£24,000 fall in dispensing profits

Dispensing practices could see profits cut by at least £24,000 a year, once the full effects of changes to the way they are reimbursed become clear, accountants say.

The introduction of category M drug tariffs in April 2005 in England and Wales is likely to have cut average practice income by about £18,000 a year, according to accountants Dodd and Co.

Category M contains many generic drugs for which dispensing GPs were previously reimbursed at a higher rate, reflecting the average manufacturer's price before any discount was applied. Now dispensing doctors receive lower reimbursements for category M because discounts are taken into account.

Meanwhile, changes agreed in December by GPC negotiators, will force all dispensing practices in England and Wales have to be registered for VAT from April. This would cost a further £6,200.

Dispensing practices currently receive a VAT allowance if they are not registered for VAT. Under this system, the Prescription Pricing Authority reimburses practices for drugs they dispense at a rate of 17.5 per cent of listed prices. This has allowed practices to boost profits if they can source drugs for less than the list price, and therefore pay less VAT than is reimbursed.

Under the new rules, practices will only be able to reclaim the actual VAT they incur.

Paul Kendall, a partner at Dodd and Co, said this would cost an average four-partner practice about £6,200 a year.

Mr Kendall warned that profits could also be hit by the introduction of a flat rate of reimbursement for drugs in England and Wales from April, rather than a different tariff for each.

The value of the flat rate has still to be agreed.

However, Dr David Baker, chief executive of the Dispensing Doctors' Association, predicted that the flat rate reimbursement would minimise category M and VAT registration losses.

He said dispensing practices might also be able to earn additional income through an enhanced service, currently under negotiation, for demonstrating that their practice was adhering to a best practice checklist.

Practices will have to show that staff training requirements are being met, and that the practice dispensary is well run.

However, he admitted that 'nowhere near all' category M income could be earned back through this mechanism.

COST TO PRACTICES

Changes to reimbursement systems for practices

- Introduction of category M drug tariffs could cut income by £18,000.

- VAT registration from April could reduce average income by £6,200.

- Flat rate for reimbursement due from April may reduce effects of other changes.

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