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Pharmacy funding cuts

Why legal action is not the solution to funding cuts

As pharmacy contractors in England suffer budget cuts and their leaders instigate legal action, Northern Ireland pharmacy contractor Terry Maguire argues why this might not be a good idea and what English contractors might learn from their Celtic cousins.

Illustration of three people sweeping a bunch of leaves on a very windy day

Source: Maria Hergueta

Eye-watering funding cuts of £170m to community pharmacies in England, which equates to 6% of the community pharmacy budget, were announced in December 2015 by the Department of Health.

The cuts, which were put in place from December 2016[1], work out as a reduction in income of about 15% per contractor. Consequently, many contractors fear their businesses may no longer be viable and are seeking action. And so, in November 2016, the Pharmaceutical Services Negotiating Committee (PSNC) — which negotiates the community pharmacy contract on behalf of contractors in England and Wales — applied to the High Court for a judicial review of the decision to implement the cuts, on the grounds that it believes that Jeremy Hunt, the secretary of state for health, failed to carry out a lawful consultation on the proposals[2]. The National Pharmacy Association (NPA), which represents independent pharmacies, launched a second judicial review shortly after[3].

It is understandable why such drastic cuts would instigate fear, anxiety, anger and potential hostility among pharmacists, as seen from the reactions of leading pharmacy organisations and through some of the correspondence in The Pharmaceutical Journal. All contractors, but especially those in small, independent pharmacies, understandably feel vulnerable, isolated and powerless. However, from our own experience in Northern Ireland, it is questionable whether costly legal action against the government is the best solution.

The Northern Ireland situation

Contractors in Northern Ireland experienced a cut in remuneration of about 10% in 2010–2011 when there was an imposition of the English Drug Tariff prices on Northern Ireland. Community Pharmacy Northern Ireland (CPNI) — which represents community pharmacy contractors in negotiations on services, the pharmacy contract and remuneration and reimbursement — forecast that 10% of businesses would close. It was painful, but somehow we survived. We are all still here and no pharmacies closed as a direct result of those cuts.

Faced with such a serious challenge to contractors’ livelihoods, there were a number of things that could be done to mitigate the disaster of closure, including cutting business costs, garnering public support, going on strike, taking legal action and getting back to the negotiating table.

With legal proceedings in process and hearings set for March 2017, this is where the action for contractors in England is. Solicitors believe legal action is justified and have come up with a proposition that the cuts are unlawful. Legal opinion claims grounds for a judicial review based on the fact that: there was a lack of genuine consultation; the government has ignored what is considered a “fair and reasonable” return for contractors; there was a lack of an evidence base for pushing hub-and-spoke dispensing models; and the cuts are an inappropriate tool for delivering the right number of pharmacies in the right places[4].

In Northern Ireland, our experience with judicial reviews has been a mixture of pleasure and pain

Perhaps many in pharmacy will view launching a legal challenge, given the severity of the cuts, a reasonable option. I strongly disagree.

In Northern Ireland, our experience with judicial reviews has been a mixture of pleasure and pain, yet, in the end, some seven years after we started down the legal route, we are meekly back at the negotiating table and are soon to have a new settlement agreed while paying a hefty undisclosed legal bill (estimated to be up to half a million pounds) for which we got no benefit.

A legal challenge through judicial review must be made on specific objective issues and no doubt the PSNC and NPA’s legal teams will have clearly defined these in setting out their cases. In Northern Ireland, our first judicial review[5] found that the Department of Health, Social Services and Public Safety (DHSSPS) failed to comply with its statutory duty to publish a fit-for-purpose Drug Tariff, which details the amount paid to pharmacy contractors for NHS services including both reimbursement and remuneration. We were delighted with this finding because struggling businesses got significant reimbursement of monies cut from the budget over some three years. However, the DHSSPS simply implemented a process to remedy its legal deficiencies. It published a Northern Ireland Drug Tariff and began to extract the monies again. This led to the second judicial review[6] where CPNI claimed only a cost-of-service inquiry (CoSI) on the sector would provide the data to establish “fair and reasonable” payment for running a pharmacy service. CPNI claimed, with some justification — and the judge agreed — that the DHSSPS had “failed in its basic duty to acquaint itself with relevant information … and that it has not collected the basic economic facts it needed to inform its decisions”. However the judge did not direct DHSSPS to repay contractors.

This ruling was appealed both by DHSSPS and CPNI (both parties had different aspects of the ruling that they did not agree with) and, before the appeal was heard in December 2012, the parties signed an agreement that the DHSSPS would provide interim payments to contractors for two years on a non-recurrent basis until completion of a CoSI by October 2013. The CoSI was to “adopt a collaborative approach” between pharmacy negotiators and the DHSSPS.

Everything seemed to have been agreed and was going well. But then the DHSSPS failed to complete the CoSI over the following three years and CPNI sought continuation of the annual interim payment. The DHSSPS refused. Cue the third judicial review[7].

A year on from initiating judicial review number three, judge Seamus Tracy ruled that the DHSSPS was not wrong when it decided not to pay the interim payment in year three of the second judicial review agreement even though a CoSI, which would establish the true costs of providing a pharmacy service, had not been completed. CPNI claimed that the lack of “collaboration” by DHSSPS was the problem, but the judge did not agree.

The judge believed there was no evidence that DHSSPS failed to provide “fair and reasonable” remuneration. In Northern Ireland, retained purchase profit (RPP) — the profit pharmacies can earn on dispensing drugs through cost-effective purchasing — would provide £16.5m to contractors but margin surveys showed that, for the years in dispute (2011/2012 and 2012/2013), the margins were £27.75m and £32.6m, respectively, and was expected to be £28m for 2013/2014. So CPNI lost in the third judicial review, was handed a large legal bill (over a quarter of a million pounds including the DHSSPS legal costs) and contractors have spent the past year trying to mend fences and move to a new negotiated arrangement. We still need to address pharmaceutical needs — the number of contracts for our population — and we will be brought round to that soon enough.

The government will eventually get its way… A judicial challenge is no substitute for reponsible negotiations

There has been a lack of strategic engagement between the DHSSPS and CPNI. The contractor body has resisted setting a vision and strategy for innovation and development of the pharmacy service and network. Most discussions are based exclusively on the DHSSPS deciding on something and CPNI reacting to it. This confrontational approach only produces flawed short-term arrangements. There is also a risk that the DHSSPS might start to negotiate with other bodies (say, a large multiple pharmacy chain) if the relationship with CPNI continues to break down.

I have personally opposed the use of judicial reviews as a means of progressing the interests of community pharmacy and remain to be convinced of their merit. Even if one might win a judicial review, in the long-term, government, acting in the public interest as it will always claim, will eventually get its way. A judicial challenge, therefore, is no substitute for proper and responsible negotiations.

Sue Sharpe, chief executive of the PSNC, says she has “reached the end of the road” with the Department of Health[8]. If this is truly the case then the PSNC, as a negotiator on behalf of pharmacy contractors, is in real trouble. The future value of pharmacy — which includes community pharmacy — is clinical and the government is committed to achieving this with a rebalance in funding from our medicines supply function. Unless we align our long-term visions for our businesses with that of the government, the network will suffer as clinical pharmacy services, and the remuneration associated with them, shift to other venues such as GP surgeries.

It is difficult for most contractors to accept this but our insistence on fighting for a status quo position — which pharmacists in England have essentially done for more than 30 years despite a new contract in 2005 — will only create crisis after crisis such as the current challenge.

Other options need to be considered.

Alternative solutions

Cutting business costs, particularly those associated with delivering patient services, should be a last resort. But we have reached that stage so it has to be done. Contractors will need to ensure that every pound of business cost is justified. This will be a painful but essential task. At my pharmacy, we avoided cutting staff – natural wastage helped (two members of staff left and we did not replace them) — but we aggressively reduced insurance and energy costs and focused on maximising profits from other sources, such as smoking cessation and minor ailment services, and community projects paid from community development funding or public health purses. This was difficult. We had to ask why we provided services that no doubt benefit patients but are not commissioned and merely reflect competitive pressures. Monitored dosage systems and prescription collection and delivery services spring to mind. At our pharmacy, we began charging new patients who wanted monitored dosage systems. I have also heard of contractors who stopped offering a delivery service.

Most pharmacists do a great job and patients and customers know it, which means politicians should, in theory, also appreciate us. The NPA and the PSNC, using their network, ran a highly effective public relations campaign and this will bring benefits now and in the future. This needs to continue and not lose momentum because, unfortunately, pharmacy is competing with other healthcare sectors and beyond to fight against funding cuts.

The option of strikes is difficult because contractors are competitors. Sharpe has conceded that the PSNC is unable to drive strike action[9] and she is right. Pharmacists in the Republic of Ireland chose strike action in 2009[10] in response to significant government cuts of 34%. The strike lasted 11 days before government threatened legal action against contractors for failing to provide a service. After 11 days ranks broke and the strike collapsed with little public sympathy. It was a disastrous strategy.

As much as I want to wish the PSNC and the NPA well in their judicial reviews, the result will only, at best, postpone what is inevitable: that is the need for real and meaningful negotiations with the government about the development of a fit-for-purpose pharmacy network.

Terry Maguire is director of Northern Pharmacies Ltd and director of T A Maguire Ltd.

Declaration of interest: Terry Maguire is a trustee of Ulster Chemists Association, a trade body that looks after the interests of community pharmacist contractors in Northern Ireland.

Citation: The Pharmaceutical Journal DOI: 10.1211/PJ.2017.20202386

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