Category M in dispensing practice

Category M was introduced into the Drug Tariff in April 2005 as part of a major revamp of the community pharmacy contract.

The key issue for dispensing practice is that the mechanism takes no account of dispensing doctors’ remuneration, nor the volumes dispensed or prices paid by dispensing doctors

Key points about Category M

  • Prices have to be set in advance each quarter, and estimated volumes used may differ from actual volumes. Quarterly adjustments are made to account for any over or under recovery of pharmacists’ retained purchase profits
  • Products may not be available to purchase at the Category M reimbursement price as the Department of Health sets Category M prices
    at levels substantially below the prices notified by manufacturers
  • If the Category M reimbursement price for a particular product falls, it may take time for wholesale prices to respond. During this period, it is essential that contractors exert maximum pressure on wholesalers
  • Between 2005-2014, there was no increase in the agreed level of retained pharmacy purchase profits, despite significant increases in the number of items dispensed in England
  • From 2011/12, a number of key patents will expire. The prices paid for the new generic equivalent drugs will be determined by Category M. Any under-recovery of RPP (Retained Purchase Profit) as a result of the time-lag in Category M price-setting will be recovered
    in subsequent quarters. Practices are recommended to consider the impact of the subsequent profit recovery by the Department of Health on cash-flow.

Category M is used to adjust the reimbursement prices of more than 500 generic medicines in England and Wales, and the price changes are usually implemented in Part 7 of the Scottish Drug Tariff as well.

Category M prices are based on information gathered from manufacturers on volumes and prices of products sold plus information from the NHSBSA Prescription Services on dispensing volumes to calculate margins in the supply chain. Its purpose is to help ensure that the total contract funding available to pharmacies contains the agreed amount of retained purchase profits (£800 million in England, and proportionate amounts in Wales and Scotland).