DH survey into retained buying profit, it has been estimated that there was an excess of £65m purchase profit earned against target levels in the first half of 2008/09. This figure was used in considering funding levels for the second half of the year but was provisional pending the outcome of the 2008/09 retained buying profit survey.

Changes in Fees and Allowances

There were no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment, transitional payment and EPS Allowances. The arrangements for the following fees and allowances changed with effect from 1st October 2008:

i) Establishment Payments

From October 2008 the level of the Establishment Payment remained unchanged however there was an increase in the payment thresholds of 3%.

ii) Practice Payments

From October 2008 the threshold to receive the Practice Payment, other than a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Act, rose by 3% to 2180 items per month.

For contractors dispensing over 2180 items per month, the Practice Payment level increased from 34.5p per item to 70.9p per item from October 1st 2008.  In addition, from October 2008 to March 2009 inclusive, a supplementary payment of 30.2p per item was added, bringing the Practice Payment for the period, October 2008 to March 2009 to 101.1p per item.

Previously 10% of the Practice Payment was deemed by HMRC to be subject to VAT. This reflected specific sums that were paid to contractors via the Practice Payment covering the disposal of unwanted medicines and signposting. The increase in the Practice Payment from October represents increased funding to cover the cost of dispensing medicines which is zero rated. From October 2008 onwards the following VAT apportionment levels applied to Practice Payments:

iii) Advanced Services

The fee for Advanced Services (Medicines Use Reviews and Prescription Interventions) rose from £27 to £28 and the maximum number of reviews per pharmacy remained unchanged at 400 per year, for those pharmacies that made arrangements to provide Advanced Services before 1 October 2008. A contractor who completed his full allocation could receive a maximum income of £11,200. More detailed information on Advanced Services can be found in Part VIC of the Drug Tariff.

iv) Pre-registration Training Grants

From 1 October 2008, the pre-registration grant increased by £2000 to £18,440 per year.

For existing pre-registration trainees, contractors were entitled to monthly payments at the old rate for the time a pre-registration trainee was employed before October 2008 and monthly payments at the new rate for the time a pre-registration trainee was employed after October 2008.  Payment was made by PCTs in arrears so there was likely to be a lag time before the increased payment rate was seen on a contractor’s Schedule of Payments. The lag time was dependent on the PCT’s internal payment authorisation processes and can vary from PCT to PCT.

Settlement elements

i) Formula uplift

The formula uplift recognised volume growth at marginal cost, general and staff cost inflation, and an efficiency discount imposed by the DH. This generated an increase in core funding of £71m. This was comparable with previous years.

ii) Regulatory burden

The regulatory burden component compensated contractors for the costs of increased activity arising from changes in regulations. The increase for 2008/09 included funding for:

CIP – extra time required to sort prescriptions, declaring out of pocket expenses on the FP34C Form and increased costs associated with the secure transport of prescriptions to the PPD;

Changes to CD regulations – extra time associated with record keeping and costs of new registers;

EPS – workload incurred by pharmacists in relation to obtaining and re-newing smartcards; and

NPSA alerts – extra time associated with complying with the NPSA alerts on paraffin containing products and anti-coagulation. In addition, in 2007, the NPSA published a patient safety alert on ‘promoting safer measurement and administration of liquid medicines via oral and other enteral routes’. This included an NPSA recommendation that because more complex medication regimens are now being administered at home, primary care dispensers should be in a position to issue a range of oral syringes. As a minimum, a 1ml, 5ml or 10ml syringe should be supplied depending on the dose prescribed. Previously it was only a contractual requirement for pharmacies to supply the 5ml syringe in certain scenarios. In November, the Drug Tariff was amended to require pharmacies to stock and provide 1ml and 10ml syringes in certain scenarios. The regulatory burden component of the annual uplift includes consideration of the additional costs of these syringes.

The regulatory burden component of the annual uplift formula added £25.5m to core funding. Uplifts of £17m and £9m were agreed in the previous two years.

iii) Transitional Funding, pending new Cost Inquiry

PSNC strongly and consistently made the case to the Department of Health that contractors were suffering an unsustainable shortfall in funding. Consequently the Minister agreed a transitional payment of £150m to help contractors with their financial problems and to maintain stability as we moved forward towards implementation of the White Paper. This was subject to an agreement to undertake a cost of service inquiry as soon as possible, ideally to inform 2009-10 funding negotiations. DH officials agreed with PSNC that the methodology must be fully reviewed to ensure that the cost of the aspirational “White Paper pharmacy” is identified, as well as the gap between that and present costs.

iv) Stock loss and PPD underpayment

As in previous years, funding was also agreed to compensate contractors for underpayments made by the NHSBSA Prescription Pricing Division. This was separate from the negotiations between PSNC and the Department of Health and the NHSBSA on the accuracy of the PPD’s new pricing system, the Capacity Improvement Programme. Funding was also agreed to compensate contractors for stock losses.

v) Pre-registration Training Grants

PSNC sought an increase in funding for pre-registration training of £2,000 per trainee. The DH agreed to pay this in full, representing an additional £2m. Part XIII of the Drug Tariff was updated from October 2008.

In the past, funding for the pre-registration grant came in part from pharmacy contract funding and in part from central Department of Health funds. This changed so the pre-registration grant was charged back solely to pharmacy contract funding. Additional funding was added to the pharmacy contract funding arrangements to compensate for this administrative change.

vi) Retained buying profit

The joint 2007/08 survey into retained buying profits was completed, providing information on the actual buying profit available in 2007/08.

 The survey showed that actual purchase profit levels were exceeding the target level and as a consequence, pending the results of the margins survey for 2008-09, Category M prices were reduced by 32.5m per quarter which equates to approximately 16p per item. This change was intended to ensure that in the second half of this financial year, only the agreed levels of purchase profit income was delivered to contractors.

More Information

Letter sent to all contractors 5/9/08