Pharmacy contract claims denied

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The contract, which came into effect in April 2005, capped at £500 million the profit pharmacy contractors can make from purchasing medicines and then dispensing them on the NHS.

Accusations that the contract was being mismanaged came after it emerged in a parliamentary written answer that the cap was exceeded by £300 million in 2005-06 and £511 million in 2006-07.

However, the DoH said the £300 million excess was recovered in 2006-07 and the £511 million excess was being clawed back in the current financial year.

"The reimbursement prices of generic medicines and fees paid to contractors were adjusted in October 2006 and 2007 to recover the excess margin," a spokesman added.

Pharmacists are reimbursed for the medicines they dispense against NHS prescriptions.

The Government does not directly regulate medicine prices, but uses various mechanisms to ensure value-for-money.

In the case of generic medicines, the level of reimbursement is established under the so-called drug tariff system which is updated monthly.

As the buying power of pharmacies varies, they often secure medicines at a lower price than that set by the tariff, which in turn can increase profits beyond the cap level.

Public health minister Dawn Primarolo advised: "The reimbursement to the pharmacists is based on the NHS drug tariff, which is updated monthly. We periodically carry out a survey to establish the level of excess margin."