Changes to discount deduction arrangements from April 2023

The Drug Tariff for April 2023 will contain changes to the discount deduction arrangements for pharmacy contractors, including changes which PSNC rejected, and are subsequently being imposed.

The changes being implemented from 1 April include:

  • All concession lines to be considered as Group Items for Discount Not Deducted i.e. DND or zero discount (ZD) items
  • Rate of discount deduction for generics to increase from 17.52% to 20%

See NHS Prescription Services announcement.

Please read on for more details on these changes.

Zero discount status granted to concession lines

As part of the Year 4 & 5 funding settlement for community pharmacy, it was agreed that an urgent review of the price concession setting system would take place.

See the announcement here.

Since this announcement, PSNC has been working with DHSC officials to determine improvements to the price concession system.

One of the changes agreed between PSNC and DHSC is for all concession lines to be considered as Group Items for Discount Not Deducted. Therefore from 1 April 2023, a new category will be introduced into Part II of the Drug Tariff ‘Drugs for which discount is not deducted’.

Increase in generic discount deduction rate

As part of a series drug reimbursement reforms proposed by DHSC following a public consultation in 2019, changes were made to the discount deduction arrangements which took effect from October 2022. These changes involved a transition to a new discount system, with the previous single discount scale being split into three groups: one each for generic medicines, branded medicines and appliances.

The discount rates and transition period from the old to the new system were agreed between PSNC and DHSC in summer 2022.

See the announcement here.

Following pressure from NHS England, Ministers have now chosen to impose changes to the previously agreed discount deduction arrangements, which come into effect from 1 April, and will be kept under review.

Regarding the increase to the generic discount deduction rate, PSNC’s Director of Pharmacy Funding, Mike Dent said:

“The arrangements which were announced in August 2022 were the result of a long and meticulous negotiation between PSNC and DHSC. The new system was designed to deliver a fairer distribution of margin across the community pharmacy sector, and to take into account the impacts of dispensing mix on pharmacy contractors. Dispensing mix varies significantly amongst contractors, and by design the new system would help smooth the impact of these variations amongst contractors, and over time.

During the design of the new system it was expected that there may be some variation in the quantum of overall discount deduction, due to the unpredictable nature of NHS prescribing policies. The overall amount of discount deduction could never be landed exactly on a pinhead, but the ongoing margin survey conducted by PSNC and DHSC, which measures retained buying margin at the pharmacy level, would ensure that the impacts of any variation were fully accounted for.

In practice we have seen that discount deduction has varied slightly from anticipated levels, and this has resulted in a short-term impact on central NHS cashflow, to which the NHS has reacted. The increase in generic discount deduction from 17.52% to 20% is a knee jerk reaction to a system working as designed.  The changes have been imposed based on a very limited period of analysis, and once again pharmacy contractors will now be forced to bear the impacts of short term policy making by central NHS and Government.

PSNC has been informed that while the generic discount rate will increase, the transition from old system to new system will continue as per the previously outlined timeline but subject to review. The impacts on discount deduction will be assessed again in a quarter’s time, which of course adds to contractors’ uncertainty.”

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