Industry Trend Analysis - Pharmacy Revenues To Continue To Come Under Pressure - SEPT 2017

BMI View : Community pharmacies in England will continue to face revenue challenges as the government continues to seek cost savings in the face of the rising demand for pharmaceuticals. As dispensing becomes a commodity, consumer demands rise and as alternative selling channels emerge, pharmacies will need to alter their business models to maintain sustainable revenue streams. While multiple pharmacy contractors will be placed better to achieve this via economies of scale, the flexibility of independent pharmacies or smaller chains can be utilised to tailor services to meet personal consumer needs.

An ageing population, a rising demand for prescription medicines and the growing role of pharmacies as the first point of contact for patients will boost demand for pharmacy services in England. Traditionally, the UK has had high state healthcare expenditure, with patients enjoying 'free at the point of use' access to doctors and specialists, as well as easy access to medicines. The government currently accounts for more than three quarters of healthcare spending, and the expanding, ageing population will continue to boost demand for healthcare, pushing the government to focus on cost containment and thus putting pressure on pharmacies to create cost savings. This will include shifting the consumption of lower value generic medicines over patented medicines.

Highlighting the government's success with containing medicine prices over a decade, the net ingredient cost per prescription dispensed in England, in the UK, has experienced a decline from GBP11.02 (USD14.35) in 2005 to GBP8.34 (USD10.86) in 2016. Overall, the total net ingredient cost of prescriptions dispensed has increased from GBP7.9bn (USD10.3bn) in 2005, to GBP9.2bn (USDb12.0bn) in 2016. These figures are based on Prescription Cost Analysis data published by NHS Digital. Currently the data cover all prescriptions dispensed to the communities in England, i.e. by community pharmacists, appliance contractors and dispensing doctors, as well as items personally administered by doctors. The data does not cover items dispensed in hospital or on private prescriptions.

A Rising Demand For Medicines
Number Of Prescriptions ('000)
Source: NHS Digital, BMI

In 2016, a total of 1.1bn prescriptions were dispensed, an increase from 1.06bn dispensed in 2014 and a significant increase from the 720mn dispensed in 2005. With regards to the number of prescriptions dispensed by therapeutic classification, the most commonly prescribed medicines were those for the treatment of the cardiovascular system (319mn), the central nervous system (206mn) and the endocrine system (106mn), accounting for 28%, 18% and 10% of the prescriptions dispensed in 2016 respectively. Atorvastatin was the most commonly prescribed pharmaceutical, with 34.3mn units dispensed in 2016, at a net ingredient cost of GBP52.7mn (USD68.6mn).

Pharmacies Under Pressure
Cost Of Prescriptions (GBP)
Source: NHS Digital, BMI

Challenges To Increase

The role of pharmacies has evolved over the past couple of decades from preparation and distribution of medications to active involvement in the healthcare of patients. In addition to the identification and resolution of patients' medication-related issues, in an effort to improve patient outcomes, pharmacies now also facilitate stop smoking services, healthy eating advice, wellness checks (such as blood glucose tests, blood pressure tests and cholesterol tests), new medicine reviews, the safe disposal of unwanted medicines and needle and syringe exchanges. These ever-increasing additional services will have to be provided against a backdrop of decreasing revenues.