Changes to discount deduction arrangements

New arrangements for the application of discount deduction to community pharmacy payments have been agreed by PSNC and the Department of Health and Social Care (DHSC).

The new discount deduction system will see the current single scale split into three groups: one each for generic medicines, branded medicines, and appliances. Separate fixed deduction rates have been determined for each group.

From October 2022, discount deductions will begin transitioning to these new arrangements. The transition will take place over six financial quarters, concluding in January 2024 when contractors’ discount deduction will be calculated solely using the new fixed rates for each group. Advance notice of these changes are outlined in the Preface section of the September 2022 Drug Tariff.

The changes to discount deduction arrangements form part of a series drug reimbursement reforms proposed by DHSC following a public consultation in 2019. Please see below for more details on the new discount deduction arrangements, including FAQs.

Fin McCaul, PSNC Member and independent community pharmacy contractor, 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 incoming changes are designed to both 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. Analysis undertaken by DHSC and PSNC has determined that these changes will achieve fairer access to medicine margin across the community pharmacy sector.”

Mike Dent, PSNC’s Director of Pharmacy Funding, said:

“The discount deduction changes have been given very careful consideration by all of the contractors on PSNC and they are designed to deliver a fairer distribution of margin across the community pharmacy sector, regardless of the mix of brands and generics being dispensed in any given pharmacy. The changes will lead to a levelling out for all pharmacies, which the Committee believes is the right thing to do – the changes will help those contractors who were being disadvantaged by the previous unfair system, while giving those losing benefits from that unfair system some time to adapt.”

Further information

Details of new discount deduction arrangements

The three discount deduction groups have been determined as follows:

  1. Appliances: Products listed in Part IX of the Drug Tariff will be deducted at 9.85%.
  2. Generic medicines: Products listed in Part VIIIA of the Drug Tariff and categorised in accordance with that Part as being in Categories A and M will be deducted at 17.52%.
  3. Branded medicines: Any other product, i.e. those which are neither listed appliances in Part IX, nor generic medicines that are in Categories A or M of the Drug Tariff, will be deducted at 5%.

Note, in a month where a concessionary price is granted for a generic medicine listed in Category A or M of the Drug Tariff, the Branded medicines rate of 5% will apply to that medicine.

Details of transition arrangements

The transition to the new arrangements will take place over six financial quarters from October 2022 until January 2024. Every quarter the deduction will move more towards the new rates, with a variable weighting of the old rates and the new rates being applied as set out in the table below:

Time period Old rate weighting New rate weighting
October 2022 – December 2022 85% 15%
January 2023 – March 2023 70% 30%
April 2023 – June 2023 50% 50%
July 2023 – September 2023 30% 70%
October 2023 – December 2023 15% 85%
January 2024 onwards 0% 100%

Accordingly, two calculations will be made, one in reliance on the old rates and one in reliance on the new rates, and the total discount will be the weighted total of those two discount calculations added together.

Resources

For a full detailed explanation on the background to these changes, how the new arrangements and transition period will work, worked examples, and FAQs, please refer to the following resources produced by PSNC.

PSNC Briefing 027/22: Discount Deduction Scale changes explained

PSNC Briefing 028/22: FAQs on the Changes to the Discount Deduction Scale

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