DISTRICT HEALTH BOARDS NEW ZEALAND

INCORPORATED

17/11/2009

NATIONAL BASE COMMUNITY PHARMACY AGREEMENT

This communication is intended to accompany and clarify the changes in the new Pharmacy Services
Agreement (the Agreement). It is not part of or supplementary to the Agreement, nor does it
modify or qualify what is contained in the Agreement. The Agreement will, once entered into, form
the entire agreement between a DHB and a pharmacist in relation to the provision of pharmacy
services. Accordingly, this communication does not create binding obligations or other legal
consequences.

This document sets out some detail regarding initiatives DHBs are currently undertaking or looking
into as well as summarising the main changes to the Agreement and directing pharmacists to the
clauses that have been amended. Each pharmacist should take the time to read the Agreement in
full and consider the actual wording of each clause. The summary below is intended to assist
pharmacists to read and digest the Agreement by referring to the main changes. It should not be
used to interpret or colour the wording of the specific provision of the Agreement.

DHBs have signed off a package to be offered to community pharmacies from 1 March 2010. The
package is consistent with the wide ranging discussions that occurred during the consultation process
held from July to October with five pharmacy agents. Feedback was also received during the process
from pharmacies that connected via the DHBNZ website, Pharmacy Today or directly through the
agents.

The consultation process emphasised that investment into the base agreement should facilitate
strategic change rather than favouring the status quo, and assist in stabilising the sector while
change occurs. The investment had to be affordable, and justifiable in terms of priority. Pharmacy
dispensing fee expenditure has had, and is forecast to continue to have, a strong growth path driven
by the primary care access policies and earlier uptake of Pharmaceutical Schedule changes than was
forecast. This will lead to a significant increase in costs to DHBs over the term of the Agreement
without a corresponding increase to the community pharmaceutical budget. Accordingly, the changes
to the previous Agreement to be put in place for the 18 month term of the new Agreement (with a
view to strategic changes and developments during that time) are aimed at reducing irritants for
pharmacy while recognising that DHBs do not have the financial resources to increase the dispensing
fee or commit significant expenditure elsewhere.

Package

a. Term

1. The term of the new Agreement will be for eighteen months i.e. from 1 March 2010 to 31
August 2011 (see clauses B2.1 and B2.2).

2. DHBs will continue to be able to offer new arrangements at any point within the term of the
Agreement through provider-specific terms which are contained within Part P of the
Agreement.
b. Funding

1. DHBs will not ask PHARMAC to intervene by policy changes, nor do they propose to intervene
themselves by policy changes, to lower the forecast growth rate in dispensing fee
volumes/expenditure during the term of the new Agreement, so that the sector is not
destabilised while the change platform and/or new arrangements are put in place. The DHBs
understand that PHARMAC will undertake its usual range of activities, taking into account
likely effect on the sector. DHBs will continue to undertake local initiatives that improve
prescribing quality and patient outcomes, including medicines management, services in
residential care and other initiatives..

2. DHBs will make a final payment to community pharmacy from the remainder of the $3 million
agreed for the Wholesale Uplift Fee by 31 December 2009 which will cover the calendar year
2010. This amount, in the order of $600K depending on PHARMAC’s final analysis, has
already been budgeted by DHBs in 2008/09. PHARMAC has a meeting planned with the
sector for 27th November to present its final analysis.

3. DHBs are looking at providing new funding of $500K to manage the additional costs being
passed onto community pharmacies by wholesalers, while PHARMAC seeks feedback on the
Pharmaceutical Subsidy Eligibility and Delivery Review out at the moment.. This funding
would be made available for the 2010/11 year to recognise Special Foods in particular, and
the distribution mechanism has yet to be determined.

4. DHBs are looking at providing PHARMAC with a pool of up to $3M in the 2010/11 financial ear
(subject to DHBs, PHARMAC Board and Ministerial agreement) to pay for brand switches
according to their frequency and significance. This would recognise the contribution of
pharmacy to the successful introduction of material brand switches, over and above that
recognition contained in the dispensing fee. PHARMAC will be tasked to create a mechanism
and formula to pay for brand switches.

c. Summary of changes to the Agreement

Fees and payments

1. The dispensing fee will remain at $5.30 during the term of the Agreement, i.e. from 1 March
2010 to 31 August 2011. There will be no review of the fee during the term of the
Agreement as the term is only 18 months (see Schedule H1, clause 3.2).

2. NRT will now be paid as part of the Base Pharmacy Services at the dispensing fee rate of
$5.30, including for Quit Cards (see Schedule C1, Base Pharmacy Services, clause 7.1(i)).

Claiming

3. Claiming may now occur 4 times per month for those pharmacists that have been certified as
capable of online claiming (see discussion below). This is in recognition of the substantial
costs pharmacies incur in relation to stock holding. Pharmacies may choose to claim less
often, as they do currently and those not claiming online will still only be able to submit
claims on a fortnightly basis. This will commence from 1 March 2010 (see clause H3.1, H12
and clause E1.3 (Definitions)).

4. There will be four Claim Periods in a month and four payment dates for those claiming online,
as follows:
 Claim Period Starting Claim Period Ending Payment Date

st th th
1 of the month 7 of the month 28 of the same month

th th th
8 of the month 15 of the month 5 of the following month

th rd th
16 of the month 23 of the month 12 of the following month

th th
24 of the month Last day of the month 20 of the following month

5. The two Claim Periods in a month and two payment dates in the current Agreement will
continue to apply for those not claiming online (see clause H3.1).

6. If pharmacies are ready by 1 March 2010 with the arrangements they need to make to get
connected, online claiming can start from the first period of the new agreement. Clause H7.4
and clause 3.7 of Schedule H1 provide for payments to be made to pharmacists to assist with
the move to online claiming. The 14 DHBs and the pharmacists in their regions who have not
yet completed arrangements for this will do so. These payments are specifically for set-up
and transition costs during the term of this Agreement and a pharmacy must have been
certified by the Ministry of Health as meeting the system requirements for online claiming
(and must continue to meet Sector Services’ requirements) to be able to claim these
payments. Where pharmacists have already entered into arrangements with a DHB in
relation to the move to online claiming and been paid the one-off payment for set-up costs,
they will not be entitled to the one-off payment of $500 exclusive of GST in the Agreement.
The monthly transition payment of $100 exclusive of GST will also replace any other
arrangements between a pharmacist and a DHB in relation to the transition costs associated
with online claiming (see clause H7.4 and clause 3.7 of Schedule H1).

7. The requirements for claim certification and submission of prescription batches have been
clarified by Sector Services and included in the Agreement. Specific requirements for
certification of diskette and online claiming are now set out the Agreement, however further
detail will still be provided in the Procedures Manual (see clauses H1.4, H10.2 and H10.3).

8. Limitation periods for claims to be submitted are linked to the “Date of Dispensing” which is a
newly defined term specifying that a prescription item has been dispensed when it has
actually been collected by a patient. This is intended to clarify and standardise the position
across all pharmacies and enable records to be audited more easily. Pharmacies should note
that for claiming purposes, the date of dispensing must be the date upon which a prescription
item is actually given to a service user and not the day on which it is prepared by a
pharmacist or otherwise recorded in the pharmacy’s practice management system (see clause
E1.3, Definitions and clause H9.1).

9. If a pharmacy submits claims electronically it has 6 months from the Date of Dispensing to
submit the prescription batch and may receive a warning letter if it has not done so (see
clause H10.3).

Structure of the Agreement and service specifications

10. As discussed above, NRT is to be paid as part of the Base Pharmacy Services fee.
Accordingly the NRT service specification has been removed and provisions relating to NRT
 have been included in the Base Pharmacy Services Schedule (see Schedule C1, Base
Pharmacy Services, clause 7.1(i)). A Prescription Item is now expressed to include an item
dispensed on the basis of an NRT Exchange Card.

11. For administrative ease and to reduce the number of separate variations, all the standard
additional service specifications are now included in all Agreements. Some of these were
previously agreed with pharmacies through variations during the term of previous
Agreements. Schedule C1 now includes Pharmacy Methadone Services for Opioid
Dependence, Aseptic Pharmacy Services, Sterile Manufacturing Services, Special Foods
Services, Special Foods (Infant Formulae) Services, Provision of Blood Glucose Test Strips and
Pharmacy Clozapine Services. However, clause C2 of Schedule C1 sets out which of the
additional service specifications will apply to each pharmacist’s contract so inclusion in the
contract document of the service specifications alone does not mean that a pharmacist is
required to provide (or entitled to claim on the basis of) that service specification.
Pharmacists will need to check carefully clause C2 of Schedule C1 to ensure that the correct
service specifications are listed. Corresponding amendments have been made to clause C2.1
of the Agreement (see clause C2.1 and clause C2 of Schedule C1).

12. The Base Pharmacy Services Schedule allows any pharmacy to provide Pharmacy Methadone
Services for Opioid Dependence on an ad hoc or intermittent basis (for up to 2 service users
in a claim period). If pharmacists do not wish to provide Pharmacy Methadone Services for
Opioid Dependence they still need to notify the DHB of this. Pharmacies specifically
contracted to provide Pharmacy Methadone Services for Opioid Dependence will not have a
cap on the number of service users to whom they can regularly provide these services but
can agree a maximum number with the DHB in order to ensure they can still provide
Pharmacy Methadone Services for Opioid Dependence while complying with all safety and
process requirements (see Schedule C1, Base Pharmacy Services, clause 7.1(j)).

13. Aseptic Pharmacy Services and Sterile Manufacturing Services have been split out into two
separate service specifications. Aseptic Pharmacy Services includes Syringe Driver Services
and Sterile Manufacturing Services includes preparation of eye drops. There will be some
pharmacies which continue to provide both these services. A new purchase unit has been
included for Sterile Manufacturing Services (see Schedule C1).

14. The Pharmacy Clozapine Services specification is also included in Schedule C1, however,
again this will only be applicable to a pharmacy if it is specifically listed in clause C2 of
Schedule C1. The Protocol for the dispensing of Clozapine by community pharmacies has
also been specifically incorporated into the Agreement at Schedule C2.

15. Special Foods Services, Special Foods (Infant Formulae) Services and Provision of Blood
Glucose Test Strips have been included in the Agreement, however the service specifications
and payment terms for these are still being reviewed and there may be minor changes in the
version processed by Sector Services.

16. Complex Medicine Services and Pharmaceutical Review Services will still be dealt with through
the provider-specific terms and conditions in Part P.

17. Pharmacies providing any of these specialist services should carefully review, and ensure they
are complying with, the licensing, safety and process requirements set out in the relevant
service specifications.

18. Any other specific terms and conditions relating to pharmacy services that pharmacies have
previously entered into with DHBs or will enter into in the future will need to be dealt with
through the provider-specific terms and conditions in Part P. This includes any regionally
specific variations that were entered into during the term of the previous Agreement which
the pharmacies and DHB wish to continue.
Other Issues

Ordinary Business Hours and Removal of Distinction between Urgent and After Hours

19. The Agreement standardises the definition of “ordinary business hours”. There has
previously been some confusion regarding what “ordinary business hours” meant due to the
reference in the Agreement to the definition of “Business Day” which refers to banks. This
definition simply records the well established convention in contracts of considering business
days as those days on which banks are open – often for the purposes of measuring notice
periods. (see clause H4.6).

20. In order to standardise the position and provide greater certainty for pharmacists, the
Agreement now specifies default “ordinary business hours” as being from 8.30am to 5pm,
Monday to Friday. However, there is provision for a DHB and individual pharmacist to opt out
of this default position if they separately agree on an alternative definition for a particular
pharmacy in light of the business hours in that pharmacy’s locality (in which case the
alternative would be included in the provider-specific terms and conditions in Part P of the
Agreement) (see clause H4.6).

21. Pharmacists are permitted to administer reasonable charges outside these ordinary business
hours and the distinction between after-hours charging and charging by urgent pharmacies
has been removed. However, before beginning the dispensing process, pharmacies must
outline the choices that a patient has to fill their script and the charges that will apply.
Pharmacists must allow patients to make an informed choice as to whether or not they will
have the script filled and incur these additional charges before any steps are taken in the
dispensing process (see clause H4.6 and clause H4.7).

22. DHBs will be able to require a pharmacy to provide services outside ordinary business hours
and business days if this is necessary to ensure a level of access that meets the reasonable
needs of service users in the region, and may agree specific terms and conditions with
pharmacists relating to the provision of such services in Part P of the Agreement (see
Schedule C1, Base Pharmacy Services, clause 6.2).

Uncollected Medicines and repeat dispensing

23. Under the Agreement pharmacies will now be able to claim for uncollected medicines in some
circumstances. This recognises that pharmacies sometimes prepare medicines for dispensing
and incur costs which they are unable to recoup if the medicine is not collected by, or able to
be delivered to, a patient. However, pharmacies will be required to take certain steps and
meet certain requirements before they are entitled to claim for uncollected medicines and will
not be able to claim for uncollected medicines where the medicine could reasonably be re-
dispensed to another patient. Further detail on the requirements, including the steps
required, the guidelines for re-dispensing and the timeframes after which certain uncollected
medicines can be claimed will be set out in the Procedures Manual (see clause H1.2).

24. The Agreement also contains specific requirements in respect of claiming for uncollected
repeats including in relation to receiving instructions from patients, caregivers or prescribers
to dispense repeats and the steps that a pharmacist must take before being able to claim for
an uncollected repeat (again, see clause H1.2).

Charging

25. Charging provisions relating to after-hours charging are discussed above. Other changes that
were made to clause H4.6 (b), (c) and (d) through variations during the term of the previous
Agreement have now been incorporated into the Agreement. The provisions have been
slightly re-ordered and minor changes made but the position in relation to blanket charging of
patients has not changed.
 26. DHBs of course expect the charging provisions in the Agreement to be adhered to, and will
promote awareness of these requirements with the public and enforce compliance with them
by pharmacies. Pharmacies must outline the choices that a patient has in relation to having
their script filled, the charges that will apply if they do so at a particular time or in a particular
way and allow them to make an informed choice as to whether or not they will have the
script filled – before the script is accepted and any part of the dispensing process begins.
Blanket charging is not authorised by the Agreement (see clauses H4.6 and H4.7).

Generic Substitution and Preferred Supplier Brands

27. The requirements in the Agreement relating to generic substitution have not changed but
DHBs encourage pharmacies to have generic substitution agreements with their prescribers.
DHBs support the model that has been adopted in Canterbury and remind pharmacy of their
obligations under the Agreement (see clause H6.1 No cost or volume shifting; clause H6.3 No
unnecessary dispensing; and Schedule C1, Base Pharmacy Services clause 3.2).

28. Pharmacists are reminded that they are required to comply with the rules around generic
dispensing and rules otherwise relating to dispensing particular brands of Pharmaceuticals, as
set out in the Pharmaceutical Schedule (see clauses B1.2, B1.3 and B1.4).

29. An additional provision has been included in the Agreement clarifying that the Pharmaceutical
Schedule will specify any Preferred Supplier Brand pharmaceuticals and any other rules
relating to dispensing particular brands of pharmaceutical where there is more than one
brand of pharmaceutical listed on the Pharmaceutical Schedule with the same generic active
ingredient (see Base Pharmacy Services clause 3.2).

Declining Services

30. Pharmacies are not entitled to decline to provide services to certain service users or dispense
only certain pharmaceuticals (except in limited circumstances such as where they are not
contracted to provide certain services, where they have a conscientious objection or where
the person is not an Eligible Person). Any “cherry picking” by pharmacies is not allowed
under the Agreement. Additional provisions to clarify the very limited circumstances in which
a pharmacy can decline to provide services have been inserted at clause G7.3. One particular
circumstance to note relates to those pharmacies specifically contracted to provide Pharmacy
Methadone Services for Opioid Dependence. If a pharmacy has agreed a maximum number
of regular methadone users with the DHB they are entitled to decline to provide these
services to a service user if doing so would cause them to exceed that number (see clause
G7.3(h)).

Audit Reports

31. DHBs will respond to routine Audit Reports within 20 days of receipt of them from Audit &
Compliance (see Schedule J1, clause 3.2(e)).

Faxed scripts

32. DHBs recognise that facsimile prescriptions create issues for pharmacists and are looking into
options for dealing with the issues surrounding acceptance of, and claiming in relation to,
facsimile prescriptions which may involve changes to the Procedures Manual. However, in
considering any possible changes DHBs will of course be conscious of the legal requirements
of the Medicines Act and Medicines Regulations. The status quo will operate in the
meantime.

Other minor changes/additions

 1. Various new definitions have been inserted for further clarity, including definitions
corresponding to the various service specifications. As discussed above, a definition has been
inserted for Date of Dispensing. References in the Agreement to HealthPAC have also been
replaced with references to Sector Services or Audit and Compliance, as applicable, and
corresponding definitions have been inserted (see clause E1.3 (Definitions).

2. The provisions relating to Quality Improvement Plans and Health Emergency Planning from
variations entered into during the term of the previous Agreement have been incorporated.
These clauses set out the requirements for preparation and review or revision of Quality
Improvement Plans and Health Emergency Plans (see clauses G3.1 and G5.6).

3. Pharmacists must provide receipts to service users when dispensing subsidised prescription
items but are not required under the Agreement to provide receipts for prescription items
that are not subsidised (see clause H4.8).

4. The membership of PSAG has been slightly varied to recognise the split of HealthPAC into
Sector Services and Audit and Compliance (a representative from each is now included) and
to provide for up to five community pharmacist representatives nominated by pharmacy
sector agents, rather than requiring four people appointed by the Pharmacy Guild (see clause
I1.4).

d. Future initiatives

1. Funding Model Project

DHBs are committed to the Funding model project, to be run under the auspices of a multi-party
Steering Group, and are aiming for it to be completed by 31 January 2010. The project will look
to establish a true base funding model that comprises all revenue streams for pharmacy, and
against which future models will be able to be fully critiqued.

1. Patients Near Death

DHBs will look at establishing a protocol specifying circumstances when a prescription may be
legitimately dated after death, and the maximum period which may elapse between the script
being written and it being dispensed. This will be managed through the Procedures Manual.

2. Close Control

This is to remain unchanged from the existing situation. If any changes are to be made then
those changes can ultimately be made to the Pharmaceutical Schedule. A working group (either
the Pharmacy Services Advisory Group or another agreed group) will be formed to work on this
issue during the term of the Agreement.

3. Weekly Close Control

DHBs will work with the sector, Audit & Compliance and PHARMAC (probably through the
Pharmacy Services Advisory Group) to develop criteria regarding weekly close control and to
allow the agreed criteria to be introduced during the term of the new Agreement, with close
monitoring by Audit & Compliance and PHARMAC to ensure all risks are managed.

e. Administrative Matters

1. DHBs require all base agreements &/or variations out with the sector from the past years that
have not been signed by pharmacy to be signed and returned to DHBs (Sector Services)
before December 2009.
2. Pharmacies need to sign the new Agreement by 28 February 2010 to obtain the benefits it
provides.