Contract changes: Margin Explainer
Further information and details about margin delivery have been released to help explain the arrangements in a clearer way.
Funding arrangements for community pharmacies, particularly the processes around delivery of retained margin, are not straightforward and it can be difficult for pharmacy owners to predict the impact of any changes on their businesses. Since the announcement of the contractual settlement for 2025/26, we have been working to answer a range of funding related questions to help improve understanding of the changes, including through a briefing, indicative income calculator, and some general funding FAQs.
The margin system is one topic that has continued to cause some confusion, so our Funding Team has put together some further information and FAQs to help explain what the new margin arrangements mean, as well as demystifying the wider processes around the distribution and management of margin delivery. We hope these will help provide a clearer picture of and important context to the margin adjustments.
Explainer: Part of the CPCF settlement for 2024/25 and 2025/26 was a ‘margin write-off’ of £193m. What does this mean and why was this necessary?
Margin delivered to the pharmacy sector is measured via an ongoing Margins Survey which reports quarterly, and the results of which are used to inform price setting for future Category M price lists. The survey calculates margin for the sector as a whole, but as measured by the margin delivered to independent pharmacies.
The results from the Margins Survey each quarter inform what the running balance of margin over or under delivery is. Since around the start of 2020/21, a significant balance of over delivery has accumulated; this is visualised in the charts below:
In simple terms this means more margin was delivered to the sector than the funding arrangements allowed for.
Multiple downward adjustments to margin delivery via Category M prices have been enacted in recent years, with the aim of recouping the over delivered margin and returning margin run rates to the intended level.
However, these downward adjustments have also coincided with significant reductions in generic medicines buying prices being observed across the board, as well as high volume molecules such as apixaban and rivaroxaban losing their brand patent protection.
These occurrences have added extra margin into the system and acted to confound the intention of the Category M reductions, which was to recover the over delivered margin.
Although this meant that there remained on the books a large portion of ‘excess’ margin which had been delivered to the sector, our position was that wider funding pressures have made this funding absolutely essential to pharmacy owners. Without it, even more closures would likely have occurred than we have seen, and patients’ access to pharmaceutical services would have been further jeopardised.
Pharmacy owners cannot possibly afford for margin to be downwardly adjusted sufficiently to ‘pay back’ these monies, and doing so, and further deflating medicines prices, would have further negative impacts on the supply chain, likely affecting the supply of medicines negatively.
From our perspective, a reset of the system was essential. In practice this meant a large write-off of the ‘over delivered’ margin, and an increase in the allowed yearly margin allowance, to take into account the growth in item volumes we have seen over many years.
The write-off agreed is a clear benefit to pharmacy owners, but it is only a first step – we are also now working with Government to further investigate irregularities in access to margin, with the aim of assuring all pharmacy owners have, in principle, equal access to this core part of funding.
We remain very concerned about the mismatch in availability of margin to pharmacy owners – with local prescribing and other practices able to distort access to margin, in some areas having a negative impact on local pharmacy owners – and are pleased Government has committed to working with us to investigate and seek to address this.
Margin Briefing
Further information on margin delivery is available in our new briefing:
