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CPSA funding shortfall needs addressing

Jonathan Chilton-Towle 02 February 2017, 8:38AM
CPSA funding shortfall needs addressingDes Bailey

The current Community Pharmacy Services Agreement may be costing pharmacists and wholesalers $14 million more than they are paid to dispense medicines, a report looking at the true costs of the pharmacy sector supply chain shows. 

Grant Thorton boxThe Grant Thornton True Costs of the Pharmaceutical Supply Chain report, which was publicly released in December by the Canterbury and Nelson-Marlborough DHBs, estimates total CPSA-related procurement and stockholding costs for pharmacies and their wholesalers in the 2014/15 financial year were $49 million. 

This estimated cost exceeds the $35 million funding contribution from the CPSA margin that year by $14 million. 

However, the cost estimate relies on boundary decisions as to what costs are related to procurement and stockholding activity and what costs relate to other service activity, and when the boundary decisions are not taken into account the report estimates that pharmacies earned a positive net margin of $25 million in 2014/15 from providing CPSA services. 

According to the report, at a system level there appears to be sufficient funds for the supply chain, although it also states there is limited information available on this in the public domain. 

The report fulfils a commitment made by the two DHBs in December 2015 during the mediation of a dispute with two pharmacies arising from them surcharging people for dispensing low-cost ­medicines. 

Pharmacy Guild chief executive Andrew Gaudin says the report confirms the guild's position that medicine margin funding has not been covering the true cost of the supply chain for the procurement and stockholding of medicine for community pharmacies. 

"The report estimates that, in the 2014/15 year, the supply chain was underfunded by between $10 million to $19 million. This is not a fully costed estimate as it does not take into account the costs of packaging materials and handling costs for bulk packs which are a part of supply chain costs," Mr Gaudin says. 

"It is our expectation that DHBs will now use this analysis to find a long-term sustainable solution to medicine margin funding as part of the next contract. 

"We believe the findings of this report, and previous reports, clearly highlight an issue with current medicine margin funding.  

"We look forward to working with DHBs and other stakeholders to ensure this important issue is addressed and that community pharmacy can operate within a sustainable funding environment, providing professional and valuable healthcare to New Zealand ­communities." 

Selwyn Village Pharmacy owner Des Bailey, who was one of the pharmacists involved in the surcharging dispute with the DHBs, says he wants to be careful with what ­comment he makes about the report, although he notes the
$14 million deficit in funding that the report found. 

ProPharma general manager Anthony Aitken says, in a statement, the report highlights there is a shortfall in the medicine margins paid to cover the supply chain.  

 "The analysis showed a shortfall of $14 million annually that needs to be addressed to ensure the critical roles pharmacists and wholesalers play in the delivery of healthcare to New Zealand patients is maintained at the current high levels," he says. 

 "ProPharma believes that this report highlights there are opportunities to continue to improve supply chain outcomes." 

Wholesalers and pharmacists will need to invest significant capital to ensure the supply chain remains fit for purpose, but margin funding must be able to provide a return on investment to justify expenditure. 

"We also recognise that a higher level of information sharing in the supply chain will benefit all participants and, in particular, community pharmacies," he says. 

 Canterbury and Nelson-Marlborough DHBs say, in a statement, they consider Grant Thornton's report an important contribution to the conversation about optimising the pharmaceutical supply chain, building on two earlier reports by Deloitte New Zealand and Sapere Research Group. 

Community Pharmacy Services director Rachel Mackay says the report raises challenges for all parties involved in the CPSA to work towards, although she thinks some of the issues raised will take longer than until next July, when the next CPSA is released, to fix. 

It is too early to say what impact the report will have on negotiations and whether the next CPSA will be able to implement any of its recommendations, she says.


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