What is the policy and regulatory environment for online pharmacies?

Online pharmacy is a sector that has seen considerable growth over recent years, and policy and regulation is evolving quickly as a result. Those with an interest in the market should be aware of the issues to consider and the likely future direction of travel.

 Overview and market development

 The growth of the online pharmacy market has arisen in the context of severe financial constraints on the NHS. Increases in the level of demand for NHS services, increasing complexity of patient conditions, complex structural changes within the NHS and the overall constraints on fiscal policy pursued by the Government since 2010 have resulted in an environment in which traditional pharmacies have struggled. The expectation for community pharmacies in particular to offer additional health services in light of funding constraints elsewhere in the health ecosystem at the same time as suffering direct funding cuts, as well as the high fixed costs associated with a bricks-and-mortar pharmacy, has meant that the traditional model has come to be seen by senior stakeholders – including NHS England chief executive Sir Simon Stevens – as expensive and inefficient.

 Although community pharmacy figures in the NHS Long Term Plan and the Government is enshrining in legislation a commitment to increase NHS funding each year to 2023/24, the traditional pharmacy model should not be assumed to be an immediate beneficiary of these funding uplifts. Online pharmacy will, therefore, continue to benefit from an environment in which financial resources for pharmacies continue to be limited and online providers can offer a more efficient alternative.

 Despite a shift in focus towards online pharmacies, the Government and regulators are increasingly conscious of public and health stakeholder concerns that the online market has been under-regulated. While policy-makers will be keen to ensure that efficient and cost-effective alternatives to traditional service models are actively promoted, they will also be mindful of the risk to patients where apparent loopholes exist. Recent regulatory debates have focused on introducing more stringent checks of patient identification before prescribing medicines for conditions such as diabetes, epilepsy and asthma, and broadening the remits of the Care Quality Commission and General Pharmaceutical Council to ensure online pharmacies are fully covered by regulations regarding workforce qualifications.

Drug pricing

The Drug Tariff is set by the NHS Business Services Authority (NHS BSA) and is split into three categories: Category A, popular generic drugs where prices are set according to a weighted average of list items from four large suppliers; Category C, drugs that are not available as generics; and Category M, popular generics where prices are set according to information submitted by manufacturers and are changed on a quarterly basis. Drug pricing is monitored through the Pharmaceutical Price Regulation Scheme. Category M, which contains more than 500 generic medicines, has often been widely criticised by the pharmacy industry on the basis that products in this category are often not available to purchase for the amount by which pharmacies are reimbursed by the NHS, a key driver in funding squeezes on community pharmacy and growing demand for online pharmacy. The reimbursement rate for pharmacy contractors is also subject to clawback – a discount deduction that is set according to the monthly value of the medicines dispensed for each contract. The average clawback rate is currently 8%.

Current issues

The regulatory environment for online pharmacies is still developing. The sector is in a strong position to benefit from existing pressures on traditional and community pharmacies which are unlikely to ease in the short term but must be agile in responding to inevitable policy and regulatory change. The main challenge for online pharmacies is to be able to demonstrate to policy-makers and regulators that they are not only compliant with current regulatory requirements, but are proactively ensuring that they are taking steps to ensure that they are prioritising patient safety, and offering a reliable and consistent service across local commissioning areas.

Businesses in this space should also be mindful of potential reputational issues associated with the growth of other areas of online primary care such as the online GP market, and political attitudes towards high-profile providers such as Babylon, where there is also an evolving regulatory framework that is responding to the twin challenges of addressing diminished capacity within traditional NHS services, and concerns from local commissioners and others over patient safeguarding and sharing of sensitive medical data in relation to use of new technologies. Businesses should take note of these issues and understand where similar political and media scrutiny might arise in relation to online pharmacies, and the risk of these businesses being caught up in clampdowns on other online primary care services.

 Points to consider

•  Implementation of the Long Term Plan – how will this play out for community pharmacy and will it mean that limited capacity in other areas of the health service continues to drive demand for online alternatives?
• Reputational and regulatory risks – what changes could be introduced to the regulatory framework to address concerns over patient safeguarding? What steps can businesses take to pre-empt any regulatory change and demonstrate that they are proactively responding to these concerns?
• Drug pricing – what scope is there for changes to drug pricing and the current approach to pharmacy remuneration, reimbursement and clawback? How well are businesses set up to respond to changes in pricing for different categories of medicine, and can online pharmacies maintain a competitive advantage if the funding model for community pharmacy were to change and clawback increased for online contractors 

For more information on how GK can help you navigate policy and regulatory change in this market, please contact jamie@gkstrategy.com