Pharmacists
Pharmacists submit all prescriptions they have dispensed monthly to the Prescription Pricing Division, sorted into the chargeable group (where patients have paid a prescription fee), the non-chargeable group and then by prescriber.
The basic price of the drug which is reimbursed is calculated based on an interpretation of the drugs dispensed and reference to the cost of that drug in that particular month.
Figure 3 shows the basis of payment for the different items which can be reimbursed on an FP10 prescription.
Figure 3. Reimbursement
The reimbursement cost of the drug (known as the Net Ingredient Cost, NIC) is discounted based on a sliding scale depending on the size of the batch of prescriptions submitted in that particular month. This is designed to reflect the level of discount a dispenser would be expected to achieve from suppliers. The discount does not include any zero discount products as a contractor will not have been able to obtain a discount on these items.
A container allowance is paid in line with rules set down in Part IV of the Drug Tariff. This is also included in the cost of drugs.
The remuneration element is also calculated in line with the Drug Tariff rules. There are a range of fees paid depending on what has been dispensed and also some fees based on the number of prescriptions in the monthly batch.
Any charges collected from patients are netted off the overall payment due as the Pharmacist retains these.
Locally Authorised Payments are authorised by the relevant PCT and are communicated by the PCT to the Prescription Pricing Division through a secure web connection. There are a standard range of payments that can be made as well as payments that are specific to the PCT. These payments need not necessarily cover the same period as the prescriptions.
Pharmacists are paid on the first day of the second month following that in which they submitted their prescriptions.
The following table shows an example:
| April |
Prescriptions dispensed |
| May |
Prescriptions batch sent to Prescription Pricing Division |
| June |
Pricing finished |
| 1st July |
Payment made. |
To ease cash flow problems for Pharmacists an advance is paid at the start of the previous month and then recovered when the prescriptions are paid.
This advance is calculated on the following basis:
The average cost of prescriptions from the previous months pricing is paid for the current month's submission and uplifted by 1%. The account value is reduced to 80% and in addition appropriate local payments or deductions are included. For further information see "Your monthly dispensing payment"
Appliance Contractors
Appliance contractors are also paid reimbursement and remuneration in line with the Drug Tariff. Most of these products are subject to VAT and therefore, because the NHS is deemed to be the final consumer, VAT is paid on services and products supplied by appliance contractors.
Appliance contractors are not paid an advance as the smaller number of claims allows the Prescription Pricing Division to process these within a month and pay on the 1st of the month following submission.
The system for remuneration and reimbursement of appliance contractors is currently under review as it has remained unchanged for many years. Currently, the bulk of remuneration comes in the form of "on-cost" on the price of a product. Remuneration is not subject to any overall total as in pharmacy (the global sum). The NHS price for the product is the list price. Unlike for pharmacies there is no recovery of any discount which may be available to the appliance contractor.
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Dispensing Doctors
The basic premise is that these payments are calculated in a similar fashion to those for Pharmacists, however, there are some notable differences (e.g. dispensing doctors are not paid a container allowance). From April 2006 all dispensing doctors have to be VAT registered.
The amounts payable in relation to the provision of drugs and appliances are calculated using the following information:
- Basic Price (Drug Tariff Part II, Clause 8, 10, 11, 13 & Part VII)
- Discount Scale (3.17 - 11.18%) (SFE, Annex G, Part 1)
- VAT Allowance (SFE, Paragraph 17.3 (c))
- Dispensing Fees (SFE, Annex G, Part 2)
- Out of pocket expenses (Drug Tariff Part II, Clause 12)
The following document has been produced to act as guidance for dispensing practices on what endorsements are required for reimbursement:
Dispensing Endorsement Guidance for Dispensing Practices
Another difference for dispensing doctors is that payments are made by PCTs from their non-discretionary funds. Therefore there is no need for any additional payments authorised locally to be submitted to the Prescription Pricing Division.
Personal Administration GP Claims
Claims for personal administration can be infrequent and not on a monthly basis similar to other prescriptions, therefore there are no advance payments. The prescriptions are processed during the month they are received and information is sent to the PCT payment site for payments to be made. The payment is calculated similarly to dispensing doctors. There are several vaccines that doctors "personally administer" in high volumes such as influenza vaccination. The GP practice claims payment for these specific High Volume Vaccines using the form FP34D Appendix for Dispensing Doctors and FP34PD Appendix for Prescribing only Doctors.
Local Supply or National FP10 Routes
Many PCTs are considering the local supply of drugs as part of the Pharmacy in the future initiatives. Such schemes can have significant patient benefits but there are issues that PCTs will need to address before the final decision is taken. The list below identifies some of the issues that arise with such schemes.
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VAT
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Some schemes may not allow for the zero rating of drugs supplied via an FP10. This should be checked with the local Customs & Excise office. |
| National Pricing |
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The national reimbursement price is based on a ‘basket’ of supplier prices. Care needs to be taken to examine efficient purchasing is maintained for the whole NHS. A good deal done locally may adversely effect the national supply ‘price’. |
| Legislation |
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The Medicines Act and Pharmaceutical regulations apply to the supply of all drugs. Ensure that the proposed scheme does not infringe any legislation. |
| Fees and Charges |
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Most fees are currently funded from central budgets not the prescriber. Schemes approved by the DH may be able to access these funds |
| Other Costs |
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Provision may need to be made for costs of distribution, administration and collection of patient charges as well as accounts currently paid to Appliance Contractors. |
VAT
The following guidelines are intended to give an overview of the VAT position on dispensing drugs. It is not the purpose of the Prescription Pricing Division to offer specific VAT advice nor should any reliance be placed on the following statements without further investigation. Guidance on VAT issues is available on the Customs and Excise website at www.hmce.gov.uk. Particular reference is made to Health Professionals in VAT Notice 701/57.
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Supply of drugs
Generally the supply of drugs under NHS arrangements is a mixture of exempt and zero-rated supplies. The tax rate is affected by such things as to who and from whom the drug is supplied and the nature of the drug or appliance.
Where drugs or appliances are supplied by a GP to a patient whom the GP is authorised to provide NHS pharmaceutical services, the supply is zero-rated. Zero-rating, however, does not apply to drugs or appliances supplied to other NHS patients or private patients.
In certain circumstances the supply will be standard-rated.
Supply of services
The provision of pharmaceutical advice and medical treatment are exempt services, provided certain conditions are met.
Reimbursement of costs
The Prescription Pricing Division reimburses the cost of drug supplies excluding VAT on the assumption that a contractor will recover any VAT on standard-rated supplies through the normal process.
For dispensing doctors who all now have to be VAT registered an allowance is made for personally administered drugs and appliances which are standard-rated. This is not a VAT payment but a payment of an allowance to cover the net VAT incurred by the dispenser for these products.
VAT registration
Information for GPs on how to register for VAT, information about the VAT treatment of good and services they provide and advice about how much VAT can be recovered on purchases is available at the following link.
VAT recovery
If VAT registered you are entitled to deduct input tax incurred on costs used in making taxable supplies. Input tax relating to the exempt supplies is not normally deductible.
If the input tax relates to both taxable and exempt supplies, normally only the input tax related to the taxable supplies can be deducted. Under these circumstances you are said to be partially exempt for VAT purposes. Guidance on partial exemption and related calculations can be found in VAT Notice 706 ‘Partial Exemption’
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Other related information
VAT Notice 701/31 ‘Health and Care Institutions’ provides further information on this related subject in respect to hospitals and other care institutions and may contain some useful guidance.
Follow this link for further information click here.
This information has been provided for general information and does not constitute advice. The NHS Business Services Authority Prescription Pricing Division does not take any responsibility for any loss as a result of the information provided and recommends that specialist VAT advice should be sought prior to making decisions regarding the VAT treatment of any transaction or your own VAT affairs.
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Home Oxygen Therapy Service
Oxygen suppliers are now responsible for delivering an integrated oxygen service (i.e. cylinder, concentrator and liquid). The supplier will provide the home oxygen service ordered by clinical staff on a Home Oxygen Order Form (HOOF). The supplier will provide the equipment that best meets the clinical needs of the patient as indicated on the HOOF. The supplier is also responsible for arrangements for the payment of patient's electricity costs associated with use of equipment supplied.
Each oxygen service supplier will be able to access the Prescription Pricing Division website and submit oxygen payment claims at any time within the first 10 calendar days of the month following that in which the home oxygen service has been provided.
Part X of the Drug Tariff gives a guide to the Home Oxygen Therapy Service arrangements which have been in place since February 2006.
The PCT where oxygen supply has taken place as part of the Home Oxygen Service is responsible for payment of that service and all costs are charged back to that PCT.
For information on the Home Oxygen Service, follow this link.
Prescribing Information
A full list of the paper and electronic reporting systems are available at the following link Information services.
User defined reports are available to PCTs via the electronic systems. Prescribing information is drawn from the prescriber details found on each prescription. The only information that is available at this level concerns the reimbursement cost of the drug as some of the remuneration elements are based on the batch of prescriptions not the individual script.
However, even at the reimbursement level the cost of a prescription is not always apparent. The cost of a drug to the NHS varies dependant upon where it was dispensed due to the discount scale. For performance management purposes it is important to reflect the cost of the same drug equally across all prescribers. Therefore two methods are employed; the first is to ignore discount and report the Net Ingredient Cost (NIC); the other is to average the discount claimed in a particular month across all drugs. Calculation of this average is not available when all the reports are produced and therefore can be the average of the previous month.
The first method of showing NIC only is used in reports; the second method is used in budget reports, such as Prescribing Monitoring Documents (PMD). The costs of the same drug can vary therefore between months as the average discount shifts each month. Reports that show previous months data such as PMD use the latest average discount calculated for the month in question.
Hospital Prescribing
The Prescription Pricing Division also reimburses prescriptions that are prescribed by a NHS Trust but dispensed in a community pharmacy. The method of reimbursement is exactly the same as any other type of script, the differing treatment lies in the recharging to the prescriber. The drug cost is discounted by the average discount of the previous month and then a fee is calculated as accurately as possible on the particular script (no allowance is made for fees that relate to the size of the batch). If the prescription attracted a patient charge this would be offset against the charge.
This treatment means that the full cost of the prescription (as opposed to the drug element only) is recharged to the prescriber. The Prescription Pricing Division invoices this recharge directly to the NHS trust.
Detailed guidance is also available under the section on NHS Trusts at the following link.
Drugs Bill Charging
The total cost of drugs in any month is charged back to the prescriber on the basis of the cash paid out in that particular month.
The payments in any one month are made up of the 80% advance and the balance of the previous months account. Therefore the charge is calculated on 80% of the drug cost (NIC less discount) for the current month and 20% of the previous month. Other costs that are not part of the performance reporting but are part of the drugs charge e.g. VAT, dentists prescribing etc. are prorated to PCTs on the basis of their share of the total drugs cost.
The Prescription Pricing Division produces a monthly schedule along with the Itemised Prescribing Payment (IPP) reports to the DH to enable them to charge individual PCT cash limits for this expenditure. For an example and explanation of the IPP report please see the following link.
The methodology for charging the drugs bill costs to PCT is in the NHS finance Manual under PCT detailed guidance, please see the following link  .
We have tried to ensure this information is factually correct at the time it was produced and aim to keep it up to date. If you have any queries regarding the information provided on this page, please contact us using the email address below.
Prescription Information Manager
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