Discount Deduction: PSNC launches impact calculator tool (updated)

Note, this story was originally published on 12th September 2022.

Following the announcement of a new discount deduction system, PSNC has developed a webtool to help community pharmacy contractors estimate the impact on their payments.

The calculator aims to illustrate the changes to discount deduction that a pharmacy could experience during the transition to the new arrangements from October 2022 to January 2024, when the new system will be fully in place. PSNC’s calculator requires contractors to input information about their individual pharmacy dispensing mix (i.e. split of reimbursement by appliances, brands and generics) to provide an estimate for the level of impact the new discount deduction system will have. The impact on individual pharmacies cannot be estimated without using dispensing mix data, meaning that any estimates which do not take this into account will not be reliable.

PSNC’s Discount Deduction Transition Calculator

Before using PSNC’s calculator, contractors first need access to their dispensing mix data. If you do not know this, you may be able to obtain this information from your system supplier, or you could use the prescription item reports (‘PIR’) available from the NHS Business Services Authority (NHSBSA) to estimate your figures. Find out more about the PIR and how to use it.

Update: 16/9/2022

PSNC has developed a second tool which contractors can use to generate a mix estimate for their pharmacies using their PIR. The tool will allow contractors to enter their PIR data and receive mix values for their appliance, generic and brand reimbursement. They can then use these values in the transition calculator, to estimate the impact of the change to the new deduction arrangements on their payments.

(old) PSNC’s Mix Estimator (for PIRs up to September 2022)

(Updated to v6 on 19/12/2022 – please re-download)

(new) PSNC’s Mix estimator (for PIRs covering October 2022 onwards)

The aim of the discount changes

For years many contractors have been frustrated by how discount is applied to their accounts and have often raised concerns about the blanket nature of its application to PSNC. We have therefore been seeking ways to introduce a fairer distribution of margin across the community pharmacy sector for some time, advocating for a split discount scale. This aims to make the deductions amongst contractors fairer, by taking into account the dispensing mix of individual contractors.

The new arrangements will rebalance deductions for generic and branded medicines while, overall, the same amount of discount will be deducted from the pharmacy sector as before. Currently, generics make up about 30% of overall reimbursement, whereas brands are over 60% of reimbursement. By reducing brand discount deduction to 5%, this will help to mitigate longstanding issues around dispensing at a loss for these items, including branded generics.

However, in order to reduce deduction on brands there has to be an increase on generics to balance that out and keep the changes cost neutral. The generic increase to 17.52% is still well below the typical generic margin levels measured in the Margin Survey for independent pharmacies.

Results from the Margin Survey also show that, on average, contractors make margin on products granted concessionary prices albeit not at the same level as margin on non-concession lines. Therefore, it was agreed by the Committee that any generic which has a concession granted will receive the brand rate of 5% deduction for that month, rather than having the full level of discount applied as is currently the case.

Consulting on the changes

The five-year Community Pharmacy Contractual Framework (CPCF) included a commitment to considering a range of reforms to drug reimbursement arrangements. As part of a public consultation on the reforms, DHSC proposed ‘splitting’ the existing deduction scale into separate scales for branded medicines and generic medicines. This was intended to recognise that brands do not typically attract the same level of discounts as generics, and that subsequently many brands were dispensed at a loss.

DHSC indicated that splitting the scale would, on average, improve fair access to medicine margin for community pharmacies. Overall, a very large majority (70%) of respondents, including PSNC, agreed to the proposal, which would result in a more equitable distribution of margin and reduce dispensing of brands at a loss. The consultation responses fed into the discussions between DHSC and PSNC on making these changes.

View the Government’s consultation response, including an impact assessment

Taking the changes forward

Both PSNC and DHSC undertook an extensive examination of the pharmacy Margins Survey and other data sources in considering these proposals. Whilst ultimately looking to achieve fairer access to medicine margin across the community pharmacy sector, the contractors who make up the PSNC Committee collectively decided that this is the right thing to do.

The changes mean that pharmacies who were being disadvantaged by the current unfair system due to high levels of brand prescribing will be helped, but conversely the pharmacies on the other end of the spectrum who were benefitting from the unfair system (at the expense of others) will lose that benefit. This is essentially a levelling out for all pharmacies.

To protect those pharmacies who had been benefiting, the changes are being phased in over a prolonged transition period, in order to give those pharmacies time to adapt to their new circumstances. This was felt to be necessary, even though it means the pharmacies who would benefit the most from the change also won’t experience that benefit right away.

In addition, no evidence was found suggesting a correlation between the size of a pharmacy and the level of margin they obtained, so the fact that larger pharmacies had more deduction applied was another unfair aspect of the current system which is being corrected.

Fin McCaul, PSNC Committee Member and independent contractor, said:

“Part of the proposed Drug Tariff reimbursement reforms, these changes to discount deduction will help to correct a system that has been wrong and unfair for a long time. PSNC and NHS England/DHSC analysis found that margins don’t grow with scale, so the move from a scale to flat rates is key. The change also corrects for brand and generic mix caused by local prescribing habits. It is also important to note that those generic medicines on price concession will no longer be subject to the same level of deduction as other generics.”

Further information

Further information on the changes to discount deduction, including worked examples and FAQs, can be found in two PSNC Briefings:

PSNC Briefing 027/22: Discount Deduction Scale changes explained

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

Contractors are also invited to attend a webinar about changes to the discount deduction system on Wednesday 12th October at 7.30pm:

Book your place now

Discover how we are working to improve the outlook for community pharmacy at an event near you.

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