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30 August 2018

The funding cuts appeal was rejected over profit and closure confusion

The 99-paragraph judgment of the Court of Appeal, dismissing the legal challenges brought by the Pharmaceutical Services Negotiating Committee (PSNC) and the National Pharmacy Association (NPA) to remuneration cuts, sheds new light on how the decision to make the cuts was made.

In judicial review cases, judges examine whether a decision-maker has acted lawfully and whether the process of decision-making was fair. Three judges considered whether the secretary of state for health (although for most of the relevant period, it was the Department of Health and Social Care (DH)) carried out a proper consultation, whether he had sufficient information on which to base his decision, and whether he complied with the duties imposed on him by the National Health Service Act.

What the Court of Appeal did not have to decide was whether the secretary of state was entitled to cut pharmacy remuneration, because his legal power to do this was not in dispute.The judgment sets out the history leading up to the remuneration cuts in considerable detail. We now know that the process started in about mid-2015. DH officials had been asked to prepare proposals that would achieve two objectives:

  1. reduce community pharmacy funding by £400 million; and
  2. protect vulnerable pharmacies which are essential for patient access.

The DH tried to assess the financial effect of the cuts, and recognised that individual, independent pharmacies would be the most vulnerable. It belatedly published an impact assessment showing how it had tried to work out how pharmacies would be affected. Among other things, the impact assessment referred to pharmacies having a 15% average profit margin, and David Mowat, pharmacy minister at the time, repeated this figure in the House of Commons.

From the start, the DH knew that its proposals would lead to pharmacy closures, and it’s no secret that it thought there were too many pharmacies, because of the growth of 100-hour pharmacies, especially in what it viewed as urban “clusters”. One departmental paper said: “There are an estimated 25% too many pharmacies, so some level of closures would not necessarily be a bad thing.”

Internal documents showed the DH did not know how many pharmacies would close as a result of the cuts, but we also now know that protecting vulnerable pharmacies was a genuine DH objective from the start. If pharmacy closures were an objective of remuneration cuts, this might have been unlawful, but the Court of Appeal judges accepted that closures were not an objective of the cuts, though they might be a by-product.

During the original High Court hearing, the department’s views about pharmacy finances were informed by an anonymous “industry insider”. PSNC understandably complained that Jeremy Hunt could not reasonably take such flawed information into account.However, the Court of Appeal judgment makes it clear – clearer than the earlier High Court judgment – that officials had always recognised the limitations of this “information”, and had not relied on it. It was the same with the 15% profit margin referred to in the impact assessment. The Court of Appeal said it was “perhaps unfortunate” that the pharmacy minister had even referred to it.

In the end, the inability to reliably establish what profit margins were, and how many pharmacies would actually close, led to PSNC’s case being rejected by the court. The secretary of state did not determine remuneration unlawfully because he did not have enough information, the court held, and it was not practicable to get reliable information.

The NPA additionally argued that the secretary of state failed to comply with a duty in the NHS Act to have regard to the need to reduce inequalities. However, the court said the “secretary of state has a substantial degree of flexibility as to how he goes about his task…[which] will inevitably involve the allocation of limited resources between competing needs”.

Departmental papers showed that officials had presented Mr Hunt with a briefing paper reminding him of his legal obligations. This was enough to satisfy the court that he had regard to his obligations. The documents also satisfied the court that the need to maintain reasonable access to pharmacies, notably in rural areas, was given considerable weight. As for areas of deprivation where there were larger numbers of pharmacies, the evidence showed that overall funding had not fallen when the Pharmacy Access Scheme is taken into account.

Are there any positives? In an internal 2015 paper, officials envisaged that pharmacy closures would: “Move pharmacy's focus from the supply function…towards clinical activity, promote more effective and efficient use of medicines and, over time, empower local commissioning teams to integrate pharmacy more fully within primary care services. In the presentation of these funding reforms, it will be important to highlight the transformational opportunity for pharmacy these measures will represent.”

These themes would be a good starting point when pharmacy’s representatives and the DH resume funding negotiations.


This article was written by David Reissner and published by Chemist+Druggist on 29 August 2018. For more information, please contact David on +44 (0)20 7203 5065 or at david.reissner@crsblaw.com.

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