Mukesh Lad, chief executive of Mr Pickford’s Pharmacy and chairman of Pharmacy Northants-MK, ponders a few of the many decisions facing contractors every day

I’ve been inundated this month with complaints from contractors and colleagues about the unprecedented level of financial pressure being faced by community pharmacy, added to which is the ever increasing burden of bureaucracy. Area team demands for completion of the Community Pharmacy Audit Form (CPAF), information governance submissions and public health campaign audits are important to pharmacy, but are frankly pointless while commissioning bodies are still in their infancy.

What’s critical to corporate survival in the current climate is effective time management and smart use of financial resources. I regularly work on the Mr Pickford’s ‘shop floor’ and I totally understand what each and every independent is facing right now. The day-to-day running of an independent pharmacy is possibly one of the most challenging business environments that there is.

I do see the future of community pharmacy in the realms of an integrated primary care service with ease of local access to a wider range of clinical services. However, it’s all well and good wanting to achieve this model but our survival is dependent on our core dispensing income, which is fluctuating month on month. Even more disturbingly, I’m now hearing of contractors struggling to pay suppliers. How have we reached this crisis point?

Analysing the issues

On careful analysis of the complexities of our funding model, the first cause to emerge is the reduction in discounts from many of the major manufacturers. In fact, a lot of manufacturers have gone down the ‘direct to pharmacy’ (DTP) route, following the lead of Pfizer. This downward pressure on ethical discounts is reducing gross profit margins. Over the same period, the discount clawback has remained the same, which means contractors are being hit by an average 10 per cent clawback on their monthly PPA statement. In reality, contractors are only receiving around 6 per cent discount from manufacturers or wholesalers.

This situation is further compounded by Category M modulation remaining static for the past nine years. Originally negotiated in the 2005 contract, a potential profit of £500m for Category M products was agreed as part of the funding model. However, over the same nine-year period the number of community pharmacies in England has soared from under 10,000 to over 13,000, diluting our income and forcing us to deliver more for less. Inevitably, this is going to mean the survival of the fittest, where ‘fit’ equates to ‘extremely efficient’.

Naturally, some trends are emerging. We’re beginning to see full-line wholesalers recalculating their traditional propositions and encouraging contractors to increase their spend on generic drugs. In return, the contractor receives a higher rate of discount on ethical and other categories.

"Independent pharmacies now need to be extremely careful when deciding where to purchase their drugs"

 

By forcibly lowering their discounts, the major manufacturers have impacted on margins for wholesalers, automatically affecting their bottom line, too. The wholesalers are therefore using the generic market to make up shortfall and actively competing with the short-liners to get a greater market share of the generic business.

Independent pharmacies now need to be extremely careful when deciding where to purchase their drugs. We should never lose sight of the fact that dispensing provides 98 per cent of pharmacy income. Your brand to generic business mix will also impact considerably on your financial success. A higher percentage of brand prescribing would create huge pressure to buy competitively and use parallel imports effectively.

Away from the financial pressures, there are storm clouds of another nature gathering on the horizon. Our market is about to be invaded by huge new multi-national organisations from the USA. Boots has opened the door into the UK for Walgreens, and Celesio has paved the way for US drugs wholesaler group McKesson to enter our market. The vertical integration of these organisations into our profession is going to have a huge impact on every independent pharmacy in the country. Multinational giants such as these have one key objective: to find and keep their wholesale customers. And that’s you and me.

Cormac Tobin, Celesio’s MD, recently announced plans to work with independent pharmacies. He wants to allow independents to be branded as Lloydspharmacy outlets in return for the use of his organisation’s skills base and infrastructure. While this could help independents to compete more effectively in the marketplace, there will be a cost attached. Another alternative could be the purchase of bespoke modules from Celesio, such as pain management or skincare programmes. Ultimately, the goal is to create a form of loyalty sign-up for independent contractors to become a part of the Lloyds-Celesio provider consortium that will be bidding for a raft of clinical services to be commissioned under the ‘any qualified provider’ model.

You’re probably thinking: “Hmmm ... sounds good”. Yes, it might be a valuable proposition for us as independent contractors. But what’s in it for them?

Picking sides

I met with Cormac Tobin and it didn’t take me long to realise his group is going to need us, the independent pharmacies, to help him secure his business. Commercially, he’s going to be facing tough competition from Boots-Walgreens as it enters the ring to fight for its share of the UK pharmacy market.

Independents need to consider if and how our sector can gain from any multi-national proposition. Will it truly be collaborative working and resource sharing for the benefit of all pharmacy? Or will it simply be for the benefit of the multi-national shareholders?

I’ve worked with many independent colleagues over the years. My recent experience in my home county of Leicestershire has resulted in the formation of an independent legal entity. Leicestershire Independent Pharmacy Company (LIPCO) now comprises more than 50 pharmacy practices. I’m convinced that this is a very positive decision for us that will benefit all group members and not multi-national company shareholders.

So, take a step back from your busy daily life in your dispensary and take time to absorb the real meaning and underlying consequences, good or bad, of what you’ve just read. Locating a pack of valsartan for a patient with only one tablet left will ensure the customer doesn’t have a complaint. But don’t lose focus on the day-to-day running of your pharmacy and the very challenging business environment in which you find yourself. In the coming months we’ll all be facing decisions that will have a major impact on us as well as our patients.

Working together as a group of independents is more important than ever before. I’ll leave you to ponder the implications and reach your own conclusions as to whether to batten down the hatches or run for the hills.