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An Independent

The A|pfiey

Author: Nigel ¥ Morley MRPIiarms

EXPERT WITNESS REPORT

INDEX

1. The Subject of this Report Page 1

2. My Qualifications to undertake this work Page 1

3. Field Work Undertaken Page 2

4. Current Situation Page 2

5. The Agency Appliance Contractor Schemes otherwise known Pagesas FP10 Agency Prescription Scheme 3 - 4

6. Author's Overview Pages4-6

7. Objectives as Stated in DOH Document Pages7-14

8. The Pro's and Con's of Options 1-4 Pages15-19

9. An alternative option that the Agency Schemes are a preferred Page 20response

10. Author's Recommendations Pages21 -22

EXPERT WITNESS REPORT

1. The Subject of this Report

Two mirror Consultation Papers (Summer 2003)

a) DOH Consultation Document on the Arrangements for Paying Appliance Contractors(England & Northern Ireland).

b) Scottish Executive (NHS Scotland). Appliance Contractors Consultation Document.

2. My Qualifications to undertake this work

A freelance, independent consultant, a Registered Pharmacist who is considered to be theleading expert in Dispensing Doctor Dispensing and Prescribing.

Provides advice, training consultancy, financial modelling and research papers to and for theDepartment of Health, Strategic Health Authorities, Primary Care Organisations, academicinstitutions, pharmaceutical companies and individual medical practices.

Specialised supplier of pharmaceutical software relating to drug purchasing, profitable drugformularies, prescription charges and product switches.

Leading trainer of Dispensing Doctor Dispensers, Managers and GP's in the UK.

Initiated the widely used website www.drugtarjff.com.

Expert on the reimbursement of, and profitability of pharmaceutical services.

Senior External Examiner BTEC Dispensing Course.

Member of the Review Panel for Pharmacy Postgraduate Education.Member of the Primary Care Group Pharmacists Association.

Lead Presenter of Dispensing Doctor Master Classes, leading educationalist in good practicerelating to controlled drugs,

Author of "Controlled Drugs in Primary Care - the Law, Probity and Good Practice"Adviser to and member of National Prescribing Centre and Department of Health"Controlled Drugs Focus Group".

Previous experience includes several reports for the Department of Health concerning theprovision of pharmaceutical services by both retail and dispensing doctor contractors.Confidential reports have also been commissioned by Health Authorities in the past.Papers have been submitted to the Oxera Review, Shipman Judicial Review, the Home Officeand MHRA in the UK, Canadian Government and UNESCO, amongst other non-UKinstitutions.

Responsible person under the Medicines Act for Dispex™ a voluntary buying group for 723Dispensing Doctor Practices.

3. Fieid work undertaken

During the course of the author's regular work he interfaces with circa 3000 GPs annually, themajority being dispensing doctor practitioners. He and his tutors interface with a similarnumber of dispensers, dispensary managers and practice managers again on an annualbasis. The supply of appliances has been a particular point discussed at many of hisseminars, tutorials and courses. Dispex™, a voluntary buying group for Dispensing Doctors,and pharmacies associated with health centres has particularly been involved in the agencyschemes.

Discussions have taken place with the three major companies Wardles, Ostomed and NWOS,who are the three companies operating the agency appliance schemes with pharmaceuticalcontractors both retail pharmacies and Dispensing Doctors. These three companiesadditionally supply product by means of wholesale. They are by far as a group the largestfinal distributors of appliances directly or indirectly to the NHS.

PSNC were visited to ascertain their views.

The author is the editor of Dispex, a newsletter with a circulation approximating 5000. Viewsand opinions were canvassed by means of this newsletter.

4. Current Situation

Appliances are differentiated from other Pharmaceuticals available on NHS prescription bythe following:

a. There is a different remuneration system for NHS prescriptions.

b. Unlike Pharmaceuticals, only those appliances listed in Part IX in the Drug Tariff maybe authorised for payment on an NHS prescription.

c. Pharmaceuticals in primary care are dispensed by retail pharmacies and DispensingDoctors only (henceforth described in this document as pharmaceutical contractors).

d. Appliances in primary care are dispensed by retail pharmacies and Dispensing Doctorsand in addition the following:

i. Field based Appliance Contractors who are usually single handedii. Mail Order Appliance Contractorsiii. Mail Order Appliance Contractors owned by Appliance Manufacturersiv. Appliance Contractors In conjunction with a Pharmaceutical Contractor,

the combination of Contractors' service being known as an Agency Scheme.The Pharmaceutical Contractors acting as an agent to the ApplianceContractor

Special Note

Since the DOH has proselytised the possible abolition of the agency schemes, it will prove usefulto define and explain in full detail the novel mechanism of such schemes.This follows immediately.

5. The Agency Appliance Contractor Schemes otherwise known as J-P10 Agency PrescriptionScheme

Who are they?The Agency Appliance Contractors are the front-runners for surgical supplies with over 35years of experience behind them. They are specialist Appliance Contractors. They are notmail order companies. They supply appliances through 3,730 retail pharmacies and some400 odd dispensing doctor practices, to in excess of 100,000 patients.

What is an Agency Scheme?It is a method of working whereby appliance prescriptions are sent by the pharmaceuticalcontractor to one of the three companies (Wardles, Ostomed and NWOS), and the DispensingDoctor or retail pharmacy receives a professional fee for handling the patient, as an Agent, onits behalf.

How does it work?The appliance prescriptions are sent to the Appliance Contractor specialist appliancedispenser via a local pharmaceutical contractor.The Agency Appliance Contractor is a Dispensing Appliance Contractor and holds anAppliance Licence with the Pricing Bureau. The pharmaceutical contractor is appointed to actas an agent to work, on the Agency Appliance Contractor's behalf, with the patients to whomthe Agency Appliance Contractor dispenses.

The pharmaceutical contractor informs the patient that a third party will deal with theirprescription and they look after the patient exactly as they have done so before.The pharmaceutical contractor orders the goods from the specialist Appliance Contractor,they hand them out as before, with the added value of their local knowledge of the patient,their professional advice to add to the expertise of the Appliance Contractor.They send the prescription to the Agency Appliance Contractor and they pay thepharmaceutical contractor a share of their overall margin as a professional fee for the work.

The Pharmaceutical Contractor benefits by receiving:-Surgical appliance products are supplied without the necessity of invoicing or payment bythe contractor. This allows for ease of sourcing, simplicity and minimal paperwork-Expert and uncompromising information about appliances-An income without incurring any expenditure-Guaranteed next day delivery-They are able to supply probably the biggest and best stock ranges in the UK-The pharmaceutical contractor does not need to stock expensive slow moving lines.-The confidence of knowing that their patients will have the best combination of care-Income on an otherwise unprofitable prescription

Patient Benefits-Benefit of local contact source, professional advice of their usual Pharmaceutical-Contractor and trusted adviser-Benefit of specialist expertise of the Appliance Contractor with their value added services-Benefit of massive stock range held by the 3 Agency Appliance Contractors. They eachstock circa. 3500 lines with a 93% immediate availability with 98% availability on the top1000 lines. This despite Manufacturers supply problems mentioned elsewhere.

-Benefit of unlimited product choice not tied to a specific Manufacturer or group ofManufacturers.

Applicable ProductsStoma Appliances, Catheters, Leg Bags, Night Bags, Sheaths, TrussesDressings (certain dressings are not eligible for inclusion in the scheme)

6, Author's Overview

The following points of information are relevant and will assist the review:

a) Financial Issues

i. The levels of total margin for the different contractors, be they Pharmaceuticalor Appliance Contractors, can include a miniscule dispensing fee, an on-cost,a wholesaler discount and the profit margin between cost of goods andwholesale sales price. It can therefore be seen that the mail order housesowned by manufacturers enjoy all these margins. They are therefore bestplaced to subsidise the stoma nurses. It will be naive to ask the stomanurses to be independent of their paymasters and a different mechanism isrequired.

Suggestion: That the manufacturers prices for appliances should be fopsliced in their entirety and the savings made should be used to fundindependent stoma nurses. A stoma nurse could be attached to a PC T or agroup ofPCT's depending on demographics and funding realised.

ii. A Pharmacy Contractor does not enjoy on-cost and is additionally penalisedby the subject of discount recovery (claw-back). The wholesale discountsavailable to them are very variable.

Suggestion: The subject of their remuneration in respect to appliancesneeds to he addressed.

Hi. There is a proliferation of me-too brands of appliances. This results in brandcompetition rather than price competition. A direct comparison with thegeneric pharmaceutical market shows that where a commodity type markethas evolved prices are forced downwards supply and demand dictates themarket price and will allow for adequate remuneration where there is arelatively high drug tariff price. In the event of the market price being close tothe drug tariff price new entrants will come into the market. With theexception of the recent serious category D generic debacle which is allegedto have been caused by abnormal events, the market in generics has servedthe NHS very well.

Suggestion: That wherever possible generic specifications for drug tariffitems should be initiated. This will also require a change to the method ofcalculation of generic rates since appliances are not currently considered inthe determination of a GP's generic rate. Including appliances in the genericrate calculation will assist in the increase in numbers of applianceprescriptions written generically as opposed to brands. Consideration as tothe appropriate drug tariff price of existing and potential new genericspecifications will be most important to encourage generic entrants withoutcompromising potential drug budget savings.

iv. The system encourages excessive demands for prescriptions, waste andhoarding. Many physicians have stated that patients are sent stock ofappliances whether they need them or not.

Suggestion 1: Where the prescription does not pass through aPharmaceutical Contractor but is requested direct by an Appliance Contractorfrom a presenter, strict controls should be in place to prevent waste andhoarding. Strict protocols should be in place to address this issue especiallywhere the patient is not initiating the demand for the prescription.

Suggestion 2: That except in emergency or reasonable direct request by thepatient's carer, no retrospective prescriptions should be allowed to beprescribed. In an emergency the presenter must be contacted by thepatient, stoma nurse, Appliance Contractor or his agent requesting theirpermission to supply appliances in advance of receipt of the prescription.

v. Many of the mail order houses discourage low value items. This is confirmedby the data provided in the consultation document. This discourages patientchoice. Most low value items are non-stoma and colostomy. Any removal ofthe on-cost or reduction in profit margin will cause problems of choice andsupply. From the review paper it can be clearly seen that other items are notsignificantly contributing to cost through Appliance Contractors. Theirretention of incentive to dispense these items is essential to protect thepatients.

Suggestion: To preserve patient choice and supply, on-cost should bepreserved for other items,

b. Audit and Probity

i. The PPA has undertaken full probity audits for the Agency ApplianceContractors. To the best of our knowledge no such probity audit has takenplace of the mail order houses and as a generality the other ApplianceContractors save in the instance of some specific investigations.

ii. The system of graduated on-cost encourages multiple licences inherently.

Suggestion: That multiple licences be prohibited.

iii. Many doctors have little understanding of the mechanisms of the drug tariffreimbursement of appliances and knowledge of appliances themselves.

Suggestion: That PCT's should be encouraged to provide their constituentmembers training in the drug tariff in general and appliances in particular.

c. Anti-Competitive Behaviour

The Appliance Contractors report that certain manufacturers allege that theyare out of stock on certain products for considerable periods of time even aslong as six months. The stock availability from the Appliance Contractorsowned by the manufacturers appears not to be such a problem. If theseallegations are true there isanti-competitive behaviour by means of preferential supply to in-housecustomers.

Suggestion: Where manufacturers have supply problems they must ration theirown in-house mail order Appliance Contractors and not give them preferentialtreatment over external customers.

Appliance Contractors state that they have severe problems when attemptingto legitimately import appliances from other EU countries. This restrictioncovert or otherwise can only help to maintain differential high prices forappliances in the UK. Simple analysis will show that European prices ofappliances are considerably below UK NHS prices. All European applianceswould appear to be physically identical to those distributed in the UK. Theirdescriptive code numbers and other coding are also identical, however in manycases the manufacturers on the outside packaging or boxes use an alternativebrand name. The only conclusion is this that is a device to prevent the freepassage of goods from one member country to another. This conclusion isreinforced by the differential in prices.

Suggestion 1: An investigation should be made into the differentia! pricescharged to the NHS in the UK as opposed to the lower preferential prices inmainland Europe.

Suggestion 2: The Department of Health should ask the Office of Trading andthe European Commission Competition Commissioner to look into the use ofdifferent brand names on boxes of appliances which are otherwise totallysimilar as to content and coding and identification marks.

Appliance Contractors have alleged that where they have removed insertmaterial in appliance packaging that directs patients to a particular ApplianceContractor, e.g. mail order house owned by Manufacturer, they have beenthreatened with discontinuation of supply of appliances by that Contractor.

Suggestion: That Manufacturers should not be allowed to put unilateralpromotional material relating to Appliance Contractors that they own or controlin the boxes of their own products. This would not restrict the inclusion ofessential or mandatory patient information leaflets or materials.

Objectives as _Si:ated in OCH Document

•a Sn reviewing the arrangements for remunerating and reimbursing appliance contractors,the Department has had the following objectives in mind.

• To allow contractors a reasonable return, recognising that this needs to support theadditional services which are appreciated by patients, including the sponsorship of nurses;

Response: A reasonable return has to be available or the system will breakdown withunacceptable political clinical consequences for the patients. The sponsorship of nursesis a financial and moral issue.

• To remove the weaknesses, which lead to exploitation of the on-cost sliding scaleremuneration system.

Response: All weaknesses should be removed including any alleged exploitation.

• To minimise disruption and administrative costs so far as is consistent with theachievement of the first two objectives.

Response: A difficult achievement if radical changes are made.

Proposals

• The Department has considered a range of options against these objectives, and hasconcluded that the option which best meets them is to revise the current arrangements forpaying appliance contractors. Other options, which have been considered, are set out inAnnex B. The following paragraphs set out the Department's proposals in their document.

Response: That revision is needed is not disputed. Please see individual comments.

Remuneration - Service Standards

• One of our objectives is to support through remuneration the additional services providedby appliance contractors. But, if we are to do this, we must be clear that those additionalservices are desirable, bearing in mind the type of appliance being supplied, and that theyare actually being provided.

Response: The additional services are desirable and they are generally provided.

• The Department proposes therefore, that service standards should be established for thesupply of ostomy and incontinence appliances and trusses. These would fail* to bemonitored by the PCT on whose list the contractor appeared, though we would welcomeviews, particularly from PCTs, on the possibility of using a centralised monitoring servicebased at the PPA. This might be particularly relevant where the bulk of the contractor'sbusiness is through mail order and thus with patients not in the PCTs area.

Response 1: That service standards should be established is undoubted, that there mighthave to be differentiation between different classes of Appliance Contractor is almostcertain. Such differentiation can be reflected in remuneration.

• It would appear that the intention was to use the word 'fall' as opposed to the word 'fairwhich appears in the DOH document.

Response 2: It is totally impractical for a FCT.o monitor co, Hracrors •:'•//?•,/ n-urft c-<; a ,;a;/cna/or regional basis. The PCTs have neither the inclination, expertise nor resources re undertake!his work.

Response 3: Central monitoring can only be the correct objective. Consideration to hemade of both clinical and financial issues and the appropriate body or bodies to undertakesuch monitoring. It is our understanding that the agency appliance contractors have had fullaudit in the past by the PPA. It would seem appropriate for the PPA to monitor financial andprobity issues through their existing mechanisms.

We consider that the service standards should include

• home delivery within two working days if requested by the patient

• measuring and fitting at the patient's home if requested

• flange cutting and customisation on request

• a telephone help-line, staffed by suitably trained or qualified people

• the supply of disposal bags and wipes where appropriate

Response: Generally agreed as acceptable and workable aspirations by all interestedparties. In most cases this is current practice. However there is no inherent reason whythese services could not be supplied and delivered by an Appliance Contractor or hisagent and the appropriate health care professional.

• Where the standards were met, remuneration for appliance contractors would be at a levelapproximating to the current level.

Response: Agreed.

• Where the standards were not met, and for other appliances where this level of service isnot required, the Department proposes that remuneration of appliance contractors shouldbe at the same rate as for pharmacies.

Response 1: Where standards are not met it would seem logical to reduce remuneration.This would result in withdrawal of non-performing appliance contractors.

Response 2: The phrase for other appliances has to be qualified. There are major issuesrelating to a two tier or less than full service if this was to be applied.

• Since other appliances are usually low cost items it would not be financially advantageousand would definitely result in difficulties for patients especially with the mail order housesowned by stoma companies who do not encourage products other than their own or lowcost items especially dressings on prescriptions supplied to them. This would almostcertainly reduce patient choice and availability of often essential low cost items to patients.

Remuneration - Replacement of On-Cost Scale

• Another objective is to remove the current incentive to split prescriptions between as manypremises as possible. Essentially this means abolishing the current graduated rate ofon-cost. Other than in cases where the service standards are not met, or for applianceswhere the additional level of service is not required (see previous paragraph) theDepartment has not reached a view on what should replace it.

Response 1: A flat rate of on-cost should be established at 15.8% (the current minimum)with an exemption for small single-handed contractors working in a local area with a highrate of domiciliary visits. Their on-cost could be the current maximum of 25%. Thedefinition of single-handed contractor would need to be defined and a cut-off point fornumbers of items per month defined.

Response 2: As regards the second part of the paragraph please refer to notes made onthe DOH Annex B options 1-4.

Response 3: Multiple licences should not be allowed for the same contractor orassociated contractors. The definitions of associates to be cast as wide as possible in asimilar manner to the criteria used by the Customs & Excise or Inland Revenue. A singleonly licence availability would prevent many alleged abuses.

• One possibility would be to abolish on-cost and remunerate appliance contractors throughfees. One advantage of this would be that it would remove any incentive to encourage theprescription of more expensive appliances. (Appliance contractors often know a great dealmore about the range of appliances available than GPs, who may therefore beconsiderably influenced in their prescribing by appliance contractors). But it would be a bigchange with unpredictable effects. For example, it would provide an incentive toencourage more frequent prescriptions. There would be a need to consider issues such aswhether the essentials such as bags might attract a higher fee than accessories such asswabs and deodorants.

Response 1: Such a major change would have unpredictable results and the politicalconsequences of such a radical change on a group of patients whom are amongst themost physically and financially disadvantaged group would prove to be unacceptable.In addition the majority of these patients have mobility problems. Many of these patientshave carers who would be likely to be very vocal and critical of perceived change. It isunlikely that any radical adoption of the above proposal would meet approval.

Response 2: As regards the incentive to prescribe and the frequency of expensive items,this is best dealt with by (a) a review of the excess profitability of such items in a similarmanner to the current review undertaken in the genen'cs enquiry circulated December2002 by the DOH. (b) a review into the probity of the re-ordering mechanisms where theprescription does not pass through the hands of a pharmaceutical contractor.

Another possibility would be a flat rate of on-cost. On-cost is not without logic.Warehousing and delivery costs are of greater significance for appliance contractors thanfor pharmacies, and may be related to value, if this in turn is linked to size and weight.

Response: Best option with the exemption mentioned above for small single-handedappliance contractors. Owing to the large numbers of lines (OOO's) that may be orderedon-cost related to value assists comprehensive stockholding as well as delivery costs.

Remuneration - A Giobai Sum?

• Another issue on which the Department has not reached a view is whether there shouldbe a global sum for appliance contractors. Such an arrangement exists for communitypharmacies. In brief, the global sum is the amount of money, which the Governmentconsiders appropriate to pay for the provision of pharmaceutical services by communitypharmacies. The various fees and allowances are set in the light of forecast dispensingvolumes with the aim of paying, overall, the global sum less, or plus, any overpayment orunderpayment from the previous year.

Response: In theory a good idea, in practice the sums concerned do not justify theworkload to initiate, maintain and negotiate on an annual basis, A global pool, for less than200 contractors, of £97 million for such a low percentage of the total NHS pharmaceuticalbudget is not feasible.

The introduction of a global sum for appliance contractors would be an effective way ofcapping costs and minimising any perverse incentives arising from the remunerationsystem (for example, the incentive to encourage more frequent prescriptions if fees wereused, and the incentive to encourage the use of more expensive appliances if on-costwere used). However, issues would arise regarding the size of the global sum. Forexample, if the amount of dispensing undertaken by appliance contractors increased by ahigher or lower percentage than the amount of dispensing undertaken by pharmacies, towhat extent should this be reflected in differential percentage increases in the respectiveglobal sums?

Response: Impractical, since how would the ability of the patient or pharmaceuticalcontractor to switch between dispensing practices, retail pharmacies, a combination of apharmaceutical contractor and a appliance contractor (agency schemes), an appliancecontractor alone or a large mail order house be accommodated? Such prescriptionswould be entering and leaving three different global pools (it is our understanding that aglobal pool may very well be agreed for dispensing doctor contractors). It will not world

The Department (with the NHS Confederation) is currently engaged in discussions withthe Pharmaceutical Services Negotiating Committee on a new contract for communitypharmacies. Those discussions are taking place against a background of a range of otherissues with the potential to have a significant impact on community pharmacy. TheDepartment does not wish to prejudge the outcome of those discussions by taking a firmview at this point on whether there should be a global sum for appliance contractors.However, should the outcome of those discussions include the continuation of some formof global sum for community pharmacy, the Department would need to be persuaded as towhy a different approach should be adopted in relation to appliance contractors,particularly given that the opportunities to influence prescribing are much greater in thearea of appliances than in that of medicines.

Response: Complex issues that should not allowed to distract from the broad conclusionsof your review. An agreed package fora pharmaceutical contractor in association with anappliance contractor would meet many of PSNC's issues and be an acceptablecompromise between the needs of the patient, the pharmaceutical contractors and theNHS. Please refer to comments on Annex B.

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Reimbursement

• There is no clear reason why the NHS should pay more for an appliance if it is dispensedby an appliance contractor rather than a pharmacy (other than the inevitable cost of VAT).The reimbursement system is not intended to pay for the provision of services, but for aproduct. The Department proposes, therefore, that the same rate of discount recoveryshould apply regardless of whether the supply is by a pharmacy or an appliancecontractor. "Bespoke" appliances, such as trusses, are not subject to discount recoveryeven when supplied by pharmacies, and this would continue.

Response: The discount recovery or "claw back" is only a total part of the channeldistribution-costs and profitability. A fiat rate of on-cost at 15.8% and a review of theexcessive costs of branded products would address cos? issues.

• The Net Ingredient Cost (NIC) of products dispensed by appliance contractors in 2001was £97 million. Applying the current pharmacy discount rate would save around £10million.

Response: A review of the on-cost, of the prevention of fraud and an examination of theexcessive profitability of the mail order appliance contractors owned by manufacturerswould be likely to achieve considerable savings, it must be borne in mind that to addressthe NHS list prices of appliances is the mechanism most likely to achieve the greatestsavings. It is believed the total NHS budget for appliances is circa £350 miiiion. Theinstitutional and endemic mechanisms encourage copious waste, and duplication.Contractors both pharmaceutical and appliance constantly report excessive stocking bypatients due to poor management of their requirements. Many doctors and contractorshave reported to me allegations that the mail order Appliance Contractors routinelydespatch appliances to patients whether they require them or not. A review of theordering mechanism is essential. Except in an emergency no appliances should heprovided unless a signed prescription is available. Except in an emergency agreed withthe prescribe^ and the patient or patients carer retrospective prescriptions should beprohibited.

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Agency Arrangements

» This discussion paper is based on the assumption that it is justifiable to pay higher rates ofremuneration to appliance contractors than to pharmacies when they provide additionalservices. (This is not to be confused with the view that there is no justification for payingdifferential prices for the appliances themselves.) So long as there is a difference betweenrates of remuneration for the same item, there will be an incentive for pharmacies anddispensing doctors to find ways of putting prescriptions through appliance contractorseven for those patients who do not want the additional services for the provision of whichthe NHS is paying the appliance contractor the higher rate. That is an unjustifiable wasteof public money. What is more, wherever it is difficult to tell whether the service has beenprovided from an appliance contractor's premises or a pharmacy, the prevention anddetection of fraud is made more difficult.

Response: Totally disagree for the following reasons:

(a) It can he argued that if the prescriptions are passing through both the pharmaceuticalcontract&r and appliance contractor there are two independent parties who are in aposition to detect fraud

(b) With a large amount of prescriptions being funnelled through the three ApplianceContractors who run agency schemes many prescriptions can be monitored by monitoringonly three licence-holding contractors

(c) Under an agency scheme the contractor Is passing on all the remuneration that wouldotherwise legitimately be the full entitlement of the Appliance Contractor. The ApplianceContractor is obliged to share his income with the pharmaceutical contractor to provideextra local services and the consequent patient benefits. The agency contractor isdependent on product discounts. These product discounts are being consistently reducedby the manufacturers.

(d) Under the agency scheme the prescription must have passed through the hands of aregistered doctor or pharmacist subsequent to issue. Whilst fraudulent behaviour occursin health care professionals, they are less likely to do so and are subject to the ultimatesanction of discipline and expulsion from their professional body and subsequentprofessional and career suicide. Such sanctions do not necessarily apply other thanfinancial penalties to the Appliance Contractor.

(e) It is because of the lack of on-cost to the pharmaceutical contractor and the poverty ofdiscounts able to be passed to them by their traditional BAPW wholesaler together withthe lack of expertise of both the pharmaceutical contractor and the BAPW wholesaler thatthe pharmaceutical contractors have turned to the agency schemes.Banning agency schemes is in fact penalising success.Rather than penalise good practice the system needs to be addressed that fails to deliveradequate profit, incentive and training to the pharmaceutical contractors to encouragethem to provide this service solely themselves.

(f) It is the author's strong observation that even on a financially level playing fieldpharmaceutical contractors would still wish to use the agency schemes because of thewide range and in-depth stockholding and specialist knowledge of the three companiesinvolved. The added expertise and additional services that are provided to the patient viathe Appliance Contractor through the pharmaceutical contractor enhances the localservices.

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The Department proposes, therefore, that such arrangements should be banned, byamending terms of service to prevent pharmacies and dispensing doctors (except in casesof urgency) presenting prescriptions to appliance contractors on behalf of patients and bybanning appliance contractors from dispensing prescriptions (except in cases of urgency)which they know or should reasonably realise are being presented to them by a pharmacycontractor on behalf of a patient. Since this is a matter affecting the terms of service ofcommunity pharmacies, the Department will be consulting the Pharmaceutical ServicesNegotiating Committee formally on this issue.

Response: Totally disagree for the following reasons:

a) Who would take up the considerable quantity of patients left without a contractor?

i. The pharmaceutical contractor? Currently they do not have the expertise, orfinancial incentive. Their BAPW wholesalers do not carry adequate stock ranges.Many BAPW wholesalers purchase their appliances through the AgencyAppliance Contractors.

si The small Appliance Contractor? Have the expertise, but could not cope on aregional or national basis. The small Appliance Contractor often uses the Agency-Appliance Contractors as a wholesale supplier.

Hi. The Mail Order Appliance Contractor? Will be unable to cope due to issues relatingto stock range and capacity and the capture of the prescription. Probity issues aswell

iv. Mail Order Houses owned by manufacturers? All the issues relating to the above.They also do not like dispensing low value items or other manufacturers' items.Massive restriction of patient choice, a licence for them to change patients to theirproducts with or without clinical approval.

b) Major effect on profitability and service of pharmaceutical contractors

c) Disruption to supply and patient choice - likely to be politically unacceptable

Issues on Which Comments Are Sought

• Are the objectives, which the Department is attempting to achieve the right ones?

Response: In principle, yes.

• Is the Department right to consider that a revision of the arrangements for payingappliance contractors best meets the objectives of the review, or is one of the otheroptions outlined in Annex B to be preferred?

Response: See individual comments above and in reply to Annex B.Formal recommendations are made at the end of the report.

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Are the service standards proposed by the Department appropriate? And the types ofappliance to which those service standards should apply?

Response: Yes, but little point in differentiating between types of appliance.

Where the standards are met, should payment be through fees, or through a flat rate ofon-cost?

Response: A flat rate on-cost.

Should there be a global sum for appliance contractors?

Response: No.

Is the Department right to consider that there is no justification for paying more for anappliance when it is dispensed by an appliance contractor rather than a communitypharmacy and that, therefore, reimbursement of appliance contractors should be subjectto the same discount deduction as for community pharmacies?

Response: No.

Is the Department right to consider that agency arrangements should be banned? Are theproposed changes to terms of service sensible?

Response: No and not sensible as stated.

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Option 2: Pay Appliance contractors on the same basis as pharmacies

Paying appliance contractors (i.e. remunerating and reimbursing them) on the same basisas pharmacies appears logical. But it assumes that they provide the same service aspharmacies, and that is not generally the case. Particularly in relation to their corebusiness, the supply of stoma appliances, Appliance Contractors generally providemore individualised services than retail pharmacies.They:

• will deliver direct to customers

Response: Correct. The agents of the Appliance Contractors, the pharmaceuticalcontractors will likewise deliver to the patient under the agency scheme.

• can nearly always supply within a couple of days or so

Response: Correct. Problems with Mail Order Houses who often do not stockcompetitive products and low value items.

• "cut the flanges" of ostomy appliances, that is they cut the aperture of the ostomy bagto the shape of the individual's stoma (most users can do this for themselves, butthose with poor eyesight or arthritis of the hands may not be able to, and it istime-consuming - colostomists can use up to three bags a day)

Response: Correct. However, many elderly or less dextrous patients also strugglewith this activity.

• often provide help-lines, and individual fitting and support services by specialist nursesor fitters

Response 1: All Appliance Contractors offer some form of help line, pharmaceuticalcontractors rely on the support help lines provided by the agency schemes.

Response 2: Perhaps the most contentious point, most stoma nurses are sponsoredmany doctors have told me that where they have changed the make or the ApplianceContractor concerned the stoma nurses have refused to continue to support thepatient. The dilemma the stoma nurses find themselves in is that they are sponsoredby a particular manufacturer or mail order house. There is an obvious conflict betweenprobity and their employer. The stoma nurse is placed in an unenviable position.THIS IS UNACCEPTABLE BEHAVIOUR BY THE SPONSOR AND NEEDSCLARIFYING AND SUITABLE REMEDIES PUT IN PLACE.

Pharmacies will sometimes deliver direct to patients, but it is not their usual practice.They do not keep significant stocks of the more expensive ostomy or incontinenceproducts because the call for them is small. Some can arrange for flange cutting, thoughmost do not. They may give advice from their general knowledge but rarely if ever havespecialist knowledge or visit patients at home, though those supplying continenceproducts to care homes may well have a more significant advisory and support role. Soappliance contractors provide "added value" services, which patients welcome.

Response 1: Most pharmacies do deliver. The rest of the statement is generally correct.

Response 2: Under an agency scheme the patient has the best of both worlds.A local contractor and the professional expertise of an Appliance Contractor.

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•i This option would save approximately £23 million (£13 million from lowerremuneration and £10 million from discount recovery). As the cut in payments toappliance contractors would be over 20% of what the NHS currently pays them interms of remuneration and reimbursement and would exceed the total the NHScurrently spends on their remuneration, there would undoubtedly be a reduction inpatient choice and it is unlikely that additional services would continue to be provided.This option would not meet the objective of allowing appliance contractors areasonable return, bearing in mind the need to support the provision of additionalservices.

Response 1: Correct. Would reduce patient choice.

Response 2: Correct, System would collapse through lack of adequate remuneration,

OPTION 2 FAILS.

DOH Note

Net ingredient cost (NIC) is the price the NHS pays, ignoring discount. No discount is deductedwhen appliances are dispensed by appliance contractors. Discount is deducted when appliancesare dispensed by pharmacies, except for made to measure elastic hosiery and trusses.

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Option 3: Introduce a Capitation System

• A radical option would be move to a capitation system. Under such a system, appliancecontractors would receive a fixed sum for each patient (or, more likely, type of patient) towhich they provided services. This sum would be intended to cover the cost of all servicesand products supplied. Such an arrangement would encourage contractors to compete forpatients on the basis of the service they provided, whilst reducing any incentive to supplyexcessive quantities, or to recommend unnecessarily expensive products. But it would bedifficult to administer (requiring registration lists etc), and would not therefore meet thefinal objective.

Response: Too radical, unworkable, too expensive and too much bureaucracy. However,with the implementation of ETP and EPR and the fundamental changes in remunerationthat will necessarily arise, this may very well be a long-term future option. Once PCT'scan capture patients' names and addresses relating to Pharmaceuticals and appliancesdispensed throughout the NHS, then this may very well become a possibility as thesystem changes from a piece rate to a medicines management system of reimbursement.Such a system would imply that the PCT would pay manufacturers and suppliers direct forthe cost of goods. I would refer you to an article written in Script Magazine - September2002.

OPTION 3 FAILS

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Option 4: Move to a National or Local Tendering System for the supply of Appliances.

• Another radical option would be to tender for the supply of certain appliances (forexample, stoma appliances). There are a number of sub-options. Tendering could bedone on a local, regional or national basis. It could be for the service element only, or forthe full service including the cost of products.There would almost certainly need to be an expert national team to advise on the tenderseven if the tenders were local in coverage, since it would be unreasonable to expect everyPCT to develop expertise in what is a relatively small aspect of the NHS.

Response: Since the Treasury have rejected tendering for generics in the NHS primarycare on the grounds of practicability and cost, it is unlikely that in such a smaller marketthis is a feasible option.

• The full service tendering approach has been tried out in one area (Sefton) in relation toproducts for urinary incontinence.

AResponse: it is our understanding that this pilot had many failings and was not wellreceived. Patient choice was dramatically reduced in this pilot.

• Tendering would, of course, remove business not only from appliance contractors but alsoto a greater or lesser extent depending on the type of appliance, also from communitypharmacies. Depending on how it was done, it could also reduce patient choice (forexample, if only a limited range of appliances were to be available, or if there was only onewinner per geographical area). On the other hand, it could provide a more openreplacement for sponsorship of nurses. There would be some risks of creatingmonopolies.

Response: Politically unacceptable & unacceptable to pharmaceutical contractors. Graveconsequence of increases in frequency of expensive items. System very vulnerable toissues relating to fraud.

• Provided that the remuneration and reimbursement system for appliance contractors cann '̂ ^ be revised to deliver better value for money, setting up a tendering system for the supply

of appliances appears to be an unnecessarily complicated approach from a nationalperspective. However, some PCTs might wish to adopt this approach for the provision ofsome types of appliances. Since this means moving away from the supply of applianceson prescription, the involvement and consent of local GPs will clearly be crucial to thesuccess of any such initiative.

Response: Until the proposed electronic revolution PCT's are unlikely to embrace this concept.It is unlikely to obtain the involvement and consent of local GPs. Massive resource implicationsas PCT's and practitioners will require local additional funding. A non-starter.

OPTION 4 FAILS

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10. Author's Recommendations

That Options 1-4 are not feasible. That the existing systems should be adjusted by thefollowing recommendations:

a) That for direct supply by all pharmaceutical contractors adequate reimbursement shouldbe allowed. That in respect of retail pharmacies, the subject of their remuneration withregard to appliances needs to be specifically addressed.

b) That the agency schemes work well and in fact should be encouraged as the mostefficient model combining benefits to the NHS, public purse, patients and thepharmaceutical contractors in the supply chain.

c) That the mail order Appliance Contractors be the subject of an in-depth investigation.

d) That Appliance Contractors or their agents, except in emergencies, should be prohibitedfrom supplying appliances before receiving the prescription.

e) That the system of sponsored stoma nurses is perceived as a model of improbity andposes a conflict of interest with the needs of pharmaceutical contractors in the community.

f) That mail order Appliance Contractors owned by Manufacturers should not be allowed theon-cost on their own products.

g) That the margins allowed to the BAPW wholesalers, Appliance Contractors and theAppliance Contractors who act as re-wholesalers by the Appliance Manufacturers shouldbe the subject of mandatory enforced margins.

h) That Manufacturers should not be allowed to put unilateral promotional material relating toAppliance Contractors in the boxes of products.

i) That there should be a flat rate of on-cost of 15.8% for all licence holders. With anexemption for small single-handed Appliance Contractors of 25%.

j) That there should be a single licence for any one address, any one company andassociates. All multiple licence holders should be reduced with suitable notice to a singlelicence.

k) That these recommendations should be uniform across Scotland, Wales and jointlyEngland and Northern Ireland.

I) That the manufacturers prices for appliances should be top sliced in their entirety, and thesavings made should be used to fund independent stoma nurses. A stoma nurse could beattached to a PCT or a group of PCT's depending on demographics and funding realised.

m) That wherever appropriate generic specifications for drug tariff items should be initiated,i.e., leg bags. This will also require a change to the method of calculation of generic ratessince appliances are not currently considered in the determination of a GP's generic rate.Including appliances in the generic rate calculation will assist in the increase in numbers ofappliance prescriptions written generically as opposed to brands. Consideration as to theappropriate drug tariff price of existing and potential new generic specifications will bemost important to encourage generic entrants without compromising potential drug budgetsavings.

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n) That where the prescription does not pass through a Pharmaceutical Contractor but isrequested direct by an Appliance Contractor from a prescriber, strict controls should be inplace to prevent waste and hoarding. Strict protocols should be in place to address thisissue especially where the patient or the GP is not initiating the demand for theprescription.

o) That except in emergency, no retrospective prescriptions should be allowed to beprescribed. In an emergency the prescriber must be contacted by the patient, stomanurse, Appliance Contractor or their agent, requesting their permission to supplyappliances in advance of receipt of the prescription.

p) That to preserve patient choice and supply, on-cost should be preserved for all items,

q) That multiple licences be prohibited.

r) That PCT's should be encouraged to provide their constituent members training in thedrug tariff in general and appliances in particular.

s) That the concept of a global sum for Appliance Contractors is inappropriate and shouldnot be considered.

t) That where Manufacturers have supply problems they must ration their own in-house mailorder Appliance Contractors and not give them preferential treatment over externalcustomers.

u) That an investigation should be made into the differential prices charged to the NHS in theUK as opposed to the lower preferential prices in mainland Europe.

v) The Department of Health should ask the Office of Trading and the European CommissionCompetition Commissioner to look into the use of different brand names on boxes ofappliances which are otherwise totally similar as to content and coding and identificationmarks.

August 2003

Signature:.

JN.V, MORLEY MRPharmS,

7 & 8 Prospect Court, Courteenhali Road,Blisworth, Northampton NN7 3DG

Tel: 01604 859000 Fax: 01604 859777Email: Nigel.Mor!ey@sureiines.com

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