You are here: Letters and Comment Response » Can I reduce my Category M losses?
This week a member wrote:
In view of the price cut to Cat M drugs , is there any sense in trying to reduce our stock of Cat M drugs in the hope that purchase prices of drugs, whose tariff price has fallen , will also fall in October or do we simply have to take the pain? Any other tips to try and reduce the losses?
There are many questions in this brief letter.
It is always a good idea to have as low stock levels as possible, whilst ensuring that you have sufficient supplies to ensure patients get their medications.
Will prices fall?
If reimbursement prices are definitely going to fall, factory gate and wholesaler prices may also fall in the following month. However one has to ask how much slack is left in the system? In previous years, falls in the drug tariff saw purchase prices fall. This is no longer the case. In fact some products that have fallen in the October category M are already rising.
The market can be very volatile and unpredictable. You cannot presume that purchase prices will fall in October.
What is really important is for FP10s from September do not get held back for any reason and sent at the end of October as you will receive less reimbursement.
Growth in items dispensed
We are purchasing in a downward spiral. The purchase profit is fixed at £500m each year.
Item volume is increasing by 5% year on year. If growth was constant 5% since the introduction of category M in 2005 we would now be dispensing 22.5% more product in 2009 than in 2005. In fact Prescribing Cost analysis (PCA) analysis for 2005 showed 720 million items were dispense and PCA for 2009 showed 886 million items a 23% increase in items. if this trend continues we will be dispensing 55% more items in 2014 than in 2005 with the same fixed £500m.
Falling purchase profits makes everyone try to get better deals, which increases purchase profit above the agreed £500m, this then has to be clawed back at a later date.
Purchasing better reduces wholesale prices so reimbursement prices subsequently fall to reflect the better buying.
The other confounding factor, new high volume entrants into Category M means the item volume growth in Category M may be higher than global volume growth. Data is not published on the changing volume of items in Category M.
Clawback is imposed uniformally on all dispensing doctors and pharmacists with the reduction in prices, however the excess purchase profits will be garnered more by those purchasing well. In other words those people who are purchasing poorly will suffer more clawback than they gained in excess purchase profit.
It is therefore vital that you purchase generic drugs as well as you possibly can.
Payments for October start appearing in January, expect to see significant falls in reimbursement this month and take action to ensure your practice does not have cash flow problems in the new year from less than expected payments. This may involve organising an overdraft with your bank.