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Course

What is the Drug Tariff and why is Category M important?

At the end of this course you should:

  • Understand how Category M works
  • Recognise the main tariff categories and how reimbursement prices are set
  • Understand how the Price Concessions assist your pharmacy/dispensary each month and how to access them
  • Know how to keep up to date on tariff changes
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Course

Contents

  • Drug tariff overview
  • Drug tariff categories
  • How Category M works
  • How is Category M regulated?
  • How does the Scottish tariff differ?
  • What are the most common Category M areas?
  • Category M impact
  • How are reimbursement prices set?
  • Category M changes
  • Category A and C changes
  • Price concessions

What is the drug Tariff?

In the UK, pharmacies and dispensaries refer to the Drug Tariff. The Drug Tariff outlines what will be paid to pharmacy contractors for NHS services provided either for reimbursement or for remuneration.It is a publication supplied on a monthly basis, primarily to pharmacists and GP practices.2

It also includes:

  • rules to follow when dispensing
  • value of the fees and allowances you will be paid
  • drug and appliance prices you will be paid

The Drug Tariff price of a generic medicine is determined by the category of the product. Part VIIIA lists the basic prices for generic drugs and is further divided into categories, of which Category M is one.1

Drug Tariff Categories

The main categories of products that determine the Drug Tariff price (or the reimbursement price) of a generic medicine, are:1

  • Category C:
    The medicines in this category are not as readily available as other generic medicines, and they are based on a particular brand or manufacturer.
  • Category A:
    This category includes popular generics which are readily available, but the cost of this category is determined by a weighted average of list prices from 2 wholesalers and 2 generic manufacturers.
  • Category M:
    This category includes drugs that are readily available, where the Department of Health and Social Care (DHSC) calculates the reimbursement price based on information submitted by the manufacturers.

Occasionally, medicines change category. For example, when a generic product launches following the expiry of a branded product patent it could appear in Category A but after a period of time, when more suppliers launch and the market pricing decreases, it may move across into Category M.

Why is category M Important?

It is important to understand how Category M works, as it contributes a significant part of income in a Pharmacy and Dispensary, especially in England and Wales. It also applies to Northern Ireland, but Scotland have a separate drug tariff, which will be covered later in this training.3

There are ways of monitoring the changes to reimbursement, using them to protect or boost profitability before they come into effect.

Category M Medicines Explained

  • Category M medicines form part of the basis of income for a pharmacy/dispensary and are the most commonly available generic medicines
  • This category was introduced into the Drug Tariff as part of the new community pharmacy contractual framework in 2005 and is used to adjust the reimbursement price of over 500 generic medicines in England and Wales4
  • NHS England is responsible for commissioning pharmaceutical services and determining the amount paid to pharmacy contractors for those services under the Community Pharmacy Contractual Framework (CPCF)5
  • The Secretary of State is responsible for regulating NHS reimbursement prices5
  • The Department of Health and Social Care (DHSC) with the Pharmaceutical Services Negotiating Committee (PSNC) and NHS England, assess the medicine margin achieved by pharmacy contractors5

How Is the Category M Regulated?

  • The Category M scheme is overseen by Community Pharmacy England (formally the PSNC) who meet regularly with the Department of Health and Social Care (DHSC) to ensure that the scheme operates appropriately4
  • The DHSC produces a monthly update of medicine shortages for primary and secondary care. These are listed on the Specialist Pharmacy Service (SPS) website https://www.sps.nhs.uk/8
  • In the event that a pharmacist is presented with a shortage of a particular medicine that is not on the SPS website they should report the medicine to Community Pharmacy England (CPE) through their online reporting form. This form can be found at https://cpe.org.uk/dispensing-and-supply/supply-chain/shortage-reporting-form/9

How does the Scottish Tariff differ?

The Drug Tariff arrangements are different in Scotland from elsewhere in the UK, they have a separate Scottish Drug Tariff.3 Category M is not applicable to Scotland, instead Part 7 – ‘Drugs & Preparations with tariff prices’ is broadly the Scottish equivalent of this mechanism.

Part 7 also includes the following sections:3

  • Part 7B – Additional items for NHS Pharmacy First Scotland Scheme (as of October 2021)
  • Part 7S – Reimbursement of special preparations
  • Part 7U – Limited list of reimbursable unlicensed products

From time-to-time, due to lots of factors, supply issues can arise for Part 7 medicines whereby they are unavailable at the drug tariff, in these cases a price adjustment may be agreed, meaning the drug tariff price of the item will be changed.
These adjusted prices can be accessed here:
https://members.cps.scot/adjusted-prices/7

What are the most common category M areas?

Currently category M comprises of over 500 medicines.10

Of the more than 500 medicines in this category, around 230 are in the core range.10,11

Core range products are those that were in Category M since inception, this figure will not increase.11

There are almost 1.2 billion packs of medicine in Category M with an average reimbursement price per pack of approximately £2.00.10

Category M impact

The community pharmacy sector is set to receive £2.592bn per year from 2019/20 to 2023/24. Of this annual figure, £800m is to be delivered as retained buying margin i.e. the profit pharmacies can earn on dispensing drugs through cost effective purchasing. This total retained margin figure is based on an agreement between the DHSC and the Community Pharmacy England.4

Category M medicines set the reimbursement price and ensure that pharmacists receive the total annual margin of £800 million across all generic products dispensed.4

This also applies to Dispensing Doctors.

Category M Impact

Data is gathered from pharmacies on a monthly basis so that the DH can see how reimbursement is tracking against this target.

If, across the Category M range, reimbursement is tracking above the retained margin figure, tariff prices will be reduced in Category M in future quarters in order to recoup that overpayment.

If total reimbursement is below the target margin figure, prices in Category M would increase so that pharmacies could increase the return on their generic purchasing.

This means the profit that pharmacies can earn through dispensing these generic medicines is reviewed and adjusted to maintain a balance of £800m retained margin for Pharmacy.4

How are reimbursement prices set?

The reimbursement price set by the DHSC is calculated using data provided by generic manufacturers and wholesalers, who provide the information under two voluntary schemes that are designed to assist the DHSC in gathering information to support the quarterly revision of Category M prices.4

The reimbursement price of Category M medicines is determined by the level of a specific molecule, strength, presentation, and pack size.

To arrive at the reimbursement price, the DHSC elevates the average actual selling price at a granular product level.12

This increase can be in the region of 100%, therefore the Drug Tariff price can be around double the actual selling price obtained by the generic manufacturer12

Example

Stylised example of the various components of the Drug Tariff price of a generic medicine from the Oxera 2019 report ‘The supply of generic medicines in the UK’.12 The figures in the diagram do not correspond to any particular product but are indicative of a generic product in Category M.

The difference between the price paid for a medicine and the tariff price for that medicine is retained profit.

This is shown here as ‘pharmacy margin’.

Category M changes

How often are changes made to the Category M tariff?

Category M tariff prices are issued quarterly and reimbursements are calculated on a quarterly basis13 against the retained margin figure. However, there are sometimes out of schedule updates to readjust the retained margin.14

The Category M tariff updates are typically released 1-2 weeks before the end of each quarter, for example the middle of March, June, September and December.

They can be accessed here:
https://www.nhsbsa.nhs.uk/pharmacies-gp-practices-and-appliance-contractors/drug-tariff/drug-tariff-part-viii

Top tip – save this link on your computer browser to review the changes each quarter

Category A and C changes

How often are changes made to the Category A and C tariff?

The tariff for these products is published monthly, prior to the start of the month in question.

They are located in Part VIIIA of the drug tariff and can be accessed here:
https://www.nhsbsa.nhs.uk/pharmacies-gp-practices-and-appliance-contractors/drug-tariff/drug-tariff-part-viii

Top tip – save this link on your computer browser to review the changes each month

Price concessions

There are situations where dispensing at a loss can occur in times of shortages of a medicine15 i.e. where purchase price is higher than reimbursement price.

For example, if there are manufacturing problems or a change in demand, resulting in pharmacy contractors having to dispense an equivalent product that is only available above the set Drug Tariff price.

Sometimes, if medicines cannot be purchased by pharmacies at, or under, the Drug Tariff price, the DHSC sets a higher concessionary reimbursement price for that month to reflect the current market pricing.16 These are called ‘Price Concessions’ and they work as a temporary tariff that is aimed to help avoid dispensing at a loss when supply is short.

There are no additional endorsements required for price concessions, but the concessionary price only applies to the month in which is it granted.16 It is possible that a new concession will be granted by the DHSC for subsequent months; however, these are subject to application and are not guaranteed.

Price Concession example

In this scenario, if you dispensed the product in the month that the price concession is granted for then you would be reimbursed £2.50, rather than the usual drug tariff price.

The list of products is updated monthly and can be found at https://cpe.org.uk/funding-and-reimbursement/reimbursement/price-concessions/

Top tip – save this link on your computer browser to review the changes each month

Reporting products above price concession

  • If there are problems obtaining a Part VIII product at the set Drug Tariff price, the issue should be reported using the online feedback form on the Community Pharmacy England website. You can report these here: https://cpe.org.uk/dispensing-and-supply/supply-chain/shortage-reporting-form/9
  • CPE will investigate the extent of the problem and where necessary discuss the issue with the DHSC.
  • CPE is unable to provide details of generic products that are suspected of being affected by generic supply problems unless and until the DHSC grants a concession.16
  • Sometimes a price concession is granted late in the month, this is due to changing stock levels within the month. Contractors are advised to procure as economically as is possible for their individual businesses.16

References

  1. https://cpe.org.uk/dispensing-and-supply/dispensing-process/drug-tariff-resources/virtual-drug-tariff Date of access: June 2023
  2. https://www.nhsbsa.nhs.uk/pharmacies-gp-practices-and-appliance-contractors/drug-tariff Date of access: June 2023
  3. https://www.isdscotland.org/Health-topics/Prescribing-and-Medicines/Scottish-Drug-Tariff/Drugs-and-Preparations-with-Tariff-Prices.asp Date of access: June 2023
  4. https://cpe.org.uk/funding-and-reimbursement/pharmacy-funding/funding-distribution/retained-margin-category-m/ Date of access: June 2023
  5. https://www.england.nhs.uk/primary-care/pharmacy/medicines-reimbursement-prices/ Date of access: June 2023
  6. https://www.cps.scot/financial-framework-2223 Date of access: June 2023
  7. https://members.cps.scot/adjusted-prices/ Date of access: June 2023
  8. https://www.sps.nhs.uk/ Date of access: June 2023
  9. https://cpe.org.uk/dispensing-and-supply/supply-chain/shortage-reporting-form/ Date of access: June 2023
  10. Accord UK Category Matters – The World According to Accord Generic Reimbursement Date of access: June 2023
  11. Accord data on file Date of access: June 2023
  12. The supply of generic medicines in the UK – A study by Oxera (2019)
  13. https://cpe.org.uk/wp-content/uploads/2019/05/Dispensing-and-Supply-Factsheet-What-is-the-Price-Change-Mechanism.pdf Date of access: June 2023
  14. https://www.nhsbsa.nhs.uk/pharmacies-gp-practices-and-appliance-contractors/drug-tariff/drug-tariff-part-viii Date of access: June 2023
  15. https://cpe.org.uk/funding-and-reimbursement/pharmacy-funding/funding-distribution/dispensing-at-a-loss/ Date of access: June 2023
  16. https://cpe.org.uk/funding-and-reimbursement/reimbursement/price-concessions/ Date of access: June 2023

You have now completed the training slides.

For a practical guide on using your learnings from the Category M course, download the below PDF.

Download PDF

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Take Exam

Exam

Which of the following describes Category M?

(Select one)

It includes popular generics, which are widely available. The price is based on a weighted average of the List Prices from 2 wholesalers and 2 generic manufacturers.

Items in this category are based on a particular brand or manufacturer.

This section of the Tariff provides information on the payments for Essential Services.

It includes drugs that are readily available, where the Department of Health and Social Care calculates the reimbursement price based on information submitted by manufacturers.

Category M was introduced into the Drug Tariff as part of the new community pharmacy contractual framework in which year?

(Select one)

2004

2005

2006

2007

In the Scottish tariff, which of the following is not a section within Part 7 – Drugs & Preparations with tariff prices?

(Select one)

Part 7B

Part 7S

Part 7U

Part 7W

Category M currently comprises of how many medicines?

(Select one)

Less than 300

Over 500

Around 900

Nearly 1200

The community pharmacy sector is set to receive how much per year, from 2019/20 to 2023/24?

(Select one)

£25.92 million

£259 million

£2.592 billion

£259 billion

Category M medicines set the reimbursement price and ensure that, across all generic products dispensed, pharmacists receive which total annual margin?

(Select one)

£800 million

£900 million

£1 billion

£1.2 billion

Typically, how frequently are Category M prices issued?

(Select one)

Weekly

Monthly

Quarterly

Annually

When the DHSC sets higher concessionary reimbursement prices for that month to reflect the current market pricing, what are these called?

(Select one)

Price concessions

Price exceptions

Price endorsements

Concession products

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