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01/05/08 - BAPW comments on the OFT Market Study into Medicines Distribution
BAPW believes that the OFT Market Study into medicines distribution published in December 2007 is a partial and simplistic study focused on the effects on the independent pharmacy sector of changes in distribution arrangements by a few branded manufacturers.
Economies of scale in wholesaling mean that it is important for full-line wholesalers to function as a first-line wholesaler to pharmacies.
The full-line wholesaler's main mechanism to induce pharmacy loyalty is by volume-based settlement discounts across a basket of goods. This forms the basis of competition between wholesalers.
Typically if a pharmacy buys at least 70% of their turnover by value from a full-line wholesaler, then a range of extra services will be made available to that pharmacy to tie them to a wholesaler.
These 'added value services to pharmacy, hospitals and dispensing doctors' underpin much of the competition between full-line wholesalers. Competition ensures there are robust service levels for pharmacy.
The OFT suggests only that a 'voluntary agreement' be policed by the Department of Health to ensure that ‘appropriate’ service levels to pharmacies are maintained; however, there is no analysis of what is 'appropriate'.
BAPW concerns:
- an end to universal access to all medicines
- there could be an increased cost to pharmacy if pharmacy purchase volumes are not achieved and wholesaler services to pharmacy are reduced
However, BAPW does acknowledges that the existing arrangements are now "bust", and any new structure can only use the "PPRS" for implementation in the short term. This is why we welcome the Department of Health’s intention to consult with the BAPW on any new PPRS arrangements this year.
