QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen (on the application of)
The Pharmaceutical Services Negotiating Committee and Susan Sharpe
|- and -
|Secretary of State for Health
- and -
National Pharmacy Association
And Between (2):
|The Queen (on the application of)
National Pharmacy Association
|- and -
|Secretary of State for Health
For the Claimant in (2) and the Interested Party in (1): Mr David Lock QC and Mr David Blundell (instructed by Knights 1759)
For the Defendant in both claims: Mr James Eadie QC, Ms Sarah Wilkinson and Mr Tom Cleaver (instructed by the Government Legal Department)
Hearing dates: 21st, 22nd and 23rd March 2017
Crown Copyright ©
Mr Justice Collins:
"(1) The Board must, in accordance with regulations, make the arrangements mentioned in subsection (3).
(2) The Secretary of State must make regulations for the purpose of subsection (1).
(3) The arrangements are arrangements for the provision to persons who are in England of –
(a) proper and efficient drugs and medicines and listed appliances which are ordered for those persons by a medical practitioner in pursuance of his functions in the health service, the Scottish health service, the Northern Ireland health service or the armed forces of the Crown.[(b) and (c) Apply the same as (a) to dental practitioners]…..(e) Such other services as may be prescribed….
(8) The services provided under this section are, together with additional pharmaceutical services provided in accordance with a direction under section 127, referred to in this Act as "pharmaceutical services"."
Section 127 empowers the Secretary of State to direct the Board to arrange for the provision of additional pharmaceutical services. The Board is the National Health Service Commissioning Board established under s.1H of the 2006 Act. Its duty is concurrently with that of the Secretary of State to arrange for the provision of the services required to be provided under the Act, save that there are some services that are specifically to be provided by the Secretary of State or local authorities.
"(6) Subject to this section and section 165, regulations may make provisions about determining remuneration under this section and may in particular impose requirements with which determining authorities must comply in making or in connection with determinations (including requirements as to consultation and publication).
(7) Regulations may provide that determination may be made by reference to any of –
(a) rates of remuneration of any persons or any descriptions of persons which are fixed or determined or will be fixed or determined, otherwise than by way of a determination under this section,
(b) scales, indices or other data of any description specified in the regulations.
[(8) enables the scales, indices or other data to be those current or to take effect subsequently.
(9) deals with the dates from which regulations can have effect.]
(10) A reference in this section or section 165 to a determination is to a determination of remuneration under this section."
"(1) Before a determination is made by the Secretary of State which relates to all persons who provide pharmaceutical services, or a category of such services, he—
(a) must consult a body appearing to him to be representative of persons to whose remuneration the determination would relate, and(b) may consult such other persons as he considers appropriate.
(2) Determinations may make different provision for different cases, including different provision for any particular case, class of case or area.
(3) Determinations may be—
(a) made in more than one stage,(b) made by more than one determining authority,(c) varied or revoked by subsequent determinations.
(4) A determination may be varied—
(a) to correct an error, or(b) where it appears to the determining authority that it was made in ignorance of or under a mistake as to a relevant fact.
(5) Determinations may, in particular, provide that the whole or any part of the remuneration—
(a) is payable only if the determining authority is satisfied as to certain conditions, or(b) must be applied for certain purposes or is otherwise subject to certain conditions.
(6) Remuneration under section 164 may be determined from time to time and may consist of payments by way of—
(a) salary,(b) fees,(c) allowances,(d) reimbursement (in full or in part) of expenses incurred or expected to be incurred in connection with the provision of the services or instruction.
(7) At the time a determination is made or varied, certain matters which require determining may be reserved to be decided at a later time.
(8) The matters which may be reserved include in particular—
(a) the amount of remuneration to be paid in particular cases,(b) whether any remuneration is to be paid in particular cases.
(9) Any determination may be made only after taking into account all the matters which are considered to be relevant by the determining authority.
(10) Such matters may include in particular—
(a) the amount or estimated amount of expenses (taking into account any discounts) incurred in the past or likely to be incurred in the future (whether or not by persons to whose remuneration the determination will relate) in connection with the provision of pharmaceutical services or of any category of pharmaceutical services,(b) the amount or estimated amount of any remuneration paid or likely to be paid to persons providing such services,(c) the amount or estimated amount of any other payments or repayments or other benefits received or likely to be received by any such persons,(d) the extent to which it is desirable to encourage the provision, either generally or in particular places, of pharmaceutical services or the category of pharmaceutical services to which the determination will relate,(e) the desirability of promoting pharmaceutical services which are—(i) economic and efficient, and(ii) of an appropriate standard.
(11) If the determination is of remuneration for a category of pharmaceutical services, the reference in subsection (10)(a) to a category of pharmaceutical services is a reference to the same category of pharmaceutical services or to any other category of pharmaceutical services falling within the same description."
PSNC falls within s.165(1)(a) as a body which represents those who provide pharmaceutical services. It is to be noted that s.165(9) makes the defendant the judge of what matters are considered to be relevant and so to be taken into account in making a determination. The court can only intervene if persuaded that the defendant's failure to take a particular matter into account was unreasonable in the Wednesbury sense.
"(1) The Secretary of State must continue the promotion in England of a comprehensive health service designed to secure improvement –
(a) in the physical and mental health of the people of England, and
(b) in the prevention, diagnosis and treatment of physical and mental illness.
(2) For that purpose, the Secretary of State must exercise the functions conferred by this Act so as to secure that services are provided in accordance with this Act."
Sections 1A to 1I were added by the 2012 Act. Section 1A confers a duty on the defendant to exercise his functions with a view to securing continuous improvement in the quality of services provided to individuals for or in connection with the prevention, diagnosis or treatment of illness or the protection or improvement of public health. He must in particular act with a view to securing continuous improvement in the outcomes that are achieved from the provision of the services. Section 1C is of particular importance in the grounds relied on by the NPA. It provides:-
"In exercising functions in relation to the health service, the Secretary of State must have regard to the need to reduce inequalities between the people of England with regard to the benefits that they can obtain from the health service."
Section 2B requires local authorities and the defendant to take such steps as they consider appropriate for improving the health of the people of England. Such steps are to include (s.2B(3)) the provision of information and advice and services or facilities for the prevention, diagnosis and treatment of illness and to promote healthy living.
"The extent to which we can know precisely….costs, margins and the profitability is limited to:
- NHS data about the level of NHS payments made
- Information we can glean from Companies House data
- Informal conversations with industry insiders."
The report went on to consider the impact of remuneration changes recognising that there would be a differential impact depending on the size of the particular owner of which it formed a part. In paragraph 38, this was said:-
"For the purposes of an analysis we have looked at the impacts of the proposed changes on different sized pharmacies and also according to company [viz:ownership] type."
There then was a table which set out the numbers of different types divided into small, medium and large. Small involved dispensing less than 4,030 items, medium 4,030 to 8,750 and large over 8,750. There follows an assessment of the numbers of each which were single, chain (with ownership of 2 to 20 pharmacies) and multiple. Some pharmacies in multiple ownership would qualify as small because of their low dispensing volume whether in urban or rural areas. The same would apply to single or chain pharmacies.
"43. Individual, independent pharmacies (where there is only one pharmacy in the company) are making a lower margin on drug purchases, have a relatively fixed costs base and cannot spread cost across a wider business group and diversify their sources of income. 3,683 of pharmacies are independent – this is just under a third of pharmacies in England. As such they are the most vulnerable to reductions in NHS income. Significant levels of debt would increase this pressure.
44. This risk might be mitigated by higher levels of non-NHS sales in individual cases."
"In my judgment, the CREEDNZ Inc case 37  INZLR 172 (via the decision in the re: Findlay  AC 318) does not only support the proposition that where a statute conferring discretionary power provides no lexicon of the matters to be treated as relevant by the decision-maker, then it is for the decision-maker and not the court to conclude what is relevant subject only to Wednesbury review. By extension it gives authority also for a different but closely related proposition, namely that it is for the decision-maker and not the court, subject again to Wednesbury review, to decide upon the manner and intensity of inquiring to be undertaken into any relevant factor accepted or demonstrated as such."
Laws LJ in addition relied on observations of Neill LJ in R v. Kensington and Chelsea Royal LB Ex p. Bayani (1990) 22 HLR 406 at p.415 where he said:-
"The court should not intervene merely because it considers that further inquiries would have been sensible or desirable. It should intervene only if no reasonable housing authority could have been satisfied on the basis of the inquiries made."
"It has to be remembered that consultation is not litigation: the consulting authority is not required to publicise every submission it receives (absent some statutory obligation) to disclose all its advice. Its obligation is to let those who have a potential interest in the subject matter know in clear terms what the proposal is and exactly why it is under positive consideration, telling them enough (which may be a good deal) to enable them to make an intelligent response. The obligation, although it may be quite onerous, goes no further than this."
Lord Wilson observed in paragraph 26 that the degree of specificity required might be influenced by the identity of those being consulted. Secondly, what Simon Brown LJ stated in R v. Devon CC ex p. Baker  1 All ER 73 was material. At p.91 of the report he said this:-
"The demands of fairness are likely to be somewhat higher when an authority contemplates depriving someone of an existing benefit or advantage than when the claimant is a bare applicant for a future benefit."
Since it is recognised by the defendant that the cuts are likely to result in some closures, there will not only be deprivation of an existing benefit in reduction of remuneration but removal of an existing business and, it may be, livelihood. Thus the demands of fairness must be at a relatively high level.
(1) A dispensing fee for every prescription item dispensed. This amounted in 2015/2016 to 90p per item.
(2) An establishment payment which was a contribution to certain fixed costs banded by prescription volume if that volume exceeded 2,500 items per month. The amount payable in 2015/16 was £23,278 which rose to a maximum of £25,100 per annum if the volume was over 3,150 per month.
(3) A variable practice payment. If the volume was 2,500 or more, the practice payment amounted to 52.2p per item; otherwise, it was a fixed amount of £600 per year. Practice payments related to a range of activities involved in providing essential services and auxiliary aids for those who qualified under the Equality Act 2010. These payments totalled some £549 million.
(4) Payments for providing an electronic prescription service. These involved implementation payments totalling £2,600 (these were not repeated) followed by £200 per month to cover ongoing costs. The total of these was £27 million.
(5) A repeat dispensing payment for those pharmacies which had properly trained staff worth £125 per month. These totalled £17 million.
(6) Payments for advanced services.
"Overall, community pharmacies would see a cut of 4% on average in remuneration in 2016/17 and 7.4% in 2017/18….For community pharmacies that do not qualify for PhAS, this reduction is equivalent to 4.6% on average in remuneration in 2016/17 and 8.3% in 2017/18. For pharmacies not receiving the PhAS or the quality payment, the average reduction in remuneration is 10.9% in 2017/18 (the quality payment is first introduced in 2017/18). Those numbers assume that all community pharmacies receive an equal share of the quality payment."
"These reforms are likely to be received very negatively by the pharmacy sector given the level of funding reduction. Normally negotiations with the PSNC are concluded with an agreement, but it is likely we would need to impose this funding cut, which would be unprecedented. There is a strong possibility of a media and public backlash if local pharmacies are forced out of business as a result. We will need to reassure the sector the increased funding for local pharmacy services in primary care, that is influenced and prioritised locally, and aligned with new care models, is in some way ring fenced. Careful political handling will be essential."
"The letter makes clear in the section headed 'making efficiencies' that the government is intending to reduce the number of community pharmacies. [None of those seen] in previous meetings have been prepared to elaborate to allow us to understand your proposals or the rationale for them. You referred to analysis and modelling but have not made this available to us, so PSNC could not examine your plans. Nor will you state how many pharmacies you expect or intend will close. You did however proffer the view that your PhAS has been very carefully developed with lots of underpinning analysis and will apply to 'many hundreds of pharmacies'."
She went on to state that the proposals did not seem to have been formulated with advice from those with expertise in community pharmacy. The first sentence of the cited passage overstates what was said in the 17 December 2015 letter, but reflects the view which PSNC had formed from the outset, no doubt to an extent driven by the observations of Mr Ridge that there were 2,500 too many pharmacies.
"….PSNC has always sought to work collaboratively with the government, and has been able to do so for many years. But that collaboration is challenged by what seems very clearly to be ill-informed policy driven by an equally ill-informed view that there is surplus funding that can be extracted from the sector. Following the PSNC meeting I advised [JH] that we cannot agree to commence negotiations before we have an opportunity to understand fully your plans and the analysis underpinning them. We believe we are entitled to this material but it has not been forthcoming."
"39. Reducing income would mean that community pharmacies must reduce their costs, change their business model or accept reduced profits, and in some circumstances this could mean pharmacies become economically unviable. However, for the reasons outlined below, this is not possible to predict.
40. There is no reliable way of estimating the number of pharmacies that may close as a result of this policy, and the potential impacts to this Impact Assessment are assessed on the basis that there is a scenario where no pharmacy closes."
This last observation is somewhat strange since it has been accepted, as we have seen, that even on the 15% margin a number of closures were likely to result. And in paragraph 43 the 15% is said to have resulted from an 'indicative analysis' based on 80 chains and multiples from Companies House. It is this analysis, for what it was worth, which was not disclosed nor were PSNC informed of its existence. It is far from clear why it was not disclosed since it was material inasmuch as it could be said that a 6% (or 4%) reduction against a 15% margin would not be likely to mean that for many pharmacies closure would occur. As I have said, recognising its failings, Mr Eadie has submitted that when the decision is looked at overall, it had no significance.
"The addition of the three letter word is to emphasise the quality of the consideration which ….a public authority must give."
In R (Meany) v. Harlow DC  EWHC 559 (Admin), Davis J had said this:-
"The situation requires that the public body had 'due regard' to the specified matters; and what is 'due' depends on what is proper and appropriate to the circumstances of the case. Therefore, if a challenge is made, the question of due regard requires a review by the court. It is not simply a question of determining whether no regard at all was had to the statutory criteria."
This led to an application to refer to statements made by the then minister when introducing the legislation that became s.1C in reliance on Pepper v. Hart.
"Health inequalities are differences between people or groups due to social, geographical, biological or other factors. These differences have a huge impact, because they result in people who are worst off experiencing poorer health and shorter lives."
In 2013 an NHS England report observed that in 2007 average life expectancy reduced by a year of life for every tube stop passed from central London going east. While some parts of what were deprived areas in East London have been developed and are now not so deprived, the report identified the reality of deprivation. Overall there has been no recognisable improvement and the inequalities continue to exist. They will be at their highest in deprived areas because there will in such areas be a greater need for access to services provided by the NHS which includes pharmaceutical services. And it is in these areas, because of the greater need, that there has been a considerable amount of the clustering which the changes are designed to avoid.
"Overall the PhAS is expected to mitigate the impact of any potential pharmacy closures in isolated areas and areas where pharmacy provision is sparse relative to other areas. We do not consider that the proposals will have any significant impact on health inequalities and we expect that the fact that PhAS and other proposals (such as the Pharmacy Integration Fund) will result in pharmacy funding being better focused on areas where there is most need for it."