DHSC introduces new discount deduction system for community pharmacy


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The Department of Health and Social Care (DHSC) has introduced new arrangements for the application of discount deduction to community pharmacy payments which will be implemented in six financial quarters beginning in October 2022 and concluding in January 2024.

Under the new discount deduction system, the current single scale will be split into three groups: one each for generic medicines, branded medicines, and appliances. Separate fixed deduction rates have been determined for each group.

This will provide all pharmacies the same rates of deduction applied to their reimbursement for the three different groups, regardless of the total value of that reimbursement.

Fin McCaul, PSNC member and independent community pharmacy contractor, said: “The discount deduction scale has been a point of contention for contractors for many years, and PSNC has long been pushing to remedy this.

“The incoming changes are designed to both improve equity of access to margin and manage the distortions presented by branded medicines, which just don’t have the same level of discount available as generics.

“Analysis undertaken by DHSC and PSNC has determined that these changes will achieve fairer access to medicine margin across the community pharmacy sector.

“The existing single deduction scale has a slope, ranging from 5.63 per cent at the low end up to 11.5 per cent at the high end. This means that in the existing system, pharmacies with lower monthly reimbursement experience a lower rate of deduction and pharmacies with higher monthly reimbursement experience a higher rate.

However, in the new system being implemented, there will be fixed rates for each group, rather than sloping scales,” said PSNC.

New system vs old system

PSNC explained: “The new system was calibrated such that the overall amount of deduction applied to pharmacy payments would be the same as the existing system, on the national scale. However, at the individual pharmacy level, many pharmacies will experience a change in the amount of deduction they experience. This is by design.”

“A problem with the existing single deduction scale is that it effectively treats all reimbursement the same, not recognising that a pharmacy’s ‘dispensing mix’ of branded and generic medicines has a significant impact on the amount of discount they actually receive. As the new system splits medicines into groups, the dispensing mix of each pharmacy will now directly impact how much deduction they experience, resulting in a fairer level of deduction for all pharmacies.”

Implementation in six financial quarter

The new system will not be implemented fully at a one go. There will be a transition to the new system over six financial quarters, beginning in October 2022 and concluding in January 2024.

“This means the new system will be fully implemented in January 2024. For dispensing months that occur during the transition, the NHS Business Services Authority (NHSBSA) will calculate two deduction values for each pharmacy for each month. The first calculation will be based on the current existing system, and the second calculation will be based on the new system,” PSNC said.

“To determine the final amount of deduction that is applied to pharmacies’ payments during the transition, the NHSBSA will apply a weighting to both the calculated totals. The weighting will increase in favour of the new system as we progress towards January 2024.”

The weightings applied for each quarter up to January 2024 are shown below:

Prior to Oct 2022 Oct-2022 to Dec-2022 Jan-2023 to Mar-2023 Apr-2023 to Jun-2023 Jul-2023 to Sep-2023 Oct-2023 to Dec-2023 Jan-2024 onwards
Old system weight 100% 85% 70% 50% 30% 15% 0%
New system weight 0% 15% 30% 50% 70% 85% 100%




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