The report of the Pricing Body on a new fee structure for community pharmacies has attracted surprisingly little attention in the silly season, but all that is set to change as the Minister for Health prepares to bring it to Government.

The Dorgan Group, which was set up to recommend revised dispensing fees after the wholesale price of prescription drugs was slashed and the retail markup eliminated, appears to have found a compromise that leaves both sides satisfied.

Readers will recall that the original move led to the suspension of methadone services by some pharmacists, and a general threat of mass withdrawal by all pharmacists from the community drug schemes.

Lawyers on both sides then had a field day until the Minister took some of the sting from the issue by appointing a triumvirate of respected, acceptable individuals to resolve the impasse.

The outcome of this process is a sliding scale of interim fees, which is intended to recognise and reflect the professional value and costs of delivering the community drug schemes, and to break the historic ‘fee plus mark-up’ pricing regime for prescription drugs.

The Dorgan Report

The Dorgan Report shows how the combined effect of rising ingredient costs and skyrocketing prescribing rates has tripled HSE spending on drug reimbursements from around €500 million to about €1,500 million in just seven years. The reasons include more expensive therapies, more patients being treated, more chronic illness, a preference for medicines instead of invasive treatments, the over-70s scheme, and the use of preventative medicines in priority areas like cardiovascular care.

The Pricing Body recommends that pharmacies dispensing up to 20,000 items a year on the community drug schemes should get a flat fee of €7 per item. The next 10,000 items would each attract a fee of €6.50 and all items above a threshold of 30,000 would get €6 each. The first flat fee proposed was €5.

The report shines an interesting light on the degree of integration between wholesale and retail pharmacy. It notes that three full-line wholesalers control around 90 per cent of the market; one is wholly owned by around 450 chemists; another operates its own, mid-sized chain of retail units; yet another provides supports for the sale and purchase of retail outlets, including guarantees of borrowings.

Part of a chain

The report also highlights the diversity of the retail pharmacy sector, noting that half of all outlets are single businesses and half are part of a chain. In some businesses, as much as two-thirds of annual revenue comes from the community drug schemes; in others, these schemes account for one-third or less of revenues.

The Pricing Body has refused to draw ‘definitive conclusions’ about the impact of the cut in wholesale margins on individual pharmacies; this column has made the point more than once that much depends on the deals that retailers have or can get from their suppliers.

It also makes a number of principled and practical arguments against compensating pharmacies for revenue losses arising from the changes to the reimbursement regime. It describes pharmacy as a growing, dynamic business. It says that the sector has no claim to an income guarantee and, in any event, that it would be impossible to design a fee system that replicated revenue for the current diversity of businesses on an equitable, effective and economical basis.

And it notes also that there is the bigger picture of a new contractual settlement, which itself has to be priced.
This report has something for everyone. It would be wrong to assume that the intent is to spilt the difference between the two sides. It says the current reimbursement regime is ‘unsustainable’, but calls for a transition period to prevent a ‘damaging disruption’ in services and the market.

Get on with talks

It urges both sides to get on with talks on a substantive new contract, which it sees as a better alternative to the current interim arrangements which no one in the retail sector has signed up to, and if truth be told, will ever sign up to. But it also says that the revised fees it proposes are designed to drive the parties towards a new contract, while recognising the evolving market.

In short, the intent is to prompt efficiency gains, prod the parties to a new contract which carries its own price for those who can and are willing to deliver new clinical services, and to put the HSE in a position where it is not paying out any more than it now does for prescription drugs.

The chemists are likely to wait for the outcome of the High Court actions before showing their hand. I suspect, however, that most will be happy with a situation that leaves them pretty much where they are.