NHS Trusts outsourcing pharmacies on huge scale due to perverse incentive

Bizarre VAT loophole means NHS Trusts are encouraged to hive off internal pharmacies to companies - putting the public service ethos at risk.

Half of NHS trusts have outsourced their outpatient pharmacies to save tax, according to NHS figures – with unions warning that it undermines staff pay and conditions.

A report in the Pharmaceutical Journal highlights figures from the most recent ‘Pharmacy and Medicines Optimisation Benchmarking Project’ report, showing that 50% of the 106 NHS trusts that supplied data have a ‘subsidiary’ outpatient pharmacy.

A third (34%) of trusts had outsourced the service to a commercial firm, with 16% having created a ‘wholly owned subsidiary’ (WOS) pharmacy.

Under the current law, NHS Trusts have to pay VAT on their medicines. However, VAT can be avoided for Trusts’ outpatient pharmacies by “enter[ing] into a contract with a third-party pharmacy company” – with these “qualifying goods” being exempt from VAT.

Helga Pile, deputy head of health at Unison, told The Pharmaceutical Journal that outsourcing outpatient services “creates major concerns about quality and accountability.”

“The reality is that staff working for these companies will often be earning significantly less than colleagues who are employed directly by the NHS,” she said.

As Patients4NHS have noted: “This loophole has been the main stimulus for some NHS Trusts to set up subsidiaries, although there have been attempts by the NHS Improvement, and the Treasury, to clamp down on the use of SubCos for tax avoidance purposes, saying that any VAT savings made should always be merely a by-product of setting up a SubCo…

“Where SubCos clearly make savings is with the employment of new members of staff – in almost all cases they will not be on the same terms and conditions or have the same pension arrangements as the staff they work alongside who have been moved from the NHS.”

In 2019 Betsi Cadwaladr and Cardiff and Vale health boards announced plans to privatise pharmacies in their hospitals.

The union Unison said healthcare workers spoke of their shock at the attempt to ‘undermine the public service ethos of the Welsh National Health Service.’

Betsi Cadwaladr said it wanted to reduce costs and save on tax and claims it does not have enough staff to dispense medication to the standard it would like. However, Unison questioned how the private sector would improve the quality of services with less money.

Josiah Mortimer is Editor of Left Foot Forward. Follow him on Twitter.

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5 Responses to “NHS Trusts outsourcing pharmacies on huge scale due to perverse incentive”

  1. Michael McManus

    The VAT situation is clearly idiotic.
    I’ve been making use of NHS pharmacies as in- and out- patient for the last 11 years. During that time Boots took over the job. A strange choice I thought as Boots is said to have 15% higher prices for general goods than competitors. However, service has improved with more staff and longer opening hours as far as I can tell – and hospital employees are still working there in a separate section for clinical trial meds which all university trusts will be involved in. There are the meds like chemo that have to be freshly prepped and would also be out of the capacity of high street chains.
    The work conditions certainly need monitoring as the author says. It would be unacceptable for such important workers to be exploited. I shall try to be more observant when I go again in a couple of weeks.

  2. Joe

    If it makes the process more efficient then we should support it.

  3. Labour's Filthy Hospitals

    So by adopting this structure hospitals can avoid paying VAT on drugs thus having more money available to spend on health care. The patient wins.

    So of course the left hates it.

    The objections come predictably from the producer interest – “deputy head of health at Unison” – and from the deeply mysterious “Patients4NHS”, whose website says nothing about who they are or how they are funded, but repeats a lot of standard Labour playbook lies.

    These scumbags are wreckers who care only about persisting the power of the union and the state over the patients.

    So fuck the sick.

    Well done Labour, unerringly on the wrong side.

  4. Michael McManus

    LFH – rubbish.
    I’ve been under NHS care for cancer and other conditions for the last 11 years in four hospitals. I’ve seen no filth and no inefficiency, just expert treatment and compassionate care.
    If you actually met any medics you would know that they do a professional job irrespective of who is in Westminster and whatever pressures or shortages they have.
    The author was pointing out that administrative arrangements were being made because of an indefensible anomaly in VAT regs when we can all agree that those are not good reasons for doing anything.
    Try to be objective mister, though adhering to evidence, truth and logic is now regarded as ultrab right wing in this age of infantile stupidity.

  5. mike bishop

    Of course the patient doesn’t win. They lose the benefits of the tax the private company should be paying. Cf. Local Authorities who lease vehicles instead of buying them. It is only cheaper because the leasing companies have advantageous tax breaks.

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