Further liberalisation of pharmacy services

On 18 August 2004, the Department of Health (DOH) announced new rules on the location of pharmacies (the New Rules). According to the DOH, the New Rules will ensure that "patients will find new pharmacies easier to get to, open longer and [offer] a wider range of services locally". Similar rules are to be introduced for appliance contractors.

Those wishing to provide NHS pharmacy services or expand their offering should therefore find that some obstacles have been removed from their path.

The New Rules were prompted by an Office of Fair Trading (OFT) report into restrictions to entry into the pharmacy sector. Under the new system, applications to provide NHS pharmacy services will be subject to criteria of "competition and choice". In addition, four classes of application will be automatically exempted from certain regulatory requirements where the proposed pharmacy offers a full and prescribed range of services.

However, the New Rules have not gone as far as the OFT's report recommended. The OFT has stated "We regret that the Government has now decided on even less liberalisation for the time being, but we look forward to the further review of the rules in 2006".

Though pharmacies can already be opened anywhere under the existing rules, pharmacies wishing to dispense NHS prescriptions must apply to local Primary Care Trusts ("PCTs") for a "contract". The House of Commons Health Committee found that "…approximately 80% of the turnover of an average pharmacy tends to originate from NHS prescriptions [and that therefore] regulation of NHS contracts in practice amounts to full regulation of market entry".

The current "control of entry" rules are contained in the National Health Service (Pharmaceutical Services) Regulations 1992. The present application process for a contract requires a PCT to satisfy itself that a pharmacy is "necessary" or "desirable" for a particular neighbourhood. In practice the House of Commons Health Committee considered that contracts for new pharmacies are not normally granted "…if the area has one or more pharmacies catering adequately for local needs". As PCTs are obliged to take into account the views of existing contractors (plus those of other interested parties) experience has shown that established pharmacies often aim to block the granting of new contracts in their locality. In addition, any re-location to new premises from the originally contracted ones triggers a requirement for a fresh application to be made if these are more than few hundred yards distant, this means that existing contractors can face difficulties expanding or improving pharmacy premises as a move further afield or across PCT borders to suitable new premises can risk losing the contract altogether.

The New Rules announced by the DOH liberalise the sector. Though a regulatory control of entry test is to be retained the New Rules will provide that applications to provide NHS pharmacy services will be subject to new criteria of "competition and choice" as part of the control of entry test (no detail has been provided to date). These will be introduced via secondary legislation. In addition, four classes of application will be automatically exempted from the new control of entry test where the proposed pharmacy offers a full and prescribed range of services determined locally (in relation to the first 3 classes of exempted application) and nationally for the last category. The exempted classes of application are where the proposed pharmacy:

• is located in a shopping centre over 15,000 square metres in size, provided this is not in a town centre; or
• is part of a new one-stop primary care centre set up by a consortium, provided the care centre offers a wide range of primary care and community-based services in addition to the usual GP services and serves a substantial population (18,000-20,000 patients); or
• is wholly internet or mail-order based; or
• commits to opening for more than 100 hours per week.

A further automatic exemption will be introduced for all minor relocations up to 500m, including those across PCT-boundaries, in the absence of good cause to refuse such an application.

Amongst other changes, the appeals system is also to be reformed. Also primary legislation is being considered to enable reasonable (not full) costs of dealing with applications to be recovered.

The New Rules will take effect once secondary legislation has been passed to implement them. It is planned that the New Rules be introduced together with the proposed new contractual framework for community pharmacy which is currently under negotiation and which is likely to be structured around three, hierarchical categories of pharmacy services (essential, enhanced and advanced) which will therefore need to be harmonised with the new control of entry criteria and the ranges of services which will be required from exempt applicants. It is hoped the New Rules will be introduced in the later part of 2004.

Changes to assessment of applications for NHS pharmacy services were put on the table by a 2003 report from the Office of Fair Trading (OFT) into entry restrictions in the industry, although the Government's New Rules have not gone as far as the OFT recommended.

The OFT report found that the restrictions in place on how and where NHS prescriptions may be dispensed had restricted competition in the pharmacy sector. The OFT recommended deregulating the sector by abolishing these restrictions.

The Government announced reform of the UK pharmacy sector in July 2003, which was described as moving "cautiously in the direction recommended by the OFT". It proposed retaining regulatory control, distinguishing between the healthcare sector and other market sectors by pointing to the need to for PCTs to retain the ability to plan delivery of healthcare across all parts of the community. The government, however, recognised a need to introduce more flexibility into the current system.

Community pharmacists and pharmacy chains, patients, the public and other interested parties such as supermarkets were consulted on the proposed reform. Their views (with the exception of those of the supermarkets) appear to have resulted in the New Rules being slightly less liberal than originally planned (e.g. pharmacies in large shopping centres in town centres were originally to have benefited from automatic approvals but these have now been restricted to shopping centres which are out-of-town or out-of-centre).

The OFT has stated "We regret that the Government has now decided on even less liberalisation for the time being, but we look forward to the further review of the rules in 2006".

Click here for the DOH announcement.

Click here the 2003 OFT report. This will open a PDF in a new window.

For more information on this area, please contact Shuna Mason at [email protected] or on + 44 (0) 20 7367 2300, Dr Christopher Hodges at [email protected] or on +44 (0) 20 7367 2738 or David Marks at [email protected] or on + 44 (0) 20 7367 2136.