New Pharmacy Funding Contract Agreed

After almost 12 months with no arrangement in place, a new funding contract for community pharmacy has finally been announced today. Following the previous five-year flat funding contract, which left many pharmacies struggling to survive, our Chief Commercial Officer Ashley Kilgas, explores whether the new contract is enough.

The Challenges Facing Community Pharmacy

Since April last year, community pharmacy has been operating on goodwill and an unwavering dedication to the patients they serve. There are few other sectors that would continue to work at such high standards with no contract in place. The fact community pharmacy has continued to deliver in these circumstances is even more admirable when you take into account the fact the last pharmacy funding contract was a five-year flat funding deal which was, simply put, not fit for purpose. For a number of years now community pharmacy has been operating at a significant loss.

That was confirmed by the economic analysis into NHS pharmacy services which was published at the end of last week. It was a stark reminder of the perilous position community pharmacy is in. It found that almost half of pharmacies did not make a profit last year. It also said 99% of pharmacies had funding which was lower than the full economic cost. It estimated that full economic cost to currently be £5.063bn and warned this could rise to £8,106bn by 2029/30. Almost half of all community pharmacies in England made no profit last year with many more unable to survive the challenging climate, forced to close their doors for good.

Key Details of the New Pharmacy Contract

While today’s announcement is a step forward, set against the backdrop of the economic analysis, you can’t help but argue that it’s just not enough to help community pharmacy release itself from the financial blackhole it has been placed in. The contract for 2024/25 and 2025/26 is the largest NHS uplift, and acknowledgement in itself that pharmacy has been underfunded for far too long, and totals £3.073 billion for the next 12 months. That includes:

• £215m to continue Pharmacy First and Pharmacy Care Recovery Plan services.
• Single Activity Fee increase from 19p to £1.46 per item
• Margin allowance increase to £900m per year
• Increase in Pharmacy First and Contraception Service fees
• New Medicines Service to include anti-depressants from October
• Emergency Hormonal Contraception to be added to the Contraception Service from October.
• A revised Pharmacy Quality Scheme with a 75% aspiration payment available in May.
• It also includes £193m of historic margin overspend written off and a review of margin distribution.

Is the New Contract Enough?

While you could argue that having a contract in place means that community pharmacy contractors finally know what to expect and are no longer operating in the dark, it’s fair to say that the deal agreed is simply not enough. The biggest increase is around the Single Activity Fee but many in the sector are already, quite rightly, arguing that this increase will simply be absorbed by the National Living Wage and National Insurance increases that community pharmacy has to find.

The economic analysis estimated the full economic cost of NHS services to be £5.063bn while the amount agreed for this year’s contract is just £3.073bn. That is a shortfall of £1.990 billion. The question now is whether this money is enough to sustain the sector, even if it’s not the full amount needed, while contract negotiations for 2026/27 begin. The answer could lie in how community pharmacies respond to the hand they have been so badly dealt.

The Need for Reform and Innovation

It is clear that funding alone isn’t going to be enough to save community pharmacy. What is needed is a combination of funding and reform. Those pharmacies able to embrace new opportunities and new ways of working, will find themselves in a stronger position. That could include delivering private services which are far more profitable than NHS services. It also includes looking at ways of streamlining the dispensing service while maintaining, and even increasing, item volumes. This will ensure that the pharmacy has more capacity to deliver services.

The Governments Role of  in Pharmacy’s Future

To be able to embrace these opportunities, community pharmacy needs support. They need technology providers to collaborate and work with each other. They also need to the Government to move ahead quickly with the reforms they have promised – allowing hub and spoke between different legal entities and changes to supervision which would give ACTs more responsibility. Last week the Government, confirmed it will introduce model one of hub and spoke dispensing, something we have been urgently calling for alongside other likeminded partners. Pharmacy Minister, Stephen Kinnock, said that changes to the legislation will be made in the coming weeks, with the intention that hub and spoke will be available between different legal entities later this year. These changes can’t come soon enough for many working in community pharmacy who are looking for ways to transform their businesses. This is more important than ever following today’s funding announcement which, on its own, may not be enough to keep the wolves from the door.

The Need for Long-Term Government Commitment

If the Government is serious about community pharmacy playing a key role in delivering patient care in the community to release pressure elsewhere in the NHS, then it is crucial it now moves ahead with the reform legislation that will allow community pharmacy to work in a different way. It also needs to ensure today’s funding announcement is simply the first step in uplifting pharmacy cashflow. As negotiations begin for the 2026/27, there must be a commitment to increase funding further to undo the damage of the past 10 years. Tools like hub and spoke and supervision will absolutely help to create capacity for new ways of working, but without a fair funding deal the Government will be setting community pharmacy up to fail. After all, they can only continue to operate on goodwill and a commitment to their patients for so long.