Home National Contract Funding
The funding for the national NHS community pharmacy contractual framework is re-negotiated on an annual basis. The total funding agreed for England for 2008/09 is £2,231m.
Available funding can be characterised in three ways: central funding, funding recharged to PCTs and retained buying profit. Central funding consists of the Global Sum covering Item Fees, Establishment Payments, the Repeat Dispensing Annual Payment, Transitional Payments and Additional Fees. Funding recharged to PCTs covers Practice Payments including a contribution for provision of auxiliary aids for people eligible under the Disability Discrimination Act 1995 (DDA), payments for the Advanced services and IT payments.
For brief guides to pharmacy funding and economics, click on the links below:
PSNC's brief guide to community pharmacy economics
PSNC's brief guide to community pharmacy funding
How is the Funding Calculated?
PSNC established and maintains a comprehensive evidence base to support contract funding. The initial cost inquiry was undertaken in July 2003, using a statistically representative sample of pharmacies. In addition to the cost inquiry detailed modelling was undertaken of the new services to ensure they were fully costed. Leading consultants were used to assess the return on investment community pharmacies needed. Costs and returns are based on independent pharmacies.
Each year, adjustments to the funding arrangements are negotiated to maintain the value of the contract. This is done using the agreed 'formula for future years'. Click on the link below for more information on both the original cost inquiry and on the annual funding uplifts:
The Calculation of Contract Funding
What are the current funding levels?
Total pharmacy contractor funding increased to £2,231m for the period 2008/09.
The table below provides a summary of the funding for 2008/09 (England):
| £ | |
| Fees and Allowances | £1,648m |
| Agreed Buying profit | £500m |
|
*Excess Buying profit earned |
£65m |
| Pre-Registration training | £18m |
| Total | £2,231m |
*Using the results of the joint PSNC/DH survey into retained buying profit, it has been estimated that there was an excess of £65m purchase profit earned against target levels in the first half of 2008/09. This figure has been used in considering funding levels for the second half of the year but is provisional pending the outcome of the 2008/09 retained buying profit survey
Click on the link below for a summary of the changes to the funding arrangements in October 2008.
You can also click here to see a chronological summary of key funding changes which may affect pharmacy contractor's payments.
Information regarding the Community Pharmacy Contractual Framework Funding 2008/09 including the letter sent to PCTs by the Department outlining recent changes can be found on the Primary Care Contracting website.
Indicative Income Tables
Indicative Income Tables (based on April 2009 Arrangements) (PDF)
Indicative Income Tables (based on October 2008 Arrangements) (PDF)
Indicative Income Tables (based on January 2008 Arrangements) (PDF)
Indicative Income Tables (based on October 2007 Arrangements) (PDF)
NB: As the funding arrangements change mid-year, these Indicative Income Tables illustrate Indicative Income at a particular point in the year.
How is the Funding Distributed? Payment, Fees and Allowances
Click on the links below for more information on the various sources of funding:
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Funding for Essential Services Including Establishment Payments, Practice Payments, Transitional Payments, the Repeat Dispensing Annual Payment and Fees |
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Including MUR limits |
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Drug Tariff Category M: How it Works |
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ETP Allowances |
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Pre-registration Training Grant |
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PSNC negotiated a number of measures to support pharmacies that are dispensing low volumes of prescriptions. In addition there have been changes made to the ESPS Scheme: |
How does PSNC Ensure the Agreed Funding is Delivered?
Central funding and funding re-charged to PCTs is monitored at a national level by PSNC to ensure that all income due to community pharmacy has been paid out.
As part of the Contract funding arrangements, it was agreed that £500m would remain in retained purchase margin through generics and other purchases. As discussed above PSNC is continuing to work closely with the DH 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. This monitoring is vital to ensure that this source of funding is and continues to be available.
Topical Issues Linked to Funding
Click on the links below for more information on current issues linked to pharmacy funding:
Recent Distribution Changes by UK Medicine Suppliers
General Resources
April 2005 CPN: Special Issue on 2005/6 Funding (PDF File)September 2006 CPN: Special Issue on 2006/7 Funding (PDF File)
The Historical Context of Community Pharmacy Funding
Drug Tariff Resource Centre
Drug Tariff Online
Frequently asked questions
Why is the supplementary 30.2p per item being added to the Practice Payment from October 2008 to March 2009?
The level of practice payment for the remainder of the current financial year takes into account the lower levels paid during the first half of the financial year. The increased rate is calculated to deliver the total agreed funding for 2008/09 by the end of the year.
Are the Department of Health clawing back excess purchase profit earned in the first half of the year?
From the results of the 2007/08 survey into retained buying profit, it was estimated that purchase profit levels were exceeding the target level by 32.5m per quarter in the first half of 2008/09. This figure has been used in considering the Practice Payment levels for the second half of the year but is provisional pending the outcome of the 2008/09 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 32.5m per quarter which equates to approximately 16p per item.
When will the funding increase reach me?
The changes to the funding arrangements will take effect for prescriptions dispensed from 1st October 2008. 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. This is normally an 80% advance; however as the advance payment will be calculated based on the AIV of September's prescriptions and the national AIV is expected to rise in October, the advance payment made is likely to be less than 80% of the total payment for October's prescriptions. In early January 2009, 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.
Detailed information on the funding timetable can be found on the PSNC Website.
Does my VAT liability increase in-line with the increase in Practice Payments from October 2008?
Previously 10% of the Practice Payment was deemed by HMRC to be subject to VAT. This reflected specific sums that were paid to contractors via the Practice Payment covering the disposal of unwanted medicines and signposting. The increase in the Practice Payment from October 2008 represents increased funding to cover the cost of dispensing medicines which is zero rated. Revised guidance on how the Practice Payment should be apportioned will be published on the PSNC website shortly.
Will money be allocated to PCTs for the commissioning of Enhanced Services?
No specific funds have been made available to PCTs for commissioning Enhanced Services. LPCs will need to make a case for services to be funded from the PCTs budget.
I have heard that some payments are made through PCTs. Is this correct, and if so, is it not vulnerable to curtailment/delay by the PCT?
The payments under the national contract for Essential and Advanced Services are specified in the Drug Tariff and made by the Business Services Authority, Prescription Pricing Division. As long as pharmacy contractors are providing the service in line with the national requirements PCTs do not have a say over whether they are paid or not.
How is pharmacy income determined including the annual uplifts in funding?
Guidance on this can be found in the 'calculation of contract funding' page.
What is the Transitional Payment?
PSNC agrees with the Department of Health the level of fees and allowances that are appropriate given budget levels and underlying market factors such as item growth. One Global Sum fee introduced by the new contract was the Transition Payment. This is a volume related fee. In July 2007, the level of this fee was reduced because if this corrective action had not been taken, there would have been a significant over-spend on the Global Sum element of funding. This is because the growth of the Global Sum (based on the GDP deflator) was far less than predicted item growth. This change ensured that the dispensing fee remained at 90p per item. This change did not affect total funding only the timing of its distribution.
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