Page 7 - P4304.1-V110 PSUK Mag June 2025

How Category M adjustments work

There are two main types of adjustments that occur in quarterly Cat M price lists;
• Systematic movements due to changes in underlying buying prices

• Margin adjustments due to the outturns from the margin survey

Margin adjustments and adjustments due to the underlying market are separate,
and occur independently of each other.

Margin adjustments are determined by the outturns from the ongoing margins
survey that is conducted in collaboration between CPE, DHSC and NHSBSA. Every
quarter the margin survey returns an estimate for the amount of margin that was
earned by the community pharmacy sector. This is based on information gathered
directly from Independent community pharmacies and the Dispensing Doctor sector.

The margin survey indicates how much margin was earned by the sector, and
whether this represents an over or under delivery of margin compared to that
quarter’s targeted amount of margin.

Generally the quarterly margin target would be £200m (i.e. £800m/four quarters),
however this can be adjusted.

If the margin survey shows that there was an over or under delivery of margin in
a quarter, this means a margin adjustment to correct this will follow. This margin
adjustment has to achieve two aims;
A. Correct the margin run rate

B. Recoup / Repay the quantum of margin that was over or under delivered

So for example if margin was over delivered by £10m in a quarter, subsequent Cat
M adjustments must reduce the run rate by £10m, and recover the £10m excess.
In theory this could mean a -£20m adjustment could be applied in the following
quarter, followed by a +£10m the next quarter, once the £10m excess was recovered.

However, changes resulting from a margin survey result are not applied all in one go.
They are smoothed over four quarters. This is in recognition that the results from any
single quarter may not be robust, so it allows the results over four quarters to all be
in play at the same time, evening out the potential error of survey results over time.
Smoothing the application of margin adjustments over four quarters also means
that potentially large hits to reimbursement get applied gradually rather than all at
once.

What does the new numbers mean for dispensing practice?

As a sector, pharmacy and dispensing doctors will now be able to earn £900m from
purchase profit. In addition to this, there has been an agreement to write off the
£193m of historic over-delivery of margin which was being clawed back through Cat
M adjustments.

All in all, this is some positive news for PSUK members – the benefit per dispensary
will clearly vary dependent on the number of items dispensed, but typically an
average dispensary should see an additional £10k p/a benefit to their product
margin.

If you want to learn more about purchase profit, where the money is made in the
dispensary or how to reduce costs, keep an eye out for one of our study days near
you – or reach out to us at enquiries@psuk.co.uk

Purchase Profit | PS Magazine 7

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