Impact of Category M price changes in January 2025

Pharmacies face £1,100 monthly reimbursement cuts as government implements £34 million adjustment to Category M prices

The government have imposed a £34 million per quarter adjustment to the prices of Category M* products in the English Drug Tariff from January 2025. They say that this is to compensate for retained margin adjustment following the latest margin survey, changes in the current market prices of medicines, and the addition of new lines into this category.

Apparently, this is partly down to calculation errors made in the summer of 2024. Indications are that the reductions (‘clawback’) will be extended into the April-June quarter.

This represents an average monthly reduction in reimbursement of around £1,100 per pharmacy creating further cash-flow challenges at a time when pharmacies are already under extreme financial pressure with most operating at a loss.

The background to this is that of the £2.592 billion contract fund, £800 million should come from retained margin on purchase for Category M medicines. This figure has been static since 2014 despite the value of prescriptions dispensed increasing by 10% and the number of items dispensed up 8.5% over that 10 year period.

There is little or no transparency on how much retained margin an individual pharmacy contractor actually receives and unlikely to be fairly distributed given the variance in buying power between independents and larger groups. As this represents 30% of income, reimbursement needs a complete overhaul to ensure transparency and equity, and deal with the increasing level of dispensing at a loss.

One option would be to remove the retained margin element altogether and just fund more appropriate professional service fees. However, the NHS and treasury are unlikely to accept that as pharmacy provides them with a free and competitive procurement service which saves them a fortune on the annual drugs bill but costs pharmacy in time, effort and money.

Many contractors are asking why they are constantly having conditions imposed on them rather than a satisfactory negotiated outcome, particularly as Community Pharmacy England have received a significant uplift in funding from contractors via LPCs to boost their negotiating and lobbying capability?

Given the decline in the numbers of pharmacies in England, nearly 800 in the last three years and over 1900 since 2015, one would have expected the new government to follow rhetoric with action on pharmacy funding. This would support their hospital to community and cure to prevention goals. Sadly, we have yet to see any progress restarting contract negotiations or any action to support the sector despite additional funding being given to hospitals and general practice.

This latest imposition, on top of the rise in NIC and other operating costs, maybe the tipping point for many community pharmacies with patients and the rest of NHS primary care being impacted.

*Category M was introduced into the Drug Tariff in April 2005 when the then new community pharmacy contractual framework was launched. Key points about the system:

• Category M is used to set the reimbursement prices of over 600 readily available medicines.
• It is the principal price adjustment mechanism to ensure delivery of the retained margin guaranteed as part of the contractual framework.
• The Department of Health and Social Care uses information gathered from manufacturers on volumes and prices of products sold plus information from the Pricing Authority on dispensing volumes to set prices each quarter.
• The prices are received and incorporated in the Drug Tariff prior to the 15th of the month.
• As prices have to be set in advance, estimated volumes are used which may differ from actual volumes. A built in correction mechanism ensures that the quarterly adjustments account for any over or under recovery in practice.

 By Michael Holden FRPharmS FRSPH

MH Associates