§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Sainsbury.]
11.57 pm§ Lord James Douglas-Hamilton (Edinburgh, West)I am advised that this subject is entirely competent to be raised as court proceedings were dropped yesterday morning.
The background is that retail pharmacists are provided with their medicines from pharmaceutical wholesalers. These medicines are issued on prescription, and later the prescription forms are sent to the Government pricing bureau where the value of the substances and the fees of the chemists are worked out. The sums are then paid to the chemists through the local health boards.
I understand that retail pharmacists in Scotland are under contract to local health boards and must be paid a sum that covers not only the purchase price of the medicines but the overhead costs and an agreed profit for each prescription.
After the abolition of resale price maintenance, discount competition began in a big way among the wholesalers, who tried to attract a greater share of the market. At the time, payments were made to the chemist at the manufacturer's list prices, and the Government noted that they were losing considerable sums previously paid to the Exchequer. They devised a scale of discount recoveries which were brought into operation so that sums paid to pharmacists to reimburse the ingredients were discounted by a percentage that bore some relationship to the value of the ingredients. The amount of discount for each chemist was roughly equivalent to the discount which he or she could obtain from the wholesalers.
Recently, I paid a courtesy call to the shops in my constituency, and the chemists forcibly impressed on me their indignation at the method used to recover the discount. After I made inquiries with the Pharmaceutical General Council, it emerged that the period of most concern is from 1 October 1980 to 31 July 1983.
This year, the Home and Health Department is asking for £2.5 million to be recovered by a surcharge. The remainder—about £4.7 million—is to be recovered by a reduced rate of surcharge over a longer period of 19 months from 1 January next year. Apparently the Scottish Home and Health Department is making no exception for pharmacies which opened after 1 August 1983, nor for new businesses which started during the period concerned, nor for businesses which changed hands during that period.
It has been suggested that it would be difficult and complex to ascertain which shops have been established, which were closed, which changed hands and which were taken over, and how much, if anything, would be payable in each case. Much of the work has already been done by the Pharmaceutical General Council, which has ascertained which shops were taken over, which changed names, which were established from scratch, which formed new partnerships, and so on.
The ground which has been given by the Minister's office for rejecting the pharmacists' case is given in a letter of 7 October:
This kind of situation has arisen in the past and is usually considered to be part of a swings and roundabouts situation where 961 new pharmacists have sometimes benefited, and sometimes lost, from adjustments to remuneration resulting from past outcomes and future predictions.The case of the Pharmaceutical General Council should be taken more seriously. It is that a scheme should be devised to recover funds from those in business at the time and those who could have been expected to earn discounts. It hopes that this will be considered more carefully.It may be correct that in the past some pharmacists have benefited or lost from adjustments in remuneration, but the case I put to the Minister and before the House is that there has never been such a massive adjustment as that suggested now. What makes the pharmacists feel particularly strongly about it is that the Department is trying to recover more than half the £4.7 million over five months during this year. On a previous occasion some three to four years ago when overpayments were made, measures were taken to reduce the level of the dispensing fee and on-cost payments so that the debt could be written off over two years. At that time it was soon realised that this was leading to an underpayment, so a supplementary adjustment was made after nine months.
In this case it would be fair for the Department to endeavour to recover funds only from pharmacists who were in business at the time. If the Government were to waive the debt for new pharmacists it would be unacceptable to the general council if such a debt were to be transferred to the general body of pharmacists.
As I mentioned earlier, there has been much discussion about the complexity of working out what the debt would be in each case. The Pharmaceutical General Council deserves to be congratulated on the work it has already done in completing an analysis of the changes which have occurred in ownership since 1 October 1980. The council has modern equipment with new computers and it would be possible to assess the individual debt for each chemist's shop in Scotland and itemise it on a month-to-month basis. This would be warmly welcomed by the chemists.
I should like to give two examples in which the Department has already found the resources and the will to deal with chemists individually when it suited its purpose. First, there was a case involving the chemists who supply oxygen gas and equipment. Some 250 of the 1,100 chemists' shops in Scotland supply oxygen gas. Retrospective payments involved a repricing of all oxygen prescriptions for 250 shops.
Of more importance was the second case; a massive amount of work was undertaken when there were allegations that Roche was making excess profits. So the company reduced its prices and the Department had to examine more than 8 million Scottish prescriptions for the period covering June, July and August 1973 to reprice Roche products. Individual accounts showing overpayment were made for each contractor. There can be no doubt that the Scottish Office coped with the examination of millions of prescriptions. It was a herculean task. Surely such an examination in the case before the House tonight would be far less herculean.
The crux of the matter is that the Pharmaceutical General Council estimates that the proportion of the £4.7 million debt that the Minister has been invited to write off in Scotland is about £450,000. If the Minister accedes to that request, new pharmacists opening after 31 July 1983 would be exempt from the surcharge, and those opening 962 or having changed hands between 1 October 1980 and 31 July 1983 would be responsible only for a debt in proportion to the length of time that they had been in business.
I appeal to the Minister to reconsider the matter, on the basis of common sense and equity, while bearing in mind that the Government believe strongly in supporting small new businesses. Surely if and when such measures must be put into effect they should be carried out with scrupulous fairness.
§ Mr. Deputy Speaker (Mr. Paul Dean)Order. I must protect the Adjournment debate of the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton). Do the hon. Members rising have the permission of the hon. Member for Edinburgh, West and the Minister to intervene?
§ Lord James Douglas-HamiltonThey do, Sir.
§ 12.7 am
§ Mr. Michael Forsyth (Stirling)I am grateful to my hon. Friend the Member for Edinburgh, West (Lord James Douglas-Hamilton) for allowing me to take part in the debate.
The measures proposed by the Minister raise serious questions of morality and fairness. They also pose a threat to chemists in rural areas. There is considerable concern that the clawback scheme has been introduced in Scotland without any inquiry into the levels of discounts being secured by chemists. Almost by the very nature of their business in Scotland, discounts are bound to be lower than in England. The businesses are, on the whole, small and deal with more sparsely distributed populations. The Pharmaceutical General Council in Scotland has estimated that the discounts are 0.6 per cent. less than in England. That alone would reduce the amount of claw back from the proposed £4.7 million to nearer £3 million.
Another worrying aspect of the scheme is the haste with which £2.5 million has been taken out of chemists' income in five nonths. That can have only a serious, if not disastrous, effect on the cash flow of many small businesses. The problem is compounded because their income is calculated on the value of the prescriptions with which they deal, which will consequently be reduced.
However, the most serious aspect is the unacceptable imposition of clawback on people who did not benefit from overpayment in the first place. In the past, where the reverse position has applied, every effort has been made by the Department to ensure that the repayments went to those who had been underpaid. Nothing was paid to newcomers then.
The impact on rural areas can only be severe. Villages are heavily dependent on local shops, and the chemist is a critical linchpin in local communities, especially with rural transport in decline. The very businesses that will be most vulnerable will be those with low turnovers and the least choice of wholesalers. Despite the sliding scale that has rightly been implemented, they will have to repay discounts that they have never received. I regret that the whole sorry scheme has the hallmark of something which, while it is perhaps just in its aspirations, pays little regard to the difficulties that it places on small businesses.
I am grateful for the opportunity to ask the Minister to think again, to establish a clawback after a proper attempt 963 to ascertain the real levels of discount that area being achieved in Scotland, and to reconsider the speed of implementation of the scheme and the speed with which the money is withdrawn. I ask him to throw out the proposals to penalise those who have started new businesses or have bought existing ones, and have never benefited. I understand that we are talking about 208 businesses in Scotland. It is not enough to argue that identifying those firms is complicated, so it cannot be done. After all, presumably, if the Pharmaceutical General Council can do it, so can the Scottish Office.
§ Mr. Michael Hirst (Strathkelvin and Bearsden)I have been prompted to make a short contribution to the debate by representations that I have received from eight constituents who feel aggrieved by the arrangements that the Scottish Home and Health Department has made to claw back discounts.
I support the Government entirely in their determination to make sure that the money spent on the Health Service is spent in the wisest way and to maximum advantage. I agree that the overpayment to the pharmacists should be recovered, but if they were underpaid I should make vigorous representations on their behalf.
I have three points to make. First, the level of the clawback will be based on the volume of prescriptions now being done. My constituents have represented to me that that adversely affects pharmacists whose businesses are expanding. I recognise that, to operate a slightly more fair system, one would need an elaborate bureaucracy. Therefore, that point must pass, although I am happy to make it.
Secondly, the level of clawback, at 7 per cent., is, in the view of at least three of my constituents, more than was received. I should be grateful if my hon. Friend the Minister could give me an assurance on that point. The matter that I find more difficult to overlook is the disadvantaged position of the pharmacists who have started up in business since October 1980 and have not traded either in or throughout the period from October 1980 to July 1983. I understand that the discount clawback is for a 34-month period.
If the Minister accepts the merit of fairness in this case, in order to avoid an elaborate bureaucratic system of making detailed calculations he should merely provide an abatement in direct proportion to the number of months that that pharmacist has not traded during the relevant period. The corollary of that is a small loss to the Scottish Home and Health Department in respect of pharmacists who have gone out of business or sold up during the period, but overall I think that we are talking about a fairly modest sum.
§ The Under-Secretary of State for Scotland (Mr. John MacKay)I am grateful to my hon. Friend the Member for Edinburgh, West (Lord James Douglas-Hamilton) for giving me the opportunity to deal with the subject of discounts on drugs.
The detailed arrangements for chemists' remuneration are complex, some would say too complex, but the basic concept is simple. Chemists have contracts with health boards to provide pharmaceutical services, and the aim of the contract is to reimburse to chemists their costs in providing the service and to provide an agreed level of 964 profit. The matters raised by my hon. Friend relate mainly to reimbursement of costs. That is the procedure to assess that the overall amount paid to chemists as a whole for drug costs is the same as the amount that they spent on buying the drugs.
Payment to chemists for reimbursement for drug costs is broadly based on manufacturers' list prices. However, chemists receive discounts, and it is those discounts that have caused the problems to which my hon. Friend directed our attention. This is not the first time that hon. Members have discussed this matter. The Public Accounts Committee looked at it in a report in May this year when it underlined the need to ensure that the system does not pay out more public money than it should.
Formal negotiations on chemists' remuneration are conducted on a Whitley basis under committee B of the Pharmaceutical Whitley Council. In recent years, most negotiations have been conducted on a more informal basis between the Pharmaceutical General Council (Scotland), representing the staff side, and officials of my Department.
In Scotland, the contractual arrangements for chemists provide for the payment of dispensing fees per prescription dispensed, presently 46p, and on-cost payments, paid as a percentage of the value of the drugs supplied, which together reflect both the costs incurred by chemists in providing the service, including labour costs for staff and overheads for costs for premises, and a negotiated allowance for profit margin. In addition to the above elements of remuneration, chemists are reimbursed the costs of drugs dispensed and the prescription pricing division of the Common Services Agency prices individual prescriptions accordingly. As part of these procedures, adjustments have had to be made, mainly to take account of discounts which have enabled chemists in general to purchase drugs at costs lower than the manufacturers' list prices.
It has always been regarded as impracticable to identify individually contractors' entitlement to remuneration. Details are obtained from periodic surveys of a representative sample of chemists shops of the average costs incurred by chemists in providing the NHS dispensing service and for the years between surveys the costs are updated in accordance with agreed conventions.
Chemists are also entitled to a negotiated level of profit, and since 1981 this has consisted of two elements: an interest cost element representing the amounts of interest the chemist is deemed to have incurred in funding his business; and a pure profit element. For each financial year a balance sheet is prepared that brings out on one side chemists' overall entitlement to remuneration, comprising labour costs, overhead costs and profit margins. The other side of the annual balance sheet brings out the actual payments made globally to all chemists, mainly dispensing fees and on-cost payments.
Because of the need to estimate likely volumes of prescriptions and costs of drugs to be dispensed, it is not practicable to keep the entitlement and payments sides of the remuneration balance sheet in line because of the complexity of the calculations. Inevitably underpayments or overpayments are identified, and appropriate adjustments are taken into account in the balance sheet assessments for later years.
As regards reimbursement of drug costs, the items dispensed on each prescription form are priced by the prescription pricing division generally in relation to drug 965 manufacturers' price lists or drug tariffs specified for certain commonly prescribed standard drugs. If the gross ingredient cost figure for the month exceeds £2,000, the chemist becomes liable to adjustment on account of discounts by applying the graduated discount scale which is referred to in paragraph 5 of the drug tariff 1981 and the net result is that a modified sum, the net ingredient cost, is arrived at for reimbursement to the chemist.
Discounts from wholesalers on the price of drugs in some form have existed for many years, with some minor recognition of the fact in the reimbursement arrangements, but the abolition of resale price maintenance as my hon. Friend the Member for Edinburgh, West said, led to an upward surge in 1978–79. When the independent Franks panel made its recommendations in England and Wales it recognised that there were uncovenanted profits elsewhere in the overall remuneration arrangements and that the position on escalation of discounts required to be considered.
As a result, during negotiations with the Scottish chemists' representatives on a revised approach to profit margins from 1 July 1980, it was agreed that revised discount arrangements also required to be applied from that date, and chemists knew about that. As regards the period from 1 October 1980, interim arrangements were agreed by the parties, with the details being subject to review in due course in the light of statistical survey work which it was recognised would be required in England and Wales and in Scotland. Subsequently, a revised interim discount scale averaging some 4.8 per cent. was applied as part of the prescription pricing procedures from 1 July 1981. Both parties to the negotiations recognised that there had been insufficient allowance for discounts in earlier periods from 1 October 1980 and made what was then considered appropriate provision as part of the overall remuneration arrangements. The actual rates to different contractors depend on the band size into which contractors fall, on the basis that the larger the chemist the bigger the discounts.
Following the Franks panel negotiations in 1980 and 1981, it was hoped that the discounts inquiry to take place in England and Wales could provide a sufficiently realistic interim assessment of the likely level of discounts in Scotland, thereby limiting the scope of the additional survey work necessary in Scotland, and so it was agreed that the figures of discount arrived at in England and Wales should be used in Scotland until the Scottish position could be considered. The English inquiry has taken a long time.
As I mentioned, the Public Accounts Committee looked at the whole question earlier this year. In its 10th report to the House, ordered to be printed on 27 April 1983, the PAC made certain observations in paragraphs 34 and 35 and while I will not quote the whole text, I draw the attention of hon. Members to some of the comments. The PAC said in paragraph 34:
We must express great concern that chemists in England and Wales should have been so slow to co-operate in an enquiry which has the straightforward objective of ensuring that—to be fair both to them and the taxpayer—they are reimbursed no more than the actual cost of the drugs they dispense …We look for the early recovery of any over-reimbursement since 1 October 1980.In paragraph 35 the committee said:We note the long-held right of Scottish chemists to negotiate their remuneration separately with the Scottish Home and Health 966 Department …Should the present rates be shown to have been too low, it may mean that over-reimbursements have been accumulating for perhaps three years. While we expect the Scottish Home and Health Department to act on such of those points we make above as are relevant to Scotland, we look to them in particular to secure the prompt recovery of any sums shown to be due from chemists.
§ Mr. Churchill (Davyhulme)rose——
§ Mr. MacKayI must get on.
The English discount inquiry eventually came up with some conclusions, though these are not yet final. It was therefore possible in August of this year for us to arrive at an average discount figure of 6.5 per cent., to be applied in the usual way to monthly ingredient cost figures. This yet again is an interim figure depending on what still emerges from the English inquiry and on what more we need to do in Scotland.
At the same time as the 6.5 per cent. was agreed, we had to face up to the question of the earlier interim discounts as requested by the Public Accounts Committee. We arrived at a provisional figure of £4.7 million in respect of the estimated value of discounts which had not been taken fully into account in the drug pricing and remuneration procedures in earlier years.
Negotiations on means to correct those earlier over-reimbursements of drug purchase costs took place. As a result, there was proposed an additional surcharge averaging 3.4 per cent. in respect of prescriptions for the months of August, September, October, November and December of this year. The remainder would be found by a modified surcharge, to be agreed in due course, for the following 19 months.
§ Mr. James Wallace (Orkney and Shetland)Will the Minister give way?
§ Mr. MacKayI come to the problem of new chemists. They feel, as has been clearly represented, that it is unfair to expect them to pay back 3.4 per cent. for five months when they may not have been in business for the whole, or indeed any, of the period for which the discount has been calculated.
It might be argued that any person buying an existing chemist's business since 1980 would have taken into account the discount situation, which was well known. That argument could even apply to anyone setting up a new business. I appreciate that the chemists do not accept that argument and I have accepted their offer to provide information from their computer about the scale and nature of the problem of new chemists who have set up in business since 1980.
As hon. Members will know, the Pharmaceutical General Council (Scotland) applied to the Court of Session for an interim interdict in effect to stop the 3.4 per cent. surcharge, and in the light of that application I felt that the best course was to undertake not to apply the surcharge of 3.4 per cent. to the forthcoming payments in respect of the September and October prescriptions. The Council has dropped its application for an interim interdict and agrees that negotiations should again commence. The House will appreciate that I do not want to say anything now that will make the negotiations more difficult. I assure my hon. Friends that my officials will be approaching the negotiations constructively, and I am sure that the Pharmaceutical General Council will do likewise, to see if we can arrive at some agreed solution on how to pay the money back, as the Public Accounts Committee clearly 967 outlined we have a duty to do, to the House and the public, on whose behalf we spend the money. Equally, we must take into account that we are prepared to deal with this, and especially the problems of new premises during the negotiations. It would not serve much purpose to examine the forthcoming negotiations during this debate.
There are some possibilities of a new contract being considered by my colleagues in England and Wales. We would be interested in any developments. I am sure that the Scottish chemists will be looking to what is provided so that the present difficulties are solved to our general satisfaction. At present, we have complex arrangements which have worked quite well for many years. With good will, I believe that they can be made to work in the present difficulties. Anyone who has visited the prescription pricing division of the Common Services Agency and seen the mammoth task that goes on, month after month, to reimburse the chemists promptly will appreciate this difficult and complex operation.
If there are discount prices which differ from the manufacturers' list prices, we must try to be fair to the 968 chemists—that is reasonable—and to the taxpayer. I assure the House that willingness exists on my part and that of my officials to reach an agreed solution with the Pharmaceutical General Council. I am sure that the same willingness exists on the part of the Pharmaceutical General Council because it knows what the Public Accounts Committee has said and it does not want to be taking more from the taxpayer any more than I wish to be giving more to the chemists.
That is the difficult position in which we find ourselves. I am happy to give my hon. Friends the assurance that we shall enter these negotiations in the hope that we can find a reasonable solution which will clear up this matter and remove some of the ill-feelings that, I admit, I have detected in the correspondence that I have had with some of my hon. Friends, from their constituents and front some of my constituents.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-six minutes past Twelve o'clock.