HL Deb 19 June 1985 vol 465 cc347-58

8.40 p.m.

Lord Harris of High Cross rose to ask Her Majesty's Government how they justify the proposed agreement with the Pharmaceutical Services Negotiating Committee, which includes the limitation of entry by dispensing chemists into the retail market.

The noble Lord said: My Lords, I beg leave to ask the Unstarred Question standing in my name on the Order Paper. I wish to raise an apparently small but fundamental issue of threatened public policy which has only recently been revealed and which I believe calls for urgent consideration if the Government are to avoid the risk of bringing themselves into some degree of ridicule.

Since the National Health Service was established in 1948, and even before, successive Governments have offered a contract for dispensing prescriptions to all chemists' shops staffed by a qualified pharmacist. The standard contract specifies the terms and conditions on which pharmacists dispense and are reimbursed on a cost-plus basis. Because of the popularity of free drugs, the average independent pharmacist now relies on National Health Service dispensing for 70 per cent. of his income.

A well-equipped pharmacy obviously incurs high fixed costs, which are not a commercial proposition for a typical chemist's shop handling less than around 16,000 prescriptions a year. To attract pharmacists into less populous areas, the Department of Health offers all smaller contractors a higher rate of reimbursement per item and, for some, a further supplement as what is called, "an essential pharmacy practice fee".

On the other hand, in more populous areas competition for prescription business often attracts additional chemists, especially where they can find premises nearer to a doctor's surgery than the incumbents. This is a process condemned in the trade as "leap-frogging". The result may be to fragment business between two or more shops, thereby threatening their commercial viability. To discourage this development the Department of Health and Social Security awards one incumbent in each such area what is called a "basic practice allowance".

In May last year the latest round of discussions for a new contract opened between the department and the Pharmaceutical Services Negotiating Committee. This committee comprises 25 chemist contractors in England and Wales, of which 15 are elected from local pharmaceutical committees in each National Health Service region and 10 are nominated to represent the Company Chemists' Association, the National Pharmaceutical Association and the Co-operative Wholesale Society.

It was widely understood that the negotiations would this time include ways of encouraging a more rational location of pharmacies to serve the public, not only in dispensing but also with home medicines and advice on lesser ailments, thereby relieving pressure on doctors' surgeries. Accordingly, all six of the leading pharmaceutical associations signed a joint statement unanimously agreeing ways of achieving a more rational location of pharmaceutical services by means of what were called "financial incentives and disincentives".

This key document offered six suggestions. First among them was an increase in the basic practice allowance; second, separate payment for the time spent on advisory services; third, payment for relinquishing a National Health Service contract where a small pharmacy was not cost-effective; fourth, payment of an initial practice allowance for a pharmacist opening more than two kilometres from another where what was called "a pharmaceutical need" existed; fifth, the essential small pharmacy scheme, to be supplemented by a relocation allowance, where a pharmacy would move to what was called "a more appropriate and cost-effective position"; and, finally, what was called "an additional pharmacist allowance" to be paid when a specified number of prescriptions—say, 24,000 a year—made it necessary to employ a second pharmacist.

As an economist, I strongly approve of the central assertion of this joint statement, which reads as follows: If financial incentives were implemented, a better distribution of pharmacies would result, with an improved advisory service in adequately-staffed premises. It would also avoid an increase in unit costs, except in those areas where there is an overriding need for a service and for a subsidy to be paid". My fundamental complaint is that this promising approach to a voluntary accommodation was thrown overboard by the Minister in favour of a nakedly coercive policy repugnant to free citizens in an open society.

It appears that in January the agents of the Minister went into secret session with the Pharmaceutical Services Negotiating Committee, whose 25 members were forbidden to refer back to the people they were supposed to represent. The outcome was revealed on 14th May in the form of a package deal on a take-it-or-leave-it basis that included the totally unprecedented proposal for controlling entry to the National Health Service pharmaceutical list.

In future, any pharmacist wishing to set up in business would have to satisfy a sub-committee of the local family practitioner committee that his shop satisfied the condition that it was "necessary or desirable". This hanging committee of seven persons would include three local pharmacists, three non-pharmacist members of the family practitioner committee and an independent chairman. There would be an appeal to a neighbouring FPC but not to the Secretary of State.

The best debating reply from the Government side might be that they are not stopping people from opening chemists' shops but are simply withholding National Health Service dispensing contracts from new entrants. Yet, as I have pointed out, the average retail chemist relies for 70 per cent. of his income on his NHS dispensing. To take a somewhat far-fetched example, if the Government monopolised the supply of meat as they have come to monopolise the supply of prescription medicines, it would not be persuasive for them to argue that anyone may set up as a butcher but could not rely on getting any supplies of Government meat.

This major mischief in the draft agreement was in no way redeemed by the addition of more sensible financial inducements, including the abandonment of the higher rate of payment to smaller chemists and a redundancy scheme to encourage smaller pharmacies to shut up shop unless they were judged "essential", in which case they would be guaranteed an income on the basis that they were dispensing 16,000 prescriptions a year.

The piffling prize won by the Minister's proposal for combining maximum coercion with minimum incentives is a paltry £4 million, half of which he has already promised to pharmacists as a sweetener for selling the pass of open entry. All this for a doubtful net saving of perhaps £2 million on a bill for dispensing alone now running at around £500 million!

This wretched agreement is to be put to a conference of 300 delegates of the local pharmaceutical committees this coming Sunday. Since a restriction on newcomers would confer a monopoly value on existing pharmacists, it would not be wholly surprising if it secured a majority vote, despite the declared opposition of the Company Chemists' Association.

This agreement would, over time, fossilise the existing pattern of pharmacies and freeze out young pharmacists wishing to set up shop, thereby encouraging the concentration of ownership by large multiples. General economic analysis is confirmed by the example of France that the effective licensing of chemists shops will operate against the consumer interest by raising the prices of a wide range of goods sold by chemists. My central objection to this proposed deal is that the Minister is blatantly offering to rig the market and deny qualified pharmacists the right to pursue their chosen career, all to achieve a better distribution of pharmacies which the DHSS acknowledged in a private paper last January, could, in theory and in practice, be effected through the mechanism of the remuneration structure alone".

I believe that there is all the difference in the world between offering smaller pharmacies less favourable terms and slamming the door in their faces, as the Government propose. On my reckoning the draft agreement represents a shabby breach of faith by the department, which raised the new issue of control over entry, and insisted that those with whom it negotiated should not consult the organisations they were supposed to represent. Here is Her Majesty's Government encouraging the worse kind of trade union malpractice in pursuit of a closed shop, by secret discussions with so-called "representatives" who have no mandate to commit their principals. Even if this proposed contract is supported by a majority of the 300 pharmacists at their conference on Sunday, they are not entitled to sign away the birthright of thousands of qualified and trainee pharmacists to open a business at any time in the future, in the light of their own judgment of the prevailing financial incentives and risks.

What is proposed is certainly a violation of common equity and a restraint of trade, and it may yet be challenged in the courts as ultra vires, or on procedural irregularities, or on more serious grounds. Equally plainly, the creation of a chemists' cartel is in the sharpest possible contradiction to the Government's expressed support for competition, as evidenced by their attack on the opticians' monopoly and currently by the deregulation of buses.

In conclusion, I must with some misgivings ask the noble Baroness, how can a Government who have won widespread public support for ending control over the opening hours of shops possibly contemplate this revolutionary innovation which would empower local committees, on a subjective assessment of what is "necessary" or "desirable", to prevent a pharmacist setting up in his chosen business and simply seeking to cater for the changing needs and every day convenience of his neighbours?

8.53 p.m.

The Countess of Mar

My Lords, the noble Baroness, Lady Trumpington, may be highly amused to find that I am entirely in accord with her tonight. I can think of no other form of business in this country which is subsidised to the tune of 70 per cent. by Her Majesty's Government. The pharmacy business is about the only example that I can think of.

In areas of low population, rural areas, there are already dispensing doctors—and here I must declare an interest in that I am a patron of the Dispensing Doctors Association, though I receive no financial remuneration, and it is purely a titular honour—who dispense prescriptions at a far lower rate than do pharmacists, and there is no need to increase the number of small pharmacies. I agree with Her Majesty's Government in their proposals to reduce the number of small, so-called essential pharmacies.

8.54 p.m.

Lord Ennals

My Lords, I am sorry to trouble the noble Baroness again. She has had a hard day and she will have another hard few minutes. I am most grateful to the noble Lord, Lord Harris of High Cross, for raising this issue. It was virtually unknown. The Minister involved in the negotiations with the Pharmaceutical Services Negotiating Committee had a year of consultations which he described as necessarily confidential. We do not understand why they should have been necessarily confidential at all, except that there would have been an outburst of anger if it had been known what he was up to.

The Minister has now cobbled together a wretched agreement to control the entry of new pharmacies to the National Health dispensing list. Here I disagree, first, with what was said by the noble Countess and, secondly, with the noble Lord, Lord Harris, concerning the method of payment. We have a narrow professional interest which has, unhappily, coincided with a ministerial interest—the saving of £4 million, though I think it eventually comes down to £2 million and perhaps the noble Baroness will advise me on that. It will result in a proposal which will instantly serve significantly to inhibit the setting up of a new pharmacy business and to stop in their professional tracks those medium sized companies which are dynamic, expanding and entrepreneurial. I use those words because they appear to relate to the philosophy that the present Government preach, though in this case they are not practising it at all.

It is proposed that the family practitioner sub-committees should meet to consider whether any new dispensing contract is necessary, or desirable, in a locality. If not, any pharmacist will be virtually precluded from practising his chosen profession, private dispensing being so very small—unless the whole purpose of this is to try to make private dispensing much larger than it is and make it more difficult for people to obtain their prescriptions because of the distance they may have to travel. I find that not only an absolute contradiction of what I understood to be Government policy, but extraordinary in every way.

I wish to ask the Minister a number of questions. Why has the DHSS now decided to cut back on the number of pharmacies? I believe it will cause a great deal of hardship to people in small towns and large villages who have a considerable distance to travel to obtain the prescriptions which their doctors believe they need. I well remember that my experience in 1976 was exactly the opposite. The Pharmaceutical Society and the PSNC were concerned, as I was, that there were too many closures and the number of pharmacies was steadily declining. This was causing problems in the smaller towns and villages. I was particularly anxious to put no obstacle in the way of patients being able to get to a pharmacy as conveniently as they could. Therefore, the first action I took was to change the system of payments to help the small pharmacies. This meant that those small pharmacies which dealt with only a few thousand prescriptions would get more per prescription than those very large pharmacies which were able to survive and did a very much larger business with toiletries and all the rest. This immediately had an effect on the rundown on the number of pharmacies. It saved a number of small pharmacies which would otherwise had gone bankrupt.

I had a letter from my own dispensing chemist just two days ago. Mr. Michael Franks, of 3A Swains Lane, Highgate, wrote to me: I feel I must bring to your attention the plight of the smaller dispensing chemist. When you were in power you devised a 'Robin Hood' scheme for the benefit of the smaller contractor. The Government and the PSNC have now proposed a new method of payment, whereby the smaller contractor will be penalised for the benefit of the larger contractors, plus a saving of £2 million for the Government. The problem for the smaller contractor is that one doesn't have time to get involved in 'Pharmacy Politics' "— I do not blame them— and so we have no members on the PSNC". In his view, therefore, the PSNC very largely represents those who are larger than the small pharmacists about whom we are talking. He goes on to say: very few of the LPC delegates who will be voting on the new contract on June 23rd are small contractors". I ask the Minister why the DHSS has now decided to cut back on the number of pharmacists. Why has the DHSS decided that it will penalise small pharmacists by changing the method of payment to their disadvantage? The next question is: how much will be saved by this dirty little deal? What is the reason for this new scheme? Why have they dreamed it up? If they were dreaming it up, why did they dream it up so quietly? Why did they not at that stage enable people to know what was taking place?

Further, is it true that £2 million of the £4 million saved will be handed back? Who will get the £2 million? Will it go to the richer boys or will it go to the small people with whom I am most concerned? The next question is: is it not likely that this will lead to an increase in costs and therefore to the disadvantage of the patients, with whom we are all concerned? I ask the question as to how many jobs will be lost. Quite clearly, it will be a significant number. I think it is estimated that as a result of this new agreement about 1,000 pharmacies will be abolished. How many jobs will be lost? It will not only be the pharmacists, it will also be those who are operating the pharmacy stores, selling other goods there. I want to know roughly how many.

The public will have fewer sources of effective home medicine and of informed advice on health matters in areas away from doctors' surgeries. There is a greater, not a lesser, need for these services. I feel very strongly that the pharmacist has a very important role in the National Health Service in being able to give advice, especially now that the limited list iniquity has been introduced.

The owners of the assistants in any independent or multiple pharmacy close to a doctor's surgery are less likely to worry too much about service, let alone service with a smile, when there is no fear of competition, which this proposal will ensure. I can quite understand that large pharmacies will be very happy to get rid of any competition. However, not only do I personally think this is wrong but, as the noble Lord, Lord Harris, says, it seems absolutely to fly in the face of the philosophy of this Government. If one must have permission to open a pharmacy, why not insist that permission is needed to open a bakery, a greengrocery or a butcher's shop, and then we might as well be living in Eastern Europe, not in the supposedly democratic West. I just find it so extraordinary.

The DHSS says that it wants, quite rightly, to encourage the role of the retail pharmacist as a health care profession, assisting the consumer to select particular medicines and to reduce the burden of the NHS to the taxpayer. I am all for that. This proposal will lead to a diminution in the number of locations and therefore less encouragement to self-medication. It will negate the DHSS's intent and result in additional cost to the Government for primary health care.

My final question is a long one. I want to know who has been consulted in the hatching up of this deal, which will be put to the vote on 23rd June. As soon as I saw that the noble Lord was raising this Unstarred Question I started to make inquiries. I should like the noble Baroness to say whether the Pharmaceutical Society has been consulted. One should have thought that the society most closely involved, except for the PSNC, would have been consulted. I believe that I can give the answer to that one, and so the noble Baroness need not even trouble to reply; it was not consulted.

What about other organisations? What about the British Medical Association? What about the ABPI? When talking to a number of pharmaceutical manufacturers I told them something they did not know; namely, that they were to have fewer outlets for their products. Damn it all! The Government have done enough damage to the pharmaceutical industry with their limited list. I do not see why they should now pick on the industry again.

What kind of consumer interests were involved in the discussions? Was the Patients Association brought in? After all, it is patients about whom we are mainly concerned. What about the National Association of Health Authorities? Was it involved? What about the family practitioner committees? They must have been involved in some way, because they are to be given a very special role of deciding whether or not a pharmacist should be allowed to practise in a certain place.

What about bodies such as Age Concern, or MIND, the National Association for Mental Health? What about the National Association of Community Health Councils? Even if the noble Baroness does not touch on every single one of these, I hope she will say what has been the process of consultation and what has been the effect. If she or her noble friend insists on going ahead with this proposal, they should then put it out to consultation.

We have already had one debate this evening about the Government's failure to give adequate time for consultation. Unless the noble Baroness is able to reassure me, I shall be left with the feeling that there has not been any consultation at all. Of course, I always recognise the possibility of my being wrong and it being so proven by the noble Baroness. What I have suggested is that if there has not been consultation there should now be a period of several months for consultation. If there has been consultation, then a document should be published giving the views of the organisations that have been consulted.

9.6 p.m.

Baroness Trumpington

My Lords, I see on my brief that I am meant to thank the noble Lord, Lord Harris of High Cross, for bringing this debate before your Lordships. Of course, I do so unreservedly. Let me make the position quite plain. Some noble Lords detect an inconsistency between our proposals for the pharmacists' contracts and our policy elsewhere on deregulation.

I welcome the words of the noble Countess, Lady Mar. However, I must point out, as I do to both the other noble Lords, that in fact we are not proposing to prevent any member of any retail trade from developing that retail trade as he or she sees fit. We all know that a pharmacy transacts much other retail business, as well as dispensing prescriptions. In considering whether to establish a pharmacy in any particular location the owner will of course consider all the opportunities available and will exercise his commercial judgment. That is how it should be and that is how it will remain. The Government know—

Lord Ennals

My Lords, I am most grateful to the noble Baroness. Does she mean therefore that a pharmacist cannot practise his profession as a pharmacist and deal with NHS prescriptions but that he can sell lotions, make-up and such? Have the Government decided that only a certain number of places will be allowed to prescribe NHS prescriptions? Many of them depend on this.

Baroness Trumpington

My Lords. I would ask the noble Lord to wait for me to make my speech.

Lord Ennals

So sorry, my Lords.

Baroness Trumpington

My Lords, the Government do not intend to play big brother with regard to private enterprises. Contributors to this debate have suggested that the market could safely be left to take care of such matters as the number of NHS pharmacies, and no regulation of any kind was necessary. The noble Lord, Lord Harris, knows that I am sympathetic to that point of view myself. But a free market in the true sense is not operating here, and so the comparison is not valid.

The patient, as consumer of NHS pharmaceutical services, does not purchase those services at the market price. He pays either nothing at all or the standard prescription charge. Ordinary market forces are conspicuous by their absence, and price does not therefore operate to produce the volume of provision the market can bear. The public as taxpayers are left to underwrite whatever cost is incurred by however many pharmacies choose to set up in business.

As noble Lords will know, this Government are committed to ensuring that the money the taxpayer provides for NHS services is used to best advantage. This is a consideration we cannot ignore. What cannot be right is that a commercial judgment should provide free, unfettered access to public funds. We cannot agree that every pharmacy should automatically be given a National Health Service contract quite regardless of any service need. What we are proposing is that the decision to admit a new pharmacy to the National Health Service contract should have regard to whether the local population, the patients, need the additional service which would be provided.

When the occasion of this debate provided me with the opportunity to learn more about the provision of pharmaceutical services, I was astonished to discover that, except in rural areas, any owner of a pharmacy could obtain a National Health Service contract on demand provided only that the premises were registered by the Pharamaceutical Society and that a registered pharmacist was in charge. This has clearly produced some situations where the need is over-supplied. In one part of London there are 21 pharmacies within one square mile. In another London FPC area there is, on average, one pharmacy every 200 yards.

Because we have a cost-plus contract with pharmacies, each additional pharmacy adds to the burden the taxpayer must bear. Under the present arrangements, that burden is £370 million in payments to pharmacies. In circumstances where there is already a sufficient, or even excessive, number of pharmacies, awarding additional contracts to yet more pharmacies would add nothing to the NHS service provided. This is a wasteful use of public money. A remedy for this situation was one of our objectives in renegotiating the contract with the PSNC. Noble Lords, especially the noble Lord, Lord Ennals, will know well the composition of the PSNC. It has been long established and long recognised as the body representative of all pharmacies in contract with the NHS. Its constitution provides for all pharmacy groups to be represented—big contractors and small contractors.

The plan agreed with the PSNC—and we were informed the PSNC had approved it unanimously—is that any application to be admitted to the NHS list should be considered in the light of the needs of the local people. That decision should be a local one. Family Practitioner Committees, who are aware of local needs, are charged with the responsibility of planning local primary care services, and decisions on the numbers of pharmacies supplying NHS needs would fall squarely within that remit. We shall ensure that they exercise those judgments flexibly.

Local judgments will be made in the light of national guidelines and local plans for the development of services. Those guidelines have not yet been drafted. When we do draft them we shall of course take into account the observations made in tonight's debate. We have already undertaken to consult fully with the PSNC, the PSGB and FPC representatives. I can, however, give an assurance to this House that the guidelines will make it plain that we expect FPCs to respond flexibly to local circumstances. The guidelines will be consumer based and the pattern of pharmaceutical services must reflect changing patterns of patient need. Matters such as relocation of premises must be seen in this context. We are not at all interested in producing a rigid pattern of service.

The odd situations I have already described demonstrate well that the totally free access to the NHS contract as it stands is not producing a match between supply and demand. We are proposing that a better match between supply and demand should be achieved by other means. The position of small pharmacies has attracted much comment. We are interested in small pharmacies for a number of reasons. As in any other line of business, small pharmacies have high unit costs. It is therefore eminently sensible to discourage their excessive participation in the NHS contract.

The present remuneration structure positively encourages their establishment. For the future we shall not cover the high costs of pharmacies with low NHS turnover. In consequence, some owners may decide that they wish to relinquish the NHS contract. Note that I say, "relinquish the NHS contract"; I do not say, "close down the business". That decision is entirely the contractor's own. It must be remembered that some businesses which are small in terms of NHS pharmacy business may be big, diverse and profitable operations, and they may choose to continue. We are taking no steps to prevent them. On the other hand, we understand that there are some contractors "locked in" to unprofitable businesses which are difficult to sell and who will welcome an opportunity to leave. We think the proposal to make payments to anyone who wishes to relinquish the contract is only reasonable and would be particularly advantageous to people in this position. There is no compulsion. Contractors will find themselves in many different commercial and personal circumstances and they will make their own decisions accordingly.

There are only about 1,400 small pharmacies anyway. This turns recent reports of thousands of pharmacies disappearing into a gross exaggeration. Of that 1,400, some are essential small pharmacies already; others may well qualify as essential small pharmacies; others may amalgamate. That is their business. I cannot possibly accept figures of 2,000 or 3,000 closures.

We recognise the need to support essential small pharmacies in, for example, rural areas to ensure the continuity of service to patients there. Our proposals on this score are attracting much less attention. An essential small pharmacy will be much better off. It will receive a guaranteed minimum income to ensure its continuing viability. I do not notice many complaints about interference in the free market in this instance.

Although contributions to this debate have concentrated on control of entry, that is only one element of a large package. I should like briefly to touch on one or two other points. I have already mentioned the improved support for essential small pharmacies. The Government remain committed to ensuring that the best use is made of pharmacists' skills to the greater benefit of the public. The Nuffield inquiry into pharmacy will report at the end of this year and that will offer advice on how the community pharmacy's role might be enhanced or extended. We shall enter into immediate discussions with the profession when that report is received. This new contract will provide some funds to help implement any such extension or enhancement of the pharmacist's role, and provides a solid foundation for that future role.

The noble Lord, Lord Ennals, asked me how much would be saved. The answer is £4 million per annum, half of which will be returned to the profession to finance any extension of the pharmacist's role, agreed after discussion of the Nuffield report. With regard to the fact that 70 per cent. of an average pharmacist's income comes from the NHS, I accept that that is the average position. Although these figures disguise wide variations, for some the percentage is close to 100 per cent., but for others it can be as low as 3 per cent. Nevertheless, I cannot accept that the available National Health Service work should be spread across an unnecessarily large number of pharmacies to the detriment of the public purse.

The noble Lord, Lord Harris of High Cross, was worried about the secrecy of negotiations and the lack of consultation. In fact, both noble Lords raised these questions. I think that it is usual for negotiations of this kind to be kept confidential to the negotiating parties until firm proposals have been reached. Community pharmacists have been represented in the negotiations by the PSNC, which includes among its membership representatives of the major pharmaceutical organisations. The representatives of these organisations therefore had the opportunity to comment during the course of the negotiations when the proposals, which now form part of the Government's final offer, were being discussed. The decision to discuss the final offer and to seek acceptance of it at the LPC conference on 23rd June was made by the PSNC. The Government do not wish to steamroller the profession into accepting the proposals and have set no deadline for receiving a response.

I find the analogy of the noble Lord, Lord Harris of High Cross, with the butcher quite extraordinary. There is no similarity between NHS contracts and butchers buying meat. The noble Lord, Lord Harris, asked whether the same effects could have been achieved with financial incentives and disincentives. In the course of long negotiations a wide range of possibilities have been discussed, including relying on financial incentives alone. The final package which has emerged represents the combination of measures which the parties agree represent the best and most feasible way forward. I can assure the noble Lord that the ferocious final penalties needed to prevent unnecessary contracts would produce a great many closures.

Another question asked by the noble Lord concerned proposals to remove or restrict opportunities for pharmacists to pursue their profession. It would be illogical to argue that just because someone has an appropriate qualification he is entitled to be supported in that profession at public expense. Nor is community pharmacy the only branch of the profession. There is also hospital pharmacy, industry, the private sector and education.

How many pharmacies, asked the noble Lord, Lord Ennals, will be closed as a result of the new contract? No pharmacies will be forced to relinquish the NHS contract, and there are no target figures for closures. I could go on, but I think it would be counter-productive.

I contend that these proposals are eminently sensible. As always, the needs of the patients will be paramount. Small pharmacies will be supported where they are essential. New pharmacies will have an NHS contract where there is a need for them. We expect any reduction in pharmacy numbers to contribute to a reduction in the present oversupply from an NHS point of view. Patient services will be maintained. The taxpayer will secure a more cost-effective provision of those services. What this all amounts to is that any prospective owner of a business may open wherever he chooses. If he wishes to have an NHS contract he must consider a little more carefully the NHS needs.

House adjourned at twenty-one minutes past nine o'clock.