Margin and fee adjustments for 2022/23 and 2023/24

Following the announcement of the CPCF arrangements for 2022/23 and 2023/24, this follow up lays out some of the changes to margin delivery and fees, which will be enacted over the second half of 2022/23 and going into 2023/24. A summary of the main changes contractors will experience is:

  • Margin delivery rates will increase from Oct onwards as the agreed £100m write off is implemented.
  • Transitional Payments will reduce (currently funded from the ‘unallocated funding’ within the CPCF)
  • A new Flat Payment to all contractors will be introduced (to be funded from the ‘unallocated funding’ within the CPCF)

For more details please read on.

Retained Margin

The baseline margin allowance will remain £800m per year in 2022/23 and 2023/24.

Margin levels in the last two full years (2020/21 and 2021/22), as measured by the Margin Survey of independent pharmacies, were in excess of the baseline allowance, meaning that an excess was accrued.

Reductions in the Drug Tariff from July 2021 to January 2022 acted to reduce the excessive margin delivery rates, and begin to pay back the excess that had been accrued. Now with the announced write-off of £100m of excess margin as part of the 2022/23 and 2023/24 agreement, we are in a position where Drug Tariff levels will start to increase and return back to more normal levels.

In October 2022 there will be a modest uplift to Drug Tariff prices, and further uplifts will also be enacted in subsequent Drug Tariffs in 2022/23 and 2023/24 (subject to forecasts of pharmacy contractor margin retention levels being accurate).

In addition to the planned uplifts in margin delivery rates outlined above, Drug Tariff prices will also move to reflect changes in market buying prices, which have increased substantially over summer 2022. PSNC’s projections based on the latest buying data for independent pharmacies indicates that there should be significant upward movement in the Drug Tariff in Q4 2022/23 in order to reflect the underlying market price increases.

Dispensing fees

The Single Activity Fee (SAF) will stay set at £1.27 as we enter the second half of 2022/23. However, the SAF may be subject to change later in 2022/23 or in 2023/24, depending on prescription volume expectations and overall fee delivery rates. Any changes that are required will be announced as soon as they are known.

Transitional Payments

This was the temporary mechanism by which the unallocated funding that was present at the start of the five-year deal was to be distributed to contractors, ahead of new services coming on stream over the course of the five years. There was always an expectation that the amount of unallocated funding available (and therefore the value of the Transitional Payments) would reduce over time as new services were implemented, and unallocated funding was allocated to other elements of the CPCF.

Transitional Payments were originally scheduled to end in March 2021 but PSNC has successfully negotiated for their extension in subsequent years. As new services have been introduced and take up of these has accelerated, the amount of unallocated funding left in the CPCF is now less than it previously was. As such, the value of the Transitional Payments will decrease from its current level. Some of the unallocated funding remaining in 2023/24 will be repurposed into a Flat Payment for all contractors (see details below).

Over the course of the second half of 2022/23, the value of the Transitional Payments will be phased down. This will start in October 2022 with a reduction in payment levels to approximately 85% of the current level, as shown in the following table:

 

Number of items per month from 1 October 2022 Monthly Dispensing Payment of the Transitional Payment from 1 October 2022 Monthly Service Payment of the Transitional Payment from October 2022
0 – 100 £0 £0
101 – 2,500 £51.55 £51.55
2,501 – 5,000 £600.60 £600.60
5,001 – 12,500 £757.84 £757.84
12,501 – 19,167 £821.42 £821.42
19,168+ £853.22 £853.22

Further significant reductions will also be needed before March 2023. Funding delivery levels will be monitored on a month-by-month basis by PSNC and DHSC, in order to determine the appropriate level for the Transitional Payments as we approach March 2023.

In addition to the reduction in the value of the Transitional Payments, there will also be an increase in the proportion of these payments linked to service delivery. From November 2022, the ‘service element’ of the Transitional Payment will make up 75% of the value of the Transitional Payment.

Flat Payment (new)

From April 2023, a new flat payment will be made to all contractors dispensing at least 101 items per month. The total funding allocation for the flat payment will be £70m annually. Further information about the amount that individual contractors will receive will be made available in due course.

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