03.31.2025 Ashley Kilgas
The highly anticipated economic analysis of the pharmacy sector has finally been published today. With a new funding deal for pharmacy imminent, Shelley Dyer, Head of Marketing looks at key findings of the analysis.
Last year, Frontier Economics and IQVIA were commissioned by NHS England to conduct economic analysis of NHS pharmaceutical services. The analysis has been eagerly awaited by those working in pharmacy who have long since argued that the service has been significantly underfunded thanks to a 5-year flat rate funding contract which expired over twelve months ago.
No formal pharmacy contract has been in place for the past 12 months, and while we are told a new funding deal will be announced any day, next week will see the pharmacy sector head into a second year with no agreed contract in place.
Key Questions Addressed in the Analysis
The commissioned economic analysis was tasked with looking at three key questions:
- The full economic costs of delivering NHS pharmacy services and the variation within different settings, locations and dispensing/service mix.
- Whether NHS community pharmacy businesses were sustainable under the current funding model and to what extent they were at risk of interruption.
- Which clinical services can be most efficiently delivered from community pharmacy compared to general practice or the wider NHS.
The study explored four main categories of costs including:
- Staff and pharmacy running costs at individual pharmacy level.
- Centralised head office costs and hub costs.
- Hidden and structural costs e.g. owners time not charged to the company, property maintenance, deferred staff training.
- The cost of capital.
A Warning for Community Pharmacy
The analysis made a number of key findings confirming everything those working in community pharmacy have been saying. Profitability and cashflow issues are affecting large portions of the community pharmacy sector. The findings are a stark warning of the perilous state of community pharmacy. Among those findings were the fact that almost half of pharmacies were not profitable in their last accounting year.
Between January 2021 and November 2024 there was a net reduction in the number of pharmacies in England of 7%. An increasing number of pharmacies are defaulting on direct debit payments for stock.
It also found that 99.9% of pharmacies reported that financial pressures in the last 3 years had led to significant changes in the management of staff and almost three quarters reported significant changes in financing their business.
The full economic costs of delivering NHS pharmacy services
Taking all variations into account and aggregating across all pharmacies, the analysis estimates that the full economic cost of delivering pharmacy services in £3.459 billion in pharmacy-level and centralised costs plus an additional £1.604 billion in other (hidden, structural, capital) costs. The estimate does not include any adjustment for future cost growth associated with expanding the role of community pharmacy in delivering NHS services. A reminder here that the current ‘global sum’ for pharmacy is £2.592 billion, plus ‘over-delivered’ funding through CPCF and Allowed Medicines Margin (AMM), as well as fees for flu vaccinations and Pharmacy First which are both but funded outside of the global sum.
Financial Sustainability of NHS Pharmacy Services
The analysis found that estimates suggested between 45.5% and 96.6% of pharmacies have funding which is lower than pharmacy-level and centralised costs and a staggering 97.7% to 100% have funding which is lower than the full economic cost. It goes on to say that this suggests NHS pharmaceutical services are already not sustainable in the short- term for a large proportion of pharmacies and for a greater proportion in the long-term.
It says the likely consequences of a lack of intervention include the risk of pharmacy closures, shorter opening hours, or pharmacies choosing to offer a reduced range of services.
Services which can be offered most cost-efficiently from pharmacies
Having looked at nine NHS clinical services amongst pharmacies in England, the analysis determined that a more detailed study was required to understand the implication of transferring more services into a pharmacy setting. It says this would require identifying specific services pharmacy could take on and the impact in various areas.
This, it says, would help inform whether delivery via community pharmacy would be a more preferable or efficient setting compared to other care settings for patients, taxpayers, pharmacies and other parts of primary care.
Next steps For Pharmacies
The economic analysis published today only confirms what those working in community pharmacy have been saying for a number of years. For far too long the sector has been expected to deliver more for less and this has not been sustainable for a long time. The final version of the economic analysis was shared with Community Pharmacy England (CPE) and other stakeholders and has informed the offer that is currently being negotiated.
As community pharmacy prepares to enter a second year with no funding contract in place, we can only hope that the new contract will be announced sooner rather than later and will deliver the funding boost that community pharmacy so desperately needs to continue delivering vital services to patients.
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