EXCLUSIVE: Drug prices - what contractors need to be aware of

By David Reissner

There has been a lot of coverage in the national and pharmaceutical press of the prices being charged to pharmacy owners for certain medicines.

Leaving aside the reasons for steep price rises, I have been asked on social media and elsewhere whether pharmacy owners can refuse to supply prescribed medicines if they would make a significant financial loss.

Legal obligation

The first thing to point out is that the National Health Service Act 2006 imposes a legal duty on the Secretary of State and NHS England to make arrangements for people to receive sufficient prescribed drugs.

These arrangements involve the publication of the Drug Tariff.

The Drug Tariff includes reimbursement prices or a method for determining prices. Various factors can be taken into account in determining reimbursement prices. The Drug Tariff does not provide a pound for pound reimbursement for medicines that pharmacies supply on NHS prescriptions.

It would just be too complicated to do this. Instead, the Drug Tariff aims to provide pharmacy owners collectively with reimbursement plus some profit. This profit is a national figure arrived at after negotiations with PSNC.

Perhaps ironically, the system assumes pharmacy owners will make profits on the difference between the drugs they buy and the Drug Tariff price; and to the extent that pharmacy owners collectively make more profit than the national figure identified by DHSC, the excess is clawed back.

What terms are pharmacy owners bound by

Pharmacy owners who provide NHS services are bound by terms of service. These are found in Schedule 4 to the National Health Service (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013.

Paragraph 5 of the terms of service says that when a pharmacy is presented with a prescription, the pharmacy owner “must, with reasonable promptness, provide the drugs so ordered”.

What is the position if a pharmacy is presented with a prescription for an item that is vastly more expensive than the amount that the pharmacy will receive for dispensing it? Does the pharmacy have to dispense the item and swallow the loss?

The answer depends on what is meant by “reasonable promptness”.

There is no definition of this term in the Regulations. When deciding what it means, one must take a common-sense view and have regard to all the circumstances. For example, there is no obligation to dispense every prescribed item that is in stock while a patient waits in the pharmacy.

In the case of a repeat prescription, it may be reasonable to ask a patient if he or she currently has enough tablets for the next 7 days and, if so, to ask the patient to return in 7 days, or to deliver to the patient 7 days later.

In normal times, people would ordinarily expect that pharmacies will either have the prescribed item in stock, or will be able to order it and obtain it from a supplier within one or two working days.

There would also be an assumption that the prescribed item could be obtained from a supplier at a price that bears some relationship to what the pharmacy will be reimbursed by the health service to enable the prescribed item to be purchased.

The pharmacy would then be expected to supply the item to the patient within a day or within a few days. What is reasonable promptness may also depend on circumstances such as whether a prescription is for a painkiller or an antibiotic or a repeat prescription at a time when the patient is unlikely to run out of a supply previously made.

These are not normal times. Pharmacy owners may therefore reasonably choose not to stock expensive items, but wait till a prescription is received. When a prescription is received for certain medicines, a pharmacy owner would reasonably be expected to ascertain the price, probably from more than one supplier (if more than one supplier is available).

The pharmacy owner may then have to make a judgement-call. To take an extreme (unrealistic) example, if the supplier informs the pharmacy that the price of the drug is £1m and the pharmacy owner would only be reimbursed £200, it would not be reasonable to expect the pharmacy to buy the drug and supply it.

Instead, it would be reasonable to expect the pharmacy to wait until the drug can be sourced at a reasonable price. This, of course, begs the question of what is a price at which it would be reasonable for the pharmacy to buy the drug. £500,000? £50,000? £500? In all of these scenarios, one consideration is the pharmacy owner’s financial ability to pay for the drug.

If the pharmacy is financially thriving, the pharmacy owner may have the funds to pay £500 for the drug and may be able to remain profitable in doing so while only being reimbursed £200 because of the overall financial circumstances of the pharmacy.

It may be reasonable to expect a pharmacy to make a loss on a single item if the owner would still remain in reasonable profit on the overall provision of health services. However, there is a point at which the reimbursement price may be inconsistent with being paid fair and reasonable remuneration and the pharmacy owner may be entitled to delay purchasing the product until the price is consistent with being paid fair and reasonable remuneration.

I have emphasized that the overall profit must be reasonable because making a small profit that does not necessarily represent an adequate return on capital may not be sufficient to require the pharmacy owner to purchase at a particular price.

Burden of proving a breach rests on NHS England

Ultimately, if the pharmacy owner chooses not to purchase at a particular price so that there is a delay in supplying to a patient, the patient may complain and NHS England may say this is a breach of the terms of service, alleging a failure to supply with reasonable promptness.

The burden of proving a breach of the terms of service would rest on the NHS England. It would be open to the pharmacy owner to argue that there was no breach because delaying purchasing the particular drug was reasonable in the circumstances.

David Reissner is honorary professor of Pharmacy and Medicines Law at the University of Nottingham and chair of the Pharmacy Law & Ethics Association.