APPLIANCE CONTRACTORS
Consultation Document

Scottish Executive Health Department
18 June 2003

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Contents

Introduction
Background
Objectives
Proposals

Option A - Retention Of Single Rate On Cost With Revised Terms Of Service
Introduction of Service Standards
Retention of prescription as the authorisation for provision of the service
Introduction of discount clawback arrangements
Outlawing of Agency Arrangements
Revised terms of service provisions
Introduction of a Global Sum for appliance contractors

Option B - Replacement Of Current Arrangements With National Or Local Tendering

Option C - Choice Of Options A & B At Local NHS Board Discretion
Issues on Which Comments Are Sought
Where to Send Comments

ANNEX A
List Of Organisations To Which This Consultation Document Is Being Sent

ANNEX B
Other Options
Option D - Do Nothing
Option E - Pay Appliance Contractors On The Same Basis As Community Pharmacy Contractors
Option F - Introduce A Capitation System
Option G - Replace On-Cost Arrangements With A Fee Scale

APPLIANCE CONTRACTORS – CONSULTATION DOCUMENT

Introduction

1. The Right Medicine- A strategy for pharmaceutical care includes a commitment to review and modernise remuneration arrangements for community pharmacists. Negotiations are already in hand with the Scottish Pharmaceutical General Council (SPGC) to this end.
2. Appliance suppliers are a specific sub-set of NHS pharmacy contractors but, as the title suggests, they specialise in the supply (on prescription) of appliances, notably stoma and incontinence appliances. Appliance suppliers are subject to different remuneration arrangements to community pharmacists, but they must follow the same procedures to become an NHS contractor by applying for entry to an NHS Board’s pharmaceutical list, and thereby are subject to same terms of service as detailed in regulations. However, unlike community pharmacists, they are not subject to any formal standards or quality assurance in the way that pharmacists are bound by Royal Pharmaceutical Society requirements.
3. In recent years concern has grown as to whether the existing arrangements represent value for money, and particular concern has been expressed about the opportunities for fraudulent behaviour presented by the lack of clarity in existing arrangements. The Scottish Executive Health Department (SEHD) has therefore been looking at ways in which those arrangements might be improved, and this document sets out SEHD’s proposals.
4. This consultation document is being sent to all appliance contractors currently included on the pharmaceutical lists of NHS Boards/Trusts in Scotland and to the organisations listed at Annex A. It is also available at:

http://www.scotland.gov.uk/views/views.asp; and www.show.scot.nhs.uk.

5. Comments should be sent to the address at the end of this document by Friday, 19^th September 2003.
6. The Department of Health has embarked on a similar consultation exercise for England and Northern Ireland and this is available at: www.doh.gov.uk/appliancecontractors.

Background

7. As well as medicines, GPs can prescribe a range of dressings and appliances. These can be dispensed by community pharmacy contractors and dispensing doctors but they can also be dispensed by appliance contractors. There were 14 appliance contractors, on NHS Board/Trust’s pharmaceutical lists at 7 January 2003, of which 13 had undertaken some NHS dispensing in the previous year; 90% of items dispensed are accounted for by 6 contractors and 99% of dispensed items by 8 contractors. NHSScotland spent £1.53m million on paying appliance contractors for the services they provide (remuneration) in 2001-2002 and expects to spend around £1.75 million in 2002-2003, an increase of over 14%.
8. In 2001-2002, around 115,000 prescriptions for dressings and appliances were dispensed by appliance contractors, around 7% of the total. The gross ingredient cost (GIC) of those prescriptions was £6.1 million. Turnover through appliance suppliers accounted for 20% of the total dispensed through both appliance suppliers and community pharmacists in 2000-2001. Looking at the 2000-2001 figures in more detail, appliance contractors dispensed by value:

• 48% of stoma appliances;
• 3% of incontinence appliances;
• 2% of dressings; and
• 2% of other appliances (including catheters and trusses).

9. As can be seen from these figures, appliance contractors tend to specialise in the supply of stoma appliances, colostomy, urostomy and ileostomy bags and associated materials. Discharges involving colo-rectal or bladder surgery resulting in stomas in Scotland totalled 3,212 in 2000-2001 and 3,040 in 2001-2002. Some patients, such as those with ileostomies for Crohn’s Disease, may have ostomies for decades, others for only short periods of time.
10. The precise arrangements for the provision of appliances also vary across Scotland with in some areas one contractor receiving most or all types of the business available, whilst in other areas business is shared between a number of contractors either on local lists or on lists in other areas, with in all cases varying amounts of business passing through community pharmacy contractors. SEHD has seen no clear evidence of the relative benefits to patients of the different approaches.
11. The system for remunerating (paying for the service) and reimbursing (paying for the product supplied) appliance contractors has been unchanged for many years, and has diverged markedly from the system which applies to community pharmacy contractors. The main differences are:

• the bulk of remuneration comes in the form of "on-cost" on the price of a product, at a fixed rate of 25% in Scotland. There is no additional dispensing fee. (In England and Wales, by contrast, a sliding scale operates for on-cost which ranges from 25% where up to 505 prescriptions are dispensed each month from one set of premises to 15.8% where more than 2,425 prescriptions are dispensed each month.) 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 community pharmacy contractors there is no recovery of any discount which may be available to the appliance contractor; and
• the NHS pays VAT on services and products supplied by appliance contractors.

12. The consequences are:

• overall, appliance contractors are paid more than community pharmacy contractors, especially on more expensive items. In its turn, this leads to "agency arrangements" under which prescriptions for appliances dispensed by community pharmacy contractors are passed on to appliance contractors for submission to the Practitioner Services Division (PSD – the body which pays community pharmacy contractors and appliance contractors on behalf of NHS Boards/Trusts), with the subsequent payment being split between the two parties; and
• there is an incentive for suppliers from outside Scotland to route Scottish prescriptions through Scottish offices rather than a dispensing point in England or Wales, thus benefiting financially irrespective of the level of service provided.

13. Appliance contractors often know a great deal more about the range of appliances available than GPs, who may therefore be considerably influenced in their prescribing by appliance contractors.
14. However, the services provided by appliance contractors are often valued by patients who welcome provision of services such as home delivery, personalised services and other aspects.
15. Many of the larger appliance contractors are understood to make significant cash and service contributions to pan UK NHS stoma care, and to a lesser extent, incontinence care. Numbers are difficult to come by. One industry estimate is that companies spend between them £8 million a year "sponsoring" (ie paying the employment costs of) specialist stoma and incontinence nurses in the NHS across the UK. In a number of NHS Boards/Trusts across the UK, the stoma nursing service is provided directly by an appliance contractor, and there is no NHS service at all. One list which the Department of Health has seen, suggests that 120 hospitals or health centres were receiving sponsorship in cash or kind, covering 187 sponsored posts and 37 posts directly employed by appliance contractors. 5 companies in all were involved.
16. There are no central figures for overall numbers of specialist nurses in incontinence and stoma care. One personal and informal estimate is that there are 450 NHS employed stoma nurses in the UK, the majority of whom have wider remits covering gastro-enterology or colo-rectal services, of which over half are sponsored by companies; and that companies themselves employ a further 60.
17. It has been suggested that sponsoring nurses may compromise clinical judgement and lead to patients being recommended to use the sponsor’s dispensing services or products. Whether or not this is true, what is clear is that if the companies were to withdraw this contribution to NHS stoma care, the NHS would have to make up the deficit.

Objectives

18. In reviewing the arrangements for addressing the needs of patients for appliances, SEHD has had the following objectives in mind, to:

• establish quality of service provision to meet patient needs as the main criterion;
• ensure that provisioning arrangements are initiated by NHS personnel in the position to manage the service most effectively;
• allow contractors a reasonable return, recognising that this needs to support the additional services which are appreciated by patients;
• remove as far as possible the potential for exploitation of cross Border differences in remuneration arrangements; and
• minimise disruption and administrative costs so far as is consistent with the achievement of the first three objectives.

Proposals

19. SEHD has considered a range of options against these objectives, and concluded that these would best be met by adoption of one of the three options listed below. Other options which have been considered are set out in Annex B. SEHD’s proposals and specific points on which views are sought are highlighted.

Option A - Retention Of Single Rate On Cost With Revised Terms Of Service

Introduction of Service Standards

20. Our first objective is to establish clear service standards. This will also serve to help justify the ‘reasonable return’ for contractors that is our third objective. As a consequence, it must be clear that any additional services are both desirable, bearing in mind the type of appliance being supplied, and that they are actually being provided.
21. SEHD therefore proposes that service standards should be established for the supply of ostomy and incontinence appliances and trusses. These would fall to be monitored by the NHS Board/Trust on whose list the contractor appears, though we would welcome views, particularly from NHS Boards/Trusts, on the possibility of using a centralised monitoring service, based at CSA, duly co-ordinated with any similar monitoring operation that might be established elsewhere in the UK . Pan Scotland or UK wide monitoring might be particularly relevant where the bulk of the contractor’s business is through mail order and thus with patients not in the NHS Board/Trust area.
22. We consider that the service standards should include:

• home delivery within two working days if requested by the patient;
• measuring and fitting at the patient’s home if requested;
• flange cutting and customisation on request;
• a telephone help-line, staffed by suitably trained or qualified people; and
• the supply of disposal bags and wipes where appropriate.

23. Where the standards were met, remuneration for appliance contractors would be at a level approximating to the current level. This could also have implications for those community pharmacy contractors who provide a similar level of service.
24. Where the standards were not met, and for other appliances where this level of service is not required, SEHD proposes that remuneration of appliance contractors should be at the same rate as for community pharmacy contractors.

Retention of prescription as the authorisation for provision of the service

25. Our second objective is to ensure that provisioning arrangements are initiated by NHS personnel in the position to manage the service most effectively. There are concerns that a prescription based system places this responsibility on prescribers who are not well placed to manage the process.
26. Views are sought as to how such management could be made more effective, within the framework of the present arrangements.

Introduction of discount clawback arrangements

27. There is no clear reason why NHSScotland should pay more for an appliance if it is dispensed by an appliance contractor rather than a community pharmacy contractor (other than the inevitable cost of VAT). The reimbursement system is not intended to pay for the provision of services, but for a product. SEHD proposes that the same rate of discount recovery should apply regardless of whether the supply is by a community pharmacy contractor or an appliance contractor. ‘Bespoke’ appliances, such as trusses etc, are not subject to discount recovery even when supplied by community pharmacy contractors, and this would continue.
28. The gross ingredient cost (GIC) of products dispensed by appliance contractors in 2001-20022 was £6.1 million. Applying the current Scottish 'proprietary' pharmacy discount rate would save around £0.5 million.

Outlawing of Agency Arrangements

29. This discussion paper is based on the assumption that it is justifiable to pay higher rates of remuneration to appliance contractors than to community pharmacy contractors when they provide additional services. (This is not to be confused with the view that there is no justification for paying differential prices for the appliances themselves.) So long as there is a difference between rates of remuneration for the same item, there will be an incentive for community pharmacy contractors and dispensing doctors to find ways of putting prescriptions through appliance contractors even for those patients who do not want the additional services for the provision of which the NHS is paying the appliance contractor the higher rate. That is an unjustifiable waste of public money. What is more, wherever it is difficult to tell whether the service has been provided from an appliance contractor’s premises or a community pharmacy contractor’s premises, the prevention and detection of fraud is made more difficult.
30. SEHD proposes, therefore, that such arrangements should be banned, by amending terms of service to:

• prevent community pharmacy contractors and dispensing doctors (except in cases of urgency) presenting prescriptions to appliance contractors on behalf of patients and by banning appliance contractors from dispensing prescriptions (except in cases of urgency) which they know or should reasonably realise are being presented to them by a pharmacy contractor on behalf of a patient; and
• outlawing the payment of any introductory commission by appliance contractors to other medical or pharmaceutical contractors.

31. Since this is a matter affecting the terms of service of community pharmacy contractors and general practitioners, SEHD will be consulting the SPGC and the Scottish General Practitioners Committee (SGPC) formally on this issue before laying of any Regulations.

Revised terms of service provisions

32. Our fourth objective is to remove as far as possible the potential for exploitation of cross Border differences in remuneration arrangements. We have therefore ruled out adoption of the graduated on-cost system currently in use in England and Wales. This is in the light of the perverse incentives that can generate by encouraging contractors to route prescriptions to points where maximum reimbursement can be achieved with no extra benefit to the patient.
33. To reduce unnecessary costs for suppliers and inconvenience for patients, we intend to clarify that, mail order provision of service, without the need for goods to cross the threshold of the registered address of the contractor, is acceptable where in the opinion of the NHS Board/Trust this meets patient needs. This is provided that, in the opinion of the NHS Board/Trust, the needs of the patient have been met and a convenient local service has been delivered in accordance with the draft service standards outlined at paragraph 20 above.
34. We believe that amending the current arrangements in the way outlined above meets our fifth objective to minimise disruption and administrative costs, although it does not address effectively our second objective.

Introduction of a Global Sum for appliance contractors

35. An issue on which SEHD has not reached a view is whether there should be a global sum for appliance contractors. Such an arrangement exists for community pharmacy contractors. In brief, the global sum is the amount of money which SEHD considers appropriate to pay for the provision of pharmaceutical services by community pharmacy contractors. The various fees and allowances are set in the light of forecast dispensing volumes, with the aim of paying overall the global sum less any overpayment (or plus any underpayment) from the previous year.
36. The introduction of a global sum for appliance contractors would be an effective way of capping costs and minimising any perverse incentives arising from the remuneration system (eg the incentive to encourage the use of more expensive appliances in an on-cost regime). However, issues would arise regarding the size of the global sum. For example, if the amount of dispensing undertaken by appliance contractors increased by a higher or lower percentage than the amount of dispensing undertaken by community pharmacy contractors, to what extent should this be reflected in differential percentage increases in the respective global sums? These problems are exacerbated in Scotland by an expectation that there will continue to be a legitimate cross Border traffic in prescriptions to specialist providers elsewhere in the UK.
37. SEHD invites comments as to how, in the absence of a global sum, most effective prescribing could be achieved in the light of actual need and the particular opportunities available to influence prescribing in the area of appliances.

Option B - Replacement Of Current Arrangements With National Or Local Tendering

38. A more radical option is to tender for the supply of certain appliances (eg stoma appliances). There are a number of sub-options. Tendering could be done on either a local or a national basis. It could be for the service element only, or for the full service, including the cost of products. There would almost certainly need to be an expert national team to advise on the tenders even if the tenders were local in coverage, since it would be unreasonable to expect every NHS Board/Trust to develop expertise in what is a relatively small aspect of the NHS.
39. A tendering approach allied to NHS Board wide delivery of a full service to patients, from nurse led assessment to home delivery, has been introduced in Scotland in a number of NHS Board areas, including Lothian and Greater Glasgow in relation to products for urinary incontinence. Patient reaction has been positive and the NHS Boards concerned consider that an equitable value for money service, initiated and managed by appropriately qualified personnel, has been achieved.
40. Tendering may of course remove business not only from appliance contractors but, to a greater or lesser extent depending on the type of appliance, also from community pharmacy contractors. Depending on how it is done, it could also reduce patient choice (eg if only a limited range of appliances were to be available, or if there was only one supplier per geographical area). On the other hand, it could provide a more open replacement for sponsorship of nurses. There may be some risks of creating monopolies, although these already effectively exist in some parts of Scotland as a consequence of existing arrangements.
41. We consider that this option potentially meets our first 4 objectives viz to:

• establish quality of service provision as the main criterion;
• ensure that provisioning arrangements are initiated by NHS personnel in the position to manage the service most effectively;
• allow contractors a reasonable return, recognising that this needs to support the additional services which are appreciated by patients, including the sponsorship of nurses; and
• to remove as far as possible the potential for exploitation of cross Border differences in remuneration arrangements.

42. However, there may be some short term disruption in moving to a new system. There does not appear to be any evidence from continence service arrangements that undue costs would be entailed should some NHS Boards/Trusts wish to consider this approach. Some NHS Boards/Trusts might therefore wish to adopt this approach for the provision of some types of appliances. Since this means moving away from the supply of appliances on prescription, the involvement and consent of local GPs would clearly be crucial to the success of any such initiative.

Option C - Choice Of Options A & B At Local NHS Board Discretion

43. It is possible that the needs of patients in any given locality may be best addressed by leaving the choice of supply arrangements between the options outlined in Options A & B above to local rather than national determination.
44. This approach would potentially achieve the same of our objectives as option B with the potential for a more tailored service at local level.

Issues on Which Comments Are Sought

• Are the objectives which SEHD is attempting to achieve the right ones?
• Is SEHD right to consider that a revision of the arrangements for paying appliance contractors best meets the objectives of the review, or is one of the other options outlined in Annex B to be preferred?
• Are the service standards, and the types of appliance to which those standards should apply, proposed by SEHD appropriate?
• Where the standards are met, should payment continue to be a flat rate of on-cost or would a tendering option deliver a more cost effective service?
• Should there be a global sum for appliance contractors?
• Is SEHD right to consider that there is no justification for paying more for an appliance when it is dispensed by an appliance contractor rather than a community pharmacy and that, therefore, reimbursement of appliance contractors should be subject to the same discount deduction as for community pharmacy contractors?
• Is SEHD right to consider that agency arrangements should be banned? Are the proposed changes to terms of service sensible?

Where to Send Comments

45. Comments on this document should be sent to appliancecontractorsconsultation@scotland.gsi.gov.uk

    or by post to:

    Mr Paul Thomson
    Primary Care Division
    Scottish Executive Health Department
    1 East Rear
    St Andrew’s House
    Regent Road
    Edinburgh
    EH1 3DG

    to arrive by Friday, 19^th September 2003.

46. You will wish to note, unless you specifically request that your comments (or any part of them) be treated as having been made in confidence, your response to this consultation may be made public. Corporate confidentiality clauses automatically attached to e-mails will not be taken into account.

Primary Care Division
Scottish Executive Health Department
18 June 2003

ANNEX A

List Of Organisations To Which This Consultation Document Is Being Sent

British Colostomy Association
British Healthcare Trades Association
British Medical Association
Common Services Agency
Continence Foundation
Guild of Healthcare Pharmacists in Scotland
Ileostomy and Internal Pouch Support Group
Macmillan Cancer Relief
NHS Confederation
NHSQIS
Picker Institute Europe
Royal College of General Practitioners
Royal College of Nursing
Royal Pharmaceutical Society of Great Britain
Scottish Association of Health Councils
Scottish General Practitioners Committee
Scottish Medicines Consortium
Scottish Pharmaceutical General Council
Scottish Prescribing Advisors Association
Scottish Trust Chief Pharmacists Association
Urostomy Association

ANNEX B

Other Options

1. In the course of undertaking this review, SEHD has looked at a number of other options, which are set out below.

Option D - Do Nothing

2. This option would fail to remove the weaknesses inherent in the current arrangements. It does not, therefore, meet the objectives of the review.

Option E - Pay Appliance Contractors On The Same Basis As Community Pharmacy Contractors

3. Paying appliance contractors (ie remunerating and reimbursing them) on the same basis as community pharmacy contractors appears logical. But it assumes that they provide the same service as community pharmacy contractors, and that is not generally the case. Particularly in relation to their core business, the supply of stoma appliances, appliance contractors generally provide more individualised services than retail community pharmacy contractors. Appliance suppliers can:

• deliver direct to customers;
• nearly always supply within a couple of days or so;
• "cut the flanges" of ostomy appliances, that is they cut the aperture of the ostomy bag to the shape of the individual’s stoma (most users can do this for themselves, but those with poor eyesight or arthritis of the hands may not be able to, and it is time consuming – colostomists can use up to three bags a day); and
• often provide help-lines, and individual fitting and support services by specialist nurses or fitters.

4. Community pharmacy contractors will sometimes deliver direct to patients, but it is not their usual practice. They do not keep significant stocks of the more expensive ostomy or incontinence products because the call for them is small. Some can arrange for flange cutting, though most do not. They may give advice from their general knowledge but rarely, if ever, have specialist knowledge or visit patients at home, though those supplying continence products to care homes may well have a more significant advisory and support role. So appliance contractors provide ‘added value’ services which patients welcome.
5. As the cut in payments to appliance contractors would be significant there would undoubtedly be a reduction in patient choice and it is unlikely that additional services would continue to be provided. This option would not meet the objective of allowing appliance contractors a reasonable return, bearing in mind the need to support the provision of additional services.

Option F - Introduce A Capitation System

6. A radical option would be move to a capitation system. Under such a system, appliance contractors would receive a fixed sum for each patient (or more likely type of patient) to whom they provide services. This sum would be intended to cover the cost of all services and products supplied. Such an arrangement would encourage contractors to compete for patients on the basis of the service they provide, whilst reducing any incentive to supply excessive quantities, or to recommend unnecessarily expensive products. But it would be difficult to administer (requiring registration lists etc) and would not therefore meet the final objective.

Option G - Replace On-Cost Arrangements With A Fee Scale

7. A further possibility would be to abolish on-cost, and remunerate appliance contractors through fees. One advantage of this would be that it would remove any incentive to encourage the prescription of more expensive appliances. (Appliance contractors often know a great deal more about the range of appliances available than GPs, who may therefore be considerably influenced in their prescribing by appliance contractors.) But it would be a big change with unpredictable effects. For example, it would provide an incentive to encourage more frequent prescriptions, which may not be convenient for patients unless robust repeat arrangements were also put in place. There would be a need to consider issues such as whether the essentials such as bags might attract a higher fee than accessories such as swabs and deodorants.