Let me speak plainly. Branded manufacturers are themselves being squeezed by the government putting downward pressure on drug costs via PPRS, which is about to be renegotiated, and by the requirements of their shareholders.

It is becoming plain that many want to share the pain and are looking to cut the amount of money in the supply chain through reducing the discount traditionally given to wholesalers, whether it be the DTP or existing wholesale route, in order to obtain a sustained cost reduction.

But this may only be a short term gain.

Wholesalers operate on wafer-thin margins, and at some stage, they will be forced to choose between making service cuts or passing these discount cuts down the supply chain to contractors. 

Service reductions could be disastrous for contractors, particularly when they are implementing the new pharmacy contract and the e-pharmacy revolution.

If wholesalers are seen as a soft target then perhaps it shows a refusal to accept the value of the UK wholesaler, even though it is known to be one of the most efficient wholesale sectors in the EU? That efficiency includes a highly accurate twice-daily delivery, IT and marketing support and help for independents. It also includes added-value services to hospital pharmacists taking on more clinical work.

If this model comes under financial pressure, it starves the funds that provide such services and can inflict long-term, irreversible damage on the supply chain. So, if service cannot be compromised, and wholesalers’ costs are mounting while income is shrinking, then the wholesaler is forced to share some of the discount cuts with contractors and re-appraise their trading terms with them.

So this squeeze of supply chain profits could just end up costing contractors. When that happens someone has to make up the shortfall – and that someone could be the manufacturers themselves.

Retail pharmacists have already lost discounts from the Pfizer DTP scheme. If they lose further discounts from other manufacturers, it may unpin the funding agreement between the government and pharmacy contractors in England and Wales, and out-of-pocket pharmacists will demand that the government make up the difference.

With no money in the NHS pot to do that, the government could consider cutting the drugs bill, and look at its upcoming review of the PPRS to address the balance. 

AAH wants to work with manufacturers to deliver a more robust, secure supply chain that also meets the needs of pharmacy customers and dispensing doctors.  We don’t wish to compromise any part of the supply chain. The government is actively seeking to gain better value for money for the NHS and pharmacy can play a key role in this; but the contribution of full line wholesalers must not be underestimated and the value that they deliver shouldn’t be compromised by the law of unintended consequences.

See also: CLICK