Special report: Time for a bit of joined-up thinking?

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Pharmacy owners listed medicines supply as one of their top three worries in the Community Pharmacy England (CPE) 2024 Pharmacy Pressures Survey. Virtually all pharmacies said they encountered supply issues every week and 79 per cent of pharmacy team members reported that patient health was at risk.

Medicines purchasing was given as one of the two biggest drivers of cost increases for pharmacies, with financial losses being incurred due to inflated prices or insufficient reimbursement. CPE says it received approximately 90,000 pharmacy reports per month in 2024 of medicines purchased at more than Drug Tariff listed prices.

Patient groups, trade associations and professional bodies – from Healthwatch England to the Association of the British Pharmaceutical Industry and the Royal Pharmaceutical Society – have produced lengthy reports on aspects of the situation over the past 12 months.

The Company Chemists’ Association (CCA) joined the pack last month, with the blunt assessment that “UK Government policies and decision making has led to a ‘perfect storm’ creating a level of shortages not seen before”. Like others, the CCA describes pricing policies that are failing industry, the NHS and patients.

Clear message

The consistent message that emerges is that low prices for medicines, as a consequence of Government pricing schemes, has made the UK a less attractive market for manufacturers and therefore not a priority for supply.

For the generics sector, which makes up 80 per cent of NHS prescribed medicines, a lack of Government support coupled with Brexit-related issues have seen a decline in UK manufacturing. 

These factors contribute to domestic shortages and, as demand outstrips supply, prices soar.    

Pharmacies are unable to buy at Drug Tariff prices and pricing concessions eventually kick in, causing huge overspends to the NHS. Where medicines can be sourced, the 30 per cent of NHS funding that is delivered through retained medicines margin has evaporated, helping to create the financial black hole into which so many pharmacies have fallen.

Mike Dent, CPE director of pharmacy funding, says: “Community pharmacies work hard to procure medicines cost effectively, but volatility in pricing and availability continues to have a detrimental effect on this important part of their role. Significant increases in dispensing volume and pricing issues mean retained margin is spread much more thinly, further intensifying existing financial challenges that pharmacies are facing and effectively forcing them to subsidise the NHS medicines bill.

“That is why it was so important for us to secure Government commitments to review medicine margin distribution as part of the CPCF 2024/25 and 2025/26 settlement. These reforms are all steps in the right direction towards addressing medicines supply issues.”

Writing off a £193m historic margin overspend and increasing the margin allowance by £100m to £900m, as agreed in the recent CPCF settlement, might help contractors for now. But it is the commitment to review margin distribution that is more likely to produce a longer-term solution. 

Sorting out pharmacy’s issues with the supply chain is only one end of the problem. The core issue facing the UK market is that medicines are a commodity, traded on a global market. If UK prices are unattractive or regulatory barriers exist, supply is unlikely to meet demand, causing shortages and surges in price.

Manufacturer problems

Problems on the manufacturing side are also contributing to shortages. An ABPI report published in March warned that the current VPAG scheme for branded medicines is in crisis because of the extremely high payment rate (on NHS sales paid back to Government) imposed on companies. 

In December 2024, the Government announced that the newer medicine payment rate for 2025 would increase from the predicted 15.9 per cent of revenues to 23.5 per cent. “Companies have made it clear that these rates make the UK uninvestable from a global perspective and will, if unchanged, also damage new medicines launches,” the report says.

The generics sector feels equally unloved. 

Generic medicines make up 80 per cent of NHS prescribed medicines, yet generics manufacturing in the UK is in decline, threatening the security of supply from a home market. There is also a “lack of visibility of accessible, long-term grant funding, which means investment decisions cannot factor in UK Government support with any confidence,” says the British Generic Manufacturers Association (BGMA).

And then there is Brexit. The absence of EU recognition of UK decisions on medicines licensing and batch testing is a “critical disincentive to invest in UK manufacturing”, says the BGMA. 

The UK recognises batch testing done on EU soil but not vice versa. This means that medicines manufactured and tested in the UK have to be tested again in the EU, costing time and money.

There are, of course, other issues at play, and the Royal Pharmaceutical Society (RPS) has pulled the various strands together in its recent report Medicines Shortages: Solutions for Empty Shelves.

RPS recommendations 

The RPS report makes 20 recommendations, among which are:

• The Government should boost UK medicines manufacturing infrastructure, particularly generic manufacturing, which offers the potential for a more rapid response from manufacturers to help mitigate acute national medicines shortages
• Flexibility in medicines regulations to speed up access should be explored with the MHRA
• The community pharmacy contract should be reviewed to ensure that it minimises the risk of contractors incurring potential loss on the purchase of medicines 
• Licence holders should work with the DHSC to find ways to improve the reporting of medicines shortages and the provision of information to help mitigate shortages 
• The NHS, manufacturers and wholesalers should collaborate to share data that enable them to better predict demand for products 
• Information cascades about medicines shortages should be expanded from the DHSC to the wider healthcare system and involve patient groups
• The DHSC/NHS Medicines Supply Tool should be developed into a single source of accessible, consistent, accurate and rapidly updated information about medicines shortages  
• Wholesaler and pharmacy IT systems should be developed to provide resupply dates for medicines out of stock and help pharmacists more rapidly distinguish short-term supply disruptions from national shortages 
• Cross-sector emergency protocols for life-critical medicines where patients have no alternative treatment should be developed
• Supply chain resilience measures and management of lead times should be considered when awarding secondary care contracts.

The solution for many of the issues highlighted lies within the remit of the Department of Health. Is it time for a bit of joined-up thinking?

Penny-pinching costs the taxpayer 

Trying to save pennies on the cost of medicines is costing UK taxpayers pounds, says the Company Chemists’ Association (CCA) in its report on the impact of Government pricing policies on medicines shortages.

Prices have been squeezed so much that the UK market is no longer attractive to many suppliers, the CCA says. “Ultra-low prices” lead to medicines shortages and “as demand outstrips supply, prices soar, causing a huge overspend to the NHS”, it says.

The CCA is calling for an end to the “false economy” of the Government’s medicines pricing policy. It wants a review of prices set for medicines so that the UK can compete effectively in the global market and “ensure the correct incentives are in place to encourage cost- effective procurement”. The Association also argues that many shortages are not caused by unforeseeable events in the global supply chain but by the continued squeeze on Drug Tariff prices.

Unsustainable

Medicines represent the second highest proportion of NHS spend at £20.6bn in England in the 2023-2024 financial year, according the DHSC figures. The annual cost of medicines dispensed by community pharmacies grew to £9.5bn in 2023/24, says the NHSBSA. Advances in medicines and a growing and ageing population are some of the factors contributing to this.

“Most of the medicines used in the UK are imported from around the world,” says the CCA. While some shortages are caused by global supply chains, the Association says: “UK Government policies and decision making has led to a ‘perfect storm’, creating a level of shortages not seen before.”

Turning to pharmacy purchase of medicines, the CCA points out that the core value of retained margin has remained static since 2014 – despite a nearly 14 per cent rise in the number of medicines dispensed by community pharmacies. “The amount of margin now available per medicine is 12 per cent less than it was a decade ago,” says the CCA. “This is before inflationary growth in pricing and costs are considered. Accounting for inflation and increased volume of medicines, 
retained margin had a shortfall of £357m (45 per cent) in 2023/24 alone.”

The retained margin mechanism incentivises community pharmacies to buy medicines at the lowest possible price for the NHS, the CCA points out, and pharmacies save the NHS on average £750m each year by efficient procurement. “This model of procurement can only work if there is the headroom to cut prices,” the report continues. “If a medicine’s price reaches a point where bringing it to the UK market risks a financial loss, the UK risks becoming unattractive. At this point, the model comes under too much pressure and it is not possible to deliver savings to the NHS.

“Drug Tariff prices are now so low that other national markets are being prioritised for supply ahead of the UK. This directly impacts the availability of medicines for the NHS, and patients’ access to medicines.”

Market forces mean that a shortage of a medicine leads to increases in the price. This often means that the Drug Tariff price is much lower than the price set by market forces. The number of medicines being dispensed at a loss to pharmacies has reached a point of being unsustainable, the CCA says.

Price concessions

The number of price concessions has grown significantly in recent years, says the CCA. In 2014/15, there were 195. By 2023/24, there were 1,640.

Price concessions can work for limited numbers of shortages that don’t last for long, acknowledges the CCA, but there are now hundreds of medicines on price concessions that can last for months on end. 

“It is becoming apparent that many shortages seen in the UK market are not caused by unforeseeable events happening elsewhere in the global supply chain. The shortages are created by the continued squeeze on Drug Tariff prices,” says the CCA.

The Association uses the example of ezetimibe to illustrate the financial burden of cost concessions. Ezetimibe 10mg tablets cost the NHS the greatest amount of money in price concessions during the first four months of 2024, even though a relatively low number of patients receive them. “Open Prescribing has estimated the cost of ezetimibe 10mg tablets to the NHS during this period as over £19m,” says the CCA. “This is eight times the normal value, meaning price concessions for just one drug added additional costs to the NHS of almost £17m in just four months.”

The CCA report also looks at the consequences of cutting the Tariff price of atorvastatin 20mg tablets. Between January 2022 and April 2023, the Government reduced the rate it paid for 28 x 20mg tablets from an average of £1.27 to £0.92, the CCA says. At least one major manufacturer stopped selling to the UK during this time, which led to a market shortage followed by a price concession. 

“Reducing the price of atorvastatin by an average of 35p per pack (just over 27 per cent) saved the NHS £7.2m over 16 months. However, it cost an additional £24.5m during the eight-month price concession period,” says the CCA.