The Pharmaceutical Services Negotiating Committee & Anor, R (On the Application Of) v The Secretary of State for Health, Court of Appeal - Civil Division, August 23, 2018, [2018] EWCA Civ 1925

Resolution Date:August 23, 2018
Issuing Organization:Civil Division
Actores:The Pharmaceutical Services Negotiating Committee & Anor, R (On the Application Of) v The Secretary of State for Health

Neutral Citation Number: [2018] EWCA Civ 1925

Case Nos: C1/2017/1596 and C1/2017/1900




Mr Justice Collins

[2017] EWHC 1147 (Admin)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 23/08/2018

Before :





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Between :

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Alison Foster QC, Saima Hanif and Catherine Dobson (instructed by Pennington Manches LLP) for The Pharmaceutical Services Negotiating Committee and Susan Sharpe

David Lock QC and David Blundell (instructed by Knights 1759) for The National Pharmacy Association

Sir James Eadie QC and Tom Cleaver (instructed by The Government Legal Department) for the Respondent

Hearing dates: 22 and 23 May 2018

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  1. This appeal concerns the lawfulness of a package of changes introduced by the Respondent (``the Decision'') following an announcement on 20 October 2016 in a document entitled ``Community Planning in 2016/2017 and beyond - Final Package'' (``the Final Package''). Both Appellants are bodies representing pharmacies. The Pharmaceutical Services Negotiating Committee (``PSNC'') is the body recognised and tasked, pursuant to statute, with negotiating the Drug Tariff (see below) on behalf of the community pharmacies. The National Pharmacy Association is a trade association, UK-wide and established in 1921, representing around half of NHS community pharmacies.

  2. The most important providers of medicines, drugs and appliances prescribed by doctors are the retail pharmacy businesses known as ``community pharmacies''. In 2015, community pharmacies dispensed over one billion NHS prescription items. Community pharmacies are categorised into small, medium and large by volume of items dispensed. They are also categorised by reference to ownership, as single (owned), chain (owning 2 to 20 pharmacies) and multiple (more than 20 pharmacies). Some pharmacies in multiple ownership are, nevertheless, small and medium pharmacies by dispensing volume.

  3. In his judgment, appealed before us, Collins J rejected the challenges of both Appellants. Before this court, the PSNC relies upon six grounds, namely that the judge: (1) ought properly to have concluded that the Secretary of State could not rationally have made the decision on the basis of the information obtained, pursuant to Secretary of State for Education & Science v Tameside Metropolitan Borough Council [1977] AC 1014; (2) wrongly concluded that the Secretary of State did not rely on an erroneous estimate of an average pharmacy's operating profit margin of 15%; (3) erred in assessing the significance of the failure to disclose and consult on that supposed operating profit margin; (4) erred in concluding that the non-disclosure did not render the consultation process unlawful, the judge reaching a conclusion inconsistent with his own findings; (5) wrongly discounted and failed to consider a letter addressing the supposed 15% margin, on the basis that the margin had not been relied on; and finally (6) ought to have concluded that the Respondent had unlawfully misused the relevant statutory provisions for the payment of pharmacies to achieve a ``fundamental restructuring'' of the community pharmacy system, without resort to amendment of primary statute.

  4. The NPA supported the case of the PSNC, but also relied upon a discrete ground namely that, in adopting the package of measures in relation to community pharmacies on 20 October 2016, the Secretary of State breached his obligation under section 1C of the National Health Service Act 2006 (``the 2006 Act'') to ``have regard to the need to reduce inequalities between the people of England with respect to the benefits they can obtain from the health service''.

  5. This is a judgment of the Court, to which we have all contributed.

    Historical Background

  6. The following paragraphs are intended to provide context for the Decision and our judgment.

  7. Patients need to be able to access drugs and services which have been prescribed for them by NHS healthcare professionals. Consequently, the services to be provided by the Secretary of State as part of the health service include ``pharmaceutical services'', defined by section 126(8) of the 2006 Act as the provision ``to persons who are in England'' of drugs, medicines and medical appliances ``which are ordered for those persons'', as well as ``such other services as may be prescribed'' and ``additional pharmaceutical services provided in accordance with a direction [by the Secretary of State] under section 127''.

  8. There are over one billion NHS prescriptions made per year. Although some are met by prescribing doctors, the vast majority are fulfilled by privately owned community pharmacies. By regulation 10(2)(a) of the National Health Service (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013 (SI 2013 No 349) (``the 2013 Regulations''), made under Part 7 of the 2006 Act, NHS England is required to keep ``a list of persons who undertake to provide pharmaceutical services in particular by way of the provision of drugs'', i.e. ``NHS pharmacists'' (see regulation 2).

  9. The primary obligation on an NHS pharmacist is to ``provide proper and sufficient drugs and appliances to persons presenting prescriptions for drugs and appliances ordered by healthcare professionals in pursuance of their functions in the health service...'' ([4], as expanded by [5-9] and [11-12], of Part 2 of Schedule 4 to the 2013 Regulations). They must also accept and dispose of unwanted drugs, presented to them for disposal ([13-14]).

  10. In addition, they have the following obligations:

    i) to give appropriate advice in relation to NHS prescription services [10] of Schedule 4;

    ii) to promote public health messages to members of the public ([16-18]);

    iii) to provide information to users of the NHS pharmacist's pharmacy about other healthcare providers and support organisations [19-20]; and

    iv) to provide advice and support to people caring for themselves or their families, including advice on managing a medical condition [21-22].

    To an extent, these advice-giving services overlap with the primary care services provided by GP practices.

  11. Community pharmacies are commercial entities, but they operate under a statutory scheme which has varied the degree of regulatory control from time-to-time. Prior to 1985, the pharmacy market was commercially open, but, following a decline in some areas in the 1960s and 1970s, differential payment arrangements were introduced in the 1980s. In particular, pharmacies with a lower dispensing volume were paid more per item than pharmacies with a higher dispensing volume. That led to a significant expansion in numbers. In the period 1980-85, the number of pharmacies in England and Wales grew by about 130 per year. Furthermore, the new pharmacies tended to cluster round medical surgeries, because of the tendency of patients to get a prescription filled at a pharmacy near a surgery where they had been prescribed medication.

  12. The National Health Service (General Medical and Pharmaceutical Services) Amendment (No 2) Regulations 1987 (SI 1987 No 401) introduced measures to regulate the market by imposing a condition that a new pharmacy could only be opened if it was considered ``necessary or desirable'' to secure adequate provision of pharmaceutical services in a particular neighbourhood (regulation 26(4) of the National Health Service (General Medical and Pharmaceutical Services) Regulations 1974 as inserted by regulation 2(2) of the 1987 Regulations). That stopped the expansion of the market, there being a net increase in the number of pharmacies of only 40 in the decade from 1991.

  13. Following concerns expressed by the Office of Fair Trading (``the OFT'') in its 2003 report, ``The control of entry regulations and retail pharmacy services in the UK'', the National Health Service (Pharmaceutical Services) Regulations 2005 (SI 2005 No 641) introduced some limited deregulation, notably by (i) including ``reasonable choice'' for consumers as a relevant factor in the assessment of applications under the ``necessary or desirable'' test, and (ii) excepting from the ``necessary or desirable'' requirement several categories of pharmacy, including those that agreed to open for 100 hours per week. A new pharmacy falling within an exempt category could open on the basis that it was commercially attractive to do so, and it did not have to show that there was a health need for it in the sense that it was ``necessary or desirable'' for securing adequate provision for their neighbourhood.

  14. That led to a fresh expansion in the number of pharmacies, but (i) the majority applied under an exemption, only 25% of new pharmacies applying under the (relaxed) ``necessary or desirable'' test; (ii) nearly 80% of new pharmacies opened less than 1km (later 1 mile) away from another pharmacy, compounding the clustering phenomenon; and (iii) this influx of new pharmacies did not result in any rise in the rate of pharmacy exit from the market. This resulted in the conclusions expressed by the OFT in its 2010 report, ``Evaluating the impact of the 2003 OFT study on the control of entry regulations in the retail pharmacy market'', stating (at [4.24]):

    ``Overall, this evidence suggests that an effect of the reforms has been to facilitate entry in areas already well served by pharmacies.''

    Those areas were generally urban.

  15. Three of the four exemptions from the ``necessary or desirable'' criterion, including the 100 hours pharmacies, were abolished in 2012 (by the National Health Service (Pharmaceutical Services) Regulations 2012 (SI 2012 No 1909)). As a result, the rate of increase in numbers of...

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