Summary of 2009/10 Funding Agreement

(For information on the 2008/09 agreement click here)

The Process for Calculating Funding Changes

A vital element in the new contractual framework was the 'Formula for Future Years', which is designed to ensure that annual adjustments to contract funding maintain the value of the contract. The components that inform annual adjustments (formula uplift) are:

• The GDP deflator, the Government's measure for underlying inflation;
• Increases in dispensing volume, at marginal cost;
• Increases in staff salaries in excess of the GDP deflator levels; and
• An efficiency assumption, which assumes some ability to make efficiencies and is consistent with efficiency targets applied throughout the public sector including the NHS as a whole.

In addition to the above, adjustments to the sums are also made to reflect costs necessitated by significant additional regulatory burdens on contractors, for example changes in NHS requirements imposed on pharmacy contractors that have resulted in additional costs. Regulatory burdens are assessed on a retrospective basis.

Consideration is also given to the levels of retained buying profit and any other factors, for example compensation in light of PPD underpayments.

2009/10 Funding Agreement

Total contractor funding has increased to £2,318m.

Formula uplift

The formula uplift recognises volume growth at marginal cost, general and staff cost inflation, and an efficiency discount imposed by the DH. This generated an increase in core funding of £87m. This is comparable with previous years.

Regulatory burden

The regulatory burden component compensates contractors for the costs of increased activity arising from changes in regulations. The increase for 2009/10 included funding for:

Costs associated with CIP;

Changes to CD regulations;

EPS system upgrade costs;

NPSA Alerts on anti-cancer and opioid;

Quota shortages;

ICO model publication scheme.

The regulatory burden component of the annual uplift formula has added £15m to core funding. Uplifts of £25.5, £17m and £9m have been agreed in the previous three years.

Retained buying profit

The joint 2008/09 survey into retained buying profits has been completed, providing information on the actual buying profit available in 2008/09. As part of the contract funding arrangements, it was agreed that £500m would remain in retained purchase margin through generics and other purchases. PSNC works jointly with the Department of Health to monitor and ensure the availability of the guaranteed £500m purchase profit. This is measured and monitored using regular inquiries into the actual purchase prices paid by independent pharmacy contractors.

The Survey is used to support the reconciliation of funding for the last financial year and to estimate on-going levels of buying profit. The survey showed that actual purchase profit levels were exceeding the target level and as a consequence, pending the results of the margins survey for 2009/10, Category M prices will be reduced by 20m per quarter which equates to approximately 9p per item. This change is intended to ensure that in the second half of this financial year, only the agreed levels of purchase profit income are available to contractors.

Copies of the Category M reimbursement price lists can be found in the National Contract Funding Section of the site.

Changes in Fees and Allowances

*Using the results of the joint PSNC/DH survey into retained buying profit, it has been estimated that there was an excess of £40m purchase profit earned against target levels in the first half of 2009/10. This figure has been used in considering funding levels for the second half of the year but is provisional pending the outcome of the 2009/10 retained buying profit survey.

An excess of £270m purchase margin was identified. It was agreed that £125m of excess purchase profit would be retained by community pharmacy for the provision of one-off infrastructure costs, including preparing for EPS Release 2, Information Governance, and business continuity planning, to sustain the effective delivery of community pharmacy services. An additional £65m of excess purchase profit will remain on account. The remaining £80m will be treates as excess. 

There is no change to the fee levels of the dispensing fee, additional fees, repeat dispensing payment, transitional payment and EPS Allowances. The arrangements for the following fees and allowances will change with effect from 1^st October 2009:

Establishment Payments

The level of the Establishment Payment remains unchanged however there has been an increase in the payment thresholds of 3%.

More detailed information on Establishment Payments can be found in Part VIA of the Drug Tariff.

Practice Payments

The threshold to receive the Practice Payment, other than a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Acts has risen by 3% to 2240 items per month.

For contractors dispensing over 2240 items per month, the Practice Payment for the top level will remain at 70.9p per item.

More detailed information on Practice Payments can be found in Part VIA of the Drug Tariff.

Funding Frequently Asked Questions

Are the Department of Health clawing back excess purchase profit earned in the first half of the year?

From the results of the 2008/09 survey into retained buying profit, it was estimated that purchase profit levels were exceeding the target level by £20m per quarter in the first half of 2009/10. This figure is provisional pending the outcome of the 2009/10 retained buying profit survey.

Also to ensure that in the second half of this financial year, only the agreed levels of purchase profit income are available to contractors (i.e. £125m per quarter), Category M prices are being reduced by £20m per quarter which equates to approximately 9p per item.

It was also agreed that £125m of excess purchase profit would be retained by community pharmacy for the provision of one-off infrastructure costs, including preparing for EPS Release 2, Information Governance, and business continuity planning, to sustain the effective delivery of community pharmacy services. An additional £65m of excess purchase profit will remain on account.

When will the funding changes begin to affect my payments from NHS Prescription Services?

The changes to the funding arrangements will take effect for prescriptions dispensed from 1st October 2009. Prescriptions dispensed in October must be submitted to the PPD for pricing before the 5th of November. Contractors will receive an advance payment for October's prescriptions in early December. In early January 2010, once the NHSBSA Prescription pricing Division has completed the pricing of October's prescriptions, the remaining balance will be paid. The payment that will be made to contractors in early January will be the first payment to reflect the new payment levels.