The Pharmaceutical Services Negotiating Committee & Anor, R (On the Application Of) v Secretary of State for Health

These two claims were listed together because each challenges the legality of the process by which remuneration of pharmacies which dispense medicines and provide other services within the NHS was to be reduced as part of the financial savings required. The claimants in the first claim I shall refer to as PSNC and the interested party in the first and claimant in the second claim as NPA. PSNC were a statutory consultee and their main grounds allege that the defendant failed to act fairly in the consultation process to such an extent as rendered the exercise unlawful. The challenge has been put in a number of different ways which I shall detail in due course.

NPA supports the grounds relied on by PSNC but wished to rely on other grounds which are also supported by PSNC. NPA decided that it should lodge a separate claim to raise the additional issues it wished to rely on to establish the unlawfulness of the decision made by the defendant. That came before me as a rolled-up hearing. With no objection from Mr Eadie QC, I granted permission and so the two claims were joined and this judgment will cover both.

On 17 December 2015 the Department of Health wrote to Ms Sharpe, the Chief Executive of PSNC, informing her that consultation on the proposed savings was to commence. An increase in NHS funding in England between 2014/15 and 2020/21 of £10 billion was announced, but with it there was to be £22 billion in efficiency savings. For 2015/16 the funding commitment for pharmacies in England was £2.8 billion, but for 2016/17 that was to be reduced to no more than £2.63 billion. The proposed date for the commencement of the reductions was October 2016. That has since had to be put back to 1 December 2016. There has been some variation to the figures in that for 2016/17 the funding is to be £2.687 billion and for 2017/18 £2.592 billion. Neither claimant has sought to challenge the amount of the new proposed reduction recognising that that is financial policy driven by the need to save public funds over the whole governmental estate. But each asserts that the means by which the reductions have been imposed has for various reasons been unfair and in breach of statutory requirements.

These claims have put before me an enormous quantity of documentation contained in eight full lever arch files together with five files of authorities. I shall have to refer specifically to a number of these documents, but I have been assisted by detailed skeleton arguments and careful oral submissions. I requested the parties to identify those documents that in their view I should read or read again before writing my judgment and that I have done. I will try to keep this judgment as short as possible, not least because there is considerable urgency since the cuts have now come into effect and the result of them is likely to mean that some pharmacies may be forced to close and others to reduce the services they at present offer.

The defendant was anxious that the reductions should be put into effect without the need for any primary legislation. The existing remuneration system was complex and comprised a number of different heads of payment which resulted in overall determinations by the defendant which were published in a document known as the Drug Tariff. The statutory provisions which deal with pharmaceutical services are contained in part 7 of the National Health Service Act 2006 as amended by the Health and Social Care Act 2012. Section 126 of the Act provides, so far as material:-

“(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.

Remuneration is dealt with in ss.164 and 165 of the 2006 Act. Section 164(1) provides that remuneration to be paid to persons who provide pharmaceutical services under the Act must be determined by determining authorities. The determining authority is the Secretary of State or the Board or other person if authorised by the Secretary of State. So far as these claims are concerned, it is the Secretary of State. Section 164(6) to (10) provides, so far as material:-

“(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.”

Section 165 contains provisions under the heading ‘section 164: supplementary’. I should set it out in full since its provisions are all of importance in these claims.

“(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.

The defendant must publish in the Drug Tariff directions he has given pursuant to section 127 of the 2006 Act (s.127(4)). Part 12 of the National Health Service (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013 (SI 2013/349) deals with remuneration, charges and refunds. Regulation 89 is headed “The Drug Tariff and section 164: general provisions”. It provides that the Drug Tariff is (so far as material for the purposes of these claims) the aggregate of determinations of remuneration made by the defendant acting as a determining authority under s.164 of the Act together with any other instrument which there is an obligation to publish. The defendant can make determinations by reference to various specified and any other indices or materials which he considers appropriate. The Drug Tariff can be amended at such intervals as the defendant thinks fit, but any amendments must be published in a consolidated version of the Drug Tariff.

Before indicating the basis upon which payments were made in accordance with the Drug Tariff before the amendments which came into force on 1 December 2016 following the decision of 20 October 2016 which is challenged in these claims, I should refer to material provisions in Part 1 of the 2006 Act which set out the obligations of the defendant in connection with the NHS. Section 1 provides:-

“(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.

While section 2B does not directly cover pharmacists and the services provided by them, it is made clear that there is a need when dealing with financial costs to avoid any results which have an adverse effect on the overall obligations set out in Part 1 of the 2006 Act. Thus the role of the pharmacists in giving advice and assistance and in diagnosis and so treatment of some ailments must not only be recognised but must not be removed or adversely affected to the detriment of those who were able to make use of them. While that does not mean that there can be no closure or reductions in the working hours of pharmacies, it must not mean that access to the relevant facilities is damaged. As will become clear, the defendant in what is entitled ‘Community Pharmacy in 2016/2017 and beyond: Final package’, produced in October 2016, did have regard to his obligations. The claimants assert that in making his decision he failed properly to consider all relevant matters so that the result is a failure to comply with the overarching requirements. PSNC asserts that the consultation exercise was unfair and further that the defendant failed to obtain all necessary information to enable him to make a lawful decision. NPA alleges a breach of the duty imposed by s.1C of the 2006 Act and a failure to comply with the Public Sector Equality Duty (PSED) imposed by the Equality Act 2010. While the two duties overlap, there are differences which have to be properly taken into account and met.

It is recognised by both claimants that it is not possible to challenge the need for nor the overall extent of the required savings. The attack is on the means whereby the decision was reached and the alleged failure to appreciate that there would be adverse impacts on those who needed to make use of pharmaceutical services. Thus there would be a breach of what I have referred to as the overarching provisions of the 2006 Act. The defendant has, it is said, focussed on the need to access a pharmacy within a reasonable distance for the purpose of receiving prescription medicines without properly taking into account the effect of inevitable closures on not only obtaining medicines but also advice and assistance from pharmacists. Further, it is said that closures would inevitably mean that there was likely to be added pressure on GPs and Accident and Emergency Departments which carried with it additional expense.

Ms Jeannette Howe, the Head of Pharmacy in the Medicines and Pharmacy Directorate of the Department of Health (who I shall refer to as JH), herself a registered pharmacist, was concerned in the consultation process and in the production of the decision of October 2016. She helpfully sets out the background to the provision of pharmaceutical services. The most important provider of medicines or drugs or appliances prescribed by doctors are the retail pharmacy businesses known as community pharmacies which, in 2015, dispensed approximately over 1 billion NHS prescription items. Between 1987 and 2005 the number of community pharmacies was tightly controlled. In April 2005 the requirements were relaxed: in particular, the need to establish that a pharmacy was ‘necessary or expedient’, the statutory test, was disapplied if it agreed to open for 100 hours a week instead of the usual 40 hours minimum. This led to an increase from 9,872 in 2005/06 to 11,236 in 2011/12. In September 2012, the relaxation was brought to an end. Since then, the numbers have remained relatively stable and stood at 31 March 2015 at 11,674. An OFT report in 2010 observed that nearly 80% of new pharmacies opened within 1 kilometre of an existing pharmacy. What was and has since been described as ‘clustering’ is an important factor in the new arrangements made by the defendant.

Ownership of community pharmacies runs from single to multiple. Some 30% have an owner who has no other pharmacy and 50% are owned by multiple chains such as Boots which alone owns some 17% of pharmacies. The Department of Health has access to information of the amounts paid to pharmacies which cover essential services, advanced services and product reimbursement costs. Other income from trading is not known. In its report to ministers of 4 September 2015, which was one of a large number of documents (some redacted) not disclosed to consultees, paragraph 34 recorded:-

“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.

It was stated, as is perhaps obvious, that the impact of cuts in remuneration on pharmacies owned by a group would not be likely to damage the group’s overall profitability. A small pharmacy within the group which was making a significant loss could be vulnerable, but would be likely to be supported by the group’s overall efficiency. The impact on chains could obviously depend on the number of stores owned and their existing profitability. But the view was, again not unreasonably, that the impact would not be likely to lead to many closures. The most vulnerable were, again obviously, individual independent pharmacies, which numbered 3,683 of which 71% or 2,598 fell into the medium or small category. The report stated in paragraphs 43 and 44:-

“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.”

There was an attempt to evaluate the operating profits of pharmacies to see if possible what effect the proposed cuts were likely to have. Use was made of what the Department has called an Industry Insider who, provided information about pharmacies’ typical profits, and Department officials also analysed data from Companies House relating to 79 companies which owned pharmacies. At one stage in the process the 79 were reduced to 52 but in the October 2016 final determination the figure given was 80. It must be obvious, as the report recognised, that the small number of companies involved and the nature of the available data made this exercise less than satisfactory. Furthermore, it was likely not to have included independent small pharmacies and, even if it did, no detailed accounts were required if the turnover was less than £6.5 million. Nevertheless, the so-called ‘indicative analysis’, namely this exercise, provided an operating margin of about 15% which was referred to and seemingly relied on in the impact assessment produced in October 2016. In the evidence produced for purposes of this claim, JH identifies another attempt at establishing the ‘profit margin’ to be anticipated. This is said to support the 15% figure. But it is not now relied on by the defendant since it has been accepted that it is not appropriate to rely on the 15% figure. This Mr Eadie adopts since he submits that it was not practical or indeed realistic to identify how many pharmacies would be at risk of closure since there was no possibility that the reductions would mean that a sufficient number of pharmacies would not continue in being and so provide the necessary services. The failure to disclose during the consultation that an analysis had been made and was, despite its defects, apparently being relied on is a major flaw which PSNC submits was unlawful and supports the contention that the consultation failed to meet the legal requirements.

It is convenient to deal first with the PSNC’s claim insofar as it is based on the alleged failure to undertake a lawful consultation exercise. The law applicable is not significantly in dispute. There are two main failures relied on. First, it is submitted that the defendant failed to obtain all necessary information which was needed to reach a lawful decision. The chief failure in this respect was, as I have indicated, the failure to obtain any reliable information as to the extent of closures of pharmacies which would result from the cuts. Secondly, it is submitted that information which was highly material and should have been given to PSNC was withheld, thus making the consultation unfair. This ground is also supported, it is said, by the failure to answer material requests for information made by PSNC.

The duty of a decision maker to take reasonable steps to acquaint itself with relevant material is derived from the decision of the House of Lords in Secretary of State for Education and Science v. Tameside Metropolitan Borough Council [1997] AC 1014. It is accordingly frequently referred to as the Tameside duty. Where, as here, the statutory regime enables the decision maker to take into account matters which he considers to be relevant (s.165 (9) of the Act) and, while identifying particularly relevant matters, does not limit relevance, the proper approach has been identified by the Court of Appeal in R(Khatun) v. Newham LBC [2005] QB 37. In paragraph 35, Laws LJ, giving the reasoned judgment with which the other members of the court agreed, said this:-

“In my judgment, the CREEDNZ Inc case 37 [1981] INZLR 172 (via the decision in the re: Findlay [1985] 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.”

The question which I have to consider in dealing with the Tameside challenge is whether the defendant had obtained sufficient information to enable him to make a lawful decision. The assertion is that the defendant was unable to assess what was the likely extent of closures if the cuts were carried out as proposed. That would mean that it was not possible to judge whether there would be a failure to provide the necessary services, in particular in deprived urban areas where there was already a substantial access not only for dispensing medicines but also for seeking advice and other services. The key response from the defendant is that there was a safety net in what is called the Pharmacy Access Scheme (PhAS) and that, since the real target was clusters of pharmacies which had largely resulted from the 2005 increase from 100 hour pharmacies, there was no reason to believe that if there were closures those that remained would not be able to take on the extra business.

Mr Eadie properly makes the point that the duties in relation to consultation must be separated from the Tameside duty. A consultation must be fair: if it is not, it may be unlawful. What fairness requires will inevitably depend upon the facts of an individual case. Further, to establish that the exercise was unlawful requires a claimant to establish that there was such unfairness as meant there could not be said to have been a proper consultation because, to use Sullivan J’s words in R (Greenpeace Ltd) v. Secretary of State for Industry [2007] EWHC 311 (Admin), “something has gone clearly and radically wrong”. Further, if non-disclosure of information is relied on, that information must have been significant to the decision to be made.

In R (Moseley) v. LB Haringey [2014] UKSC 56, the Supreme Court considered the requirements imposed by the law to show that a consultation was carried out fairly. Specific approval was given to what have been called the Sedley principles accepted by Hodgson J in R v. Brent LBC ex p. Gunning (1985) 84 LGR 168 at p.189. The second of those which is material in the present case is that ‘the proposal must give sufficient reasons for any proposal to permit of intelligent consideration and response’. In R v. North and East Devon Health Authority ex p. Coughlan [2001] QB 213, Lord Woolf MR observed at paragraph 112:-

“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 [1995] 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.

I do not think it is necessary to refer to other authorities which deal with the application of the general principles to individual circumstances. It must be recognised that the judgment of the decision making body must be respected and a broad discretion is recognised. British Dental Association v. GDC [2014] EWHC 4311 (Admin) was an example of a case in which the judge (Cranston J) found that there was, as he put it, ‘a gaping hole in the GDC annual retention fee consultation’ in that there was no explanation provided for an assumption which was of crucial importance.

The Drug Tariff as applied before the changes led to payments under two broad headings, namely remuneration and reimbursement. Remuneration comprised fees and allowances for providing services and reimbursement was the cost of medicines which were dispensed. Services comprised essential services which all pharmacies must provide. These include dispensing of prescription medicines, healthy lifestyle advice and support of self care within what is described as a clinical governance framework. In addition, pharmacies can provide advanced services if they are accredited (and most are) which include medicine use reviews and the new medicine service. It is not necessary for the purpose of this judgment to go into detail of what is comprehended by these services. The fees and allowances comprised a number of separate items. These were:-

These are the payments which are covered by the changes. In addition to these sources of income, pharmacies may be commissioned by NHS England, local authorities or by local clinical commissioning groups to provide particular services, an example being stop smoking services. Further, as the defendant states, pharmacies will sell non-prescription drugs and will be likely to stock other items such dental and skin care. Some may deal in other items which are not directly related to pharmaceutical use. This is of some importance since it will not assist in establishing a margin of profit which is of general application.

The changes, described as a package, in the formal announcement of 20 October 2016 involved three elements. First, the establishment payment was reduced. Secondly, the other fees and payments which are set out in paragraph 22 (apart from the payments for advanced services) have been consolidated into a ‘single activity fee’ which is paid in direct proportion to the number of prescription items dispensed. Thirdly, the new PhAS is introduced. This may need a little more detail in due course, but it enables any medium or small sized pharmacy which is more than a mile away from another pharmacy to receive additional payments so that it does not suffer the reductions. The purpose of this is to limit the risk of closure of those pharmacies to ensure that users do not have to travel more than 1 mile on foot. There are possibilities of reducing the 1 mile in some circumstances. Finally, from 1 April 2017 a ‘quality payment’ scheme is to be introduced which will reward pharmacies which meet particular quality standards. Thus the package reduces the amount of remuneration payable by £113 million for 2016/17 and by £208 million for 2017/18. It in addition avoids fixed sums, preferring a system that makes payments which are proportionate to the activity carried out, subject to the PhAS. The overall percentage cuts for community pharmacies are set out in paragraph 42 of the final package. This reads:-

“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.”

Ms Sharpe was notified of consultation on proposed changes in a letter of 17 December 2015. The requirement was a reduction from the £2.8 billion paid in 2015/2016 to no more than £2.63 billion in 2016/2017. The letter stated that there was a “real potential for far greater use of community pharmacy and pharmacists in prevention of ill health, support for healthy living, support for self-care for minor ailments and long-term conditions, medication reviews in care homes and as part of more integrated local care models.” To this end, it said, “we need a clinically focussed community pharmacy service that is better integrated with primary care.” Part of the proposals would be the introduction of a Pharmacy Integration Fund (PIF) to ‘help transform how pharmacists and community pharmacy will operate in the NHS.’ The introduction of a PIF is not material to these claims, but the letter shows that unsurprisingly the Department’s officials were well aware of the services provided which went beyond dispensing of medicines. I have already referred to the report of 4 September 2015 to ministers. It contained the proposals but it was made clear that PSNC would be able to suggest alternative ways of delivering the required savings. In paragraph 12, this was said:-

“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.”

It was recognised that the level of cuts was unprecedented. Political handling would be a matter for the politicians and ultimately the defendant. It would be in their interest to try to show that any closures resulting from the cuts would not only not damage the services provided but that in any event there was an overabundance of pharmacies, particularly where clustering occurred. Most such clusters had resulted from 100 hour pharmacies taking advantage of the relaxation in 2005. Opinions had been expressed by the Chief Pharmaceutical Officer before the consultation began that there were some 2500 too many pharmacies and in a meeting with the Company Chemists Association which represented the multiple chains a figure of 3,000 too many was mentioned. PSNC has criticised the Department for holding this meeting without giving it notice, but obviously the consultation exercise would properly include the representatives of the multiple chains.

Ms Sharpe states that this letter of 17 December 2015 was entirely different to previous proposed amendments to the Drug Tariff which required consultation. It has been submitted that it involved a misuse of the Drug Tariff to achieve fundamental restructuring of the community pharmacy system. The power to deal with remuneration which is dealt with in ss. 164 and 165 of the 2006 Act and Regulation 89 of the 2013 Regulations is very wide. The proposals involved changes to rates and the manner of providing and calculating remuneration and so were, albeit not used for such purposes in the past, within the scope of the power conferred by the legislation.

Ms Sharpe has in her statement asserted that what lay behind the changes was a desire to reduce the number of pharmacies. She says that in a meeting in November 2015 the then minister made clear that he wanted closures of a substantial number of pharmacies and that only a few hundred would not be enough. She confirmed these remarks in an e-mail of 2 February 2016. The defendant does not accept that these remarks were made. But it is clear that there was a view held in the Department and by ministers that there were too many pharmacies. A reduction would save money and it was believed lead to greater efficiency. I have no doubt that the changes were expected to mean that some closures, hopefully in clustered pharmacies, would occur. The extent was never certain and figures between a few hundred and some 3000 were given at various stages. In the final package, it was said that it was not possible to predict the impact of the proposals on closures albeit it was suggested that there might be none. The 15% operating margin was used although it was said that since it involved only a very small number of chains and multiples it might not be representative of the full population of pharmacies. It was, however, in this context that the effect of the percentage reductions was assessed. It is recognised that any reliance on 15% is not supportable. PSNC has obtained a statement from a Mr Ogier, who has had previous involvement in production of a report on pharmacies in 2011, who it is said has been able to show that even on its own analysis the Department has grossly overestimated the margin, which should be nearer 6%. The defendant objected to the admissibility of that evidence, particularly as it would involve an issue of fact which was not appropriate for a judicial review claim. Since Mr Eadie accepted that the 15% was not relied on, it was not necessary to go into Mr Ogier’s evidence. Suffice to say that it must be obvious (indeed PhAS recognises) that some closures particularly of individually owned and smaller pharmacies were a real possibility.

While I have no doubt that a reduction in the number of pharmacies was regarded by the Department and ministers as desirable, the changes were not made with that intention. The changes were to save cost and to implement the required savings that were dictated by the government. It was submitted (albeit this was not a ground in respect of which permission had been granted) that the changes were made for the improper purpose of reducing the number of pharmacies. That such reductions were regarded as a desirable effect of the changes to remuneration seems to me to be clear, but that does not mean that that was the intention behind those changes. It is submitted that a decision maker must be deemed to intend the inevitable consequences of his action. But that does not mean that the action is for an improper purpose even if the changes have the effect of closing some pharmacies.

I have referred to various estimates of closures which have been put forward. In documents produced in November 2015 a figure of 2,000 was estimated. The figure in a ministerial submission of 20 November 2015 was 2,060: quite how that precise figure was reached is far from clear. On 22 June 2016 it was said that to enable remaining pharmacies to receive the same remuneration as they were currently receiving 1,177 fewer pharmacies would be needed. But that does not provide a figure for actual closures. There was, however, an important letter to the Prime Minister from the defendant dated 2 August 2016. This stated that ‘we spend £2.8bn dispensing around £7.2bn of drugs’. That is not an accurate statement since it fails to have regard to the services beyond the dispensing of drugs which are provided by pharmacies. It is said that pharmacies had not been asked to find any significant efficiencies and the point was made that 40% of pharmacies were within 10 minutes walk of two or more other pharmacies. This is of course the clustering concern. It is said that there was a risk of closures although that had never been the object. A closure figure of between 500 and 900 was said to result from the latest draft impact assessment. That assessment has not been disclosed.

The Chancellor of the Exchequer wrote to the Prime Minister on 11 August 2016 stating that the subsidy to community pharmacy was too high repeating the £2.8bn figure spent dispensing £7.2bn of medicines and endorsing the proposals which have now come into effect. On 2 September 2016 it was noted that the Prime Minister had suggested an expansion of the PhAS so that small pharmacies located more than a mile from another pharmacy should be eligible for the additional payment and the largest 25% of pharmacies would be excluded. This would mean, it is said, that reasonable access to pharmacies would not be lost as a result of the changes. As will be relevant in considering the grounds relied on by the NPA, the PhAS will largely benefit pharmacies in rural areas. I say largely because Mr Eadie made the point that the distance was not necessarily limited to rural areas, but it is I think obvious that it will be rare that in an urban area there will be the necessary distance which is usually at least a mile.

While the failure to include services other than dispensing medicines in the £2.8bn was unfortunate, it is not in itself material since the required savings were to be imposed and covered payments for all services. Furthermore, it is hard to believe that the defendant was misinformed about the extent of pharmaceutical services. The letter was inaccurate but why that was has not been explained.

Following the letter of 17 December 2015, Ms Sharpe met informally with JH. Following those meetings and a further meeting with two senior departmental officials she wrote a letter of 15 January 2016. In it, she questioned how the proposals could produce a more clinically focussed community pharmacy service. In particular, she said this:-

“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.

A consultation meeting was initially fixed for 18 January 2016, but PSNC told the Department that without further information about the proposed changes and the analysis underpinning the proposals, a meeting would not be productive. PSNC needed to see that material which it requested in advance. A number of papers were sent to PSNC. The reasons for considering change included that the existing arrangements encouraged operating multiple sites each dispensing low volumes which did not provide efficiency. It was said that the reduction of available money had to be brought into effect in a way which ensured various results. These included no reduction of access to pharmacies and ensuring that a pharmacy providing an efficient pharmaceutical service could access funding that reflected the cost of providing the service. The importance of provision of clinical services to relieve the pressure on GPs and A&Es was recognised. Provision of what was called a modern service with greater use of an Electronic Prescription Service was to be encouraged. The PhAS was identified. Those pharmacies which were most geographically important for patient access would be identified ‘taking into account criteria based on travel time or distances and also population size and needs’. It was said that the Department was anxious to develop the PhAS in the course of consultation and set out a number of issues which it regarded as relevant. These included unusual cases and the need for a review mechanism for hard cases.

On 15 January 2016 Ms Sharpe wrote to the Department stating that the professed ambition to develop a more clinically focussed community pharmacy service was entirely incompatible with the cut in funding of £170m, which was the sum then specified. The lesser sum in the end decided reflected the deferment of the imposition resulting inter alia from change of ministerial personnel following the EU referendum. The figure of 6% cuts for 2016/17 was known. The division between PSNC and the Department was clearly identified in that Ms Sharpe said:-

“….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.”

On 18 January 2016 requests were made for answers to a number of questions. Those included provision of analyses underpinning the belief that the changes would incentivise quality and innovation. Had there been any evaluation of patients’ views in particular in relation to repeat prescriptions? What evaluation had there been in relation to patients with poor English? A response was provided. No analyses were identified, it being said in effect that the purpose of the consultation was to discuss how best to achieve the stated objectives.

In May 2016, in response to the Department’s proposals, PSNC said that there had been a failure to produce any material which properly underpinned the proposals. There were ways of producing efficiency and saving money which had not been properly considered. Clearly there had been a significant lack of disclosure of any material on which the proposals were based. I do not propose to go into detail on those issues but I note that they formed part of the complaint about non-disclosure of significant information which rendered the consultation process unfair. The reality is that the approach was clearly governed by the need to make the savings which the government had regarded as necessary and so the claim focuses on the failure to identify, as it was put in PSNC’s skeleton argument, ‘the underlying rationale for the proposals and for evidence of any modelling or analysis that it had carried out as regards the impact of the proposals on the economic viability of the community pharmacy sector’. There has been no failure to disclose any analyses or modelling save for that which resulted in the 15% margin whereby economic impact could be assessed. This has meant that, albeit PSNC is of the view that the proposals do not achieve what they are supposed to achieve beyond cutting cost, it is recognised that it cannot say that the overall package is flawed, save in the failure to disclose the analysis which produced the 15% figure and the breaches of s.1C and the PSED requirements.

The documents which were presented to ministers before the decision to announce the Final Package of October 2016 refer to but reject most of the counter proposals put forward by PSNC. It is not necessary to go into detail since it cannot be suggested that what was reported was unlawful. But, as Mr Eadie submits, PSNC was able to make proposals which it was said would achieve the necessary savings without undue economic pressure on pharmacies. Further, some elements of the counter proposals were accepted.

Under the heading ‘Pharmacy viability’ the impact of the cuts is considered. In paragraphs 39 to 40 this is said:-

“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 question that is therefore central to the PSNC main grounds is whether the defendant should have undertaken an analysis of the impact on pharmacies of the changes and should have disclosed to PSNC and other consultees what work had been done. Ms Foster has placed some reliance on a decision of Treacy J in the High Court of Northern Ireland in Re CPNI [2011] NIQB 132. CPNI was a body representing the owners of pharmacies in Northern Ireland. The challenge was to decisions to amend the Drug Tariff for Northern Ireland involving reimbursement prices for in particular generic drugs. The important ground relied on which is mirrored in these cases was an allegation that the respondents failed to take reasonable steps to acquaint themselves with relevant information and material before making the decision. In addition, it was agreed that there was no impact assessment and the decision was made before the end of the consultation period and without taking into account all representations which had been made.

Treacy J was satisfied from the respondents’ evidence that it recognised the importance of obtaining access to reliable and up to date market information which would enable it to achieve fairness. The report obtained identified areas where data was missing but did nothing to provide that data. On the facts, Treacy J concluded that no regulator could reasonably conclude that the purpose of ensuring that fair and reasonable remuneration for pharmacists was provided by the amendments.

Treacy J considered the Tameside principle, summarising it as a duty on the decision maker to equip himself with the information necessary to make an informed decision, which is what in Lord Diplock’s words would constitute the relevant information with which the decision maker had to take reasonable steps to acquaint himself. Mr Eadie has submitted that, albeit Treacy J referred to Mr Fordham’s Judicial Review Handbook at paragraph 51.1 et seq, he did not direct himself that the appropriate test was one of rationality. However, the decision I do not regard as particularly helpful since it depends on its own facts and on those facts the decision could properly be said to have been irrational.

The economic impact was obviously of considerable importance. But I have to ask myself whether the failure to obtain a satisfactory analysis of the economic effect did contravene the Tameside principle and whether the failure to disclose such analysis as had been carried out rendered the consultation unfair. It has been submitted that there was a full assessment made in 2011 and that a similar exercise should have been carried out. The defendant’s case was that that previous assessment was in his view unsatisfactory and furthermore such an exercise would require time and money which would militate against the overall savings required. PSNC was informed that the Department would welcome any information on the likely effects on pharmacies. I accept Ms Foster’s submission that if particular information is indeed needed to produce a proper result it is not, as a general rule, for the decision maker to put the burden on those affected or consultees to provide it. But circumstances may dictate otherwise.

The expertise of PSNC is a relevant factor. Furthermore, as the Department recognised, it was very difficult to obtain any sensible figures of likely closures. While I am surprised that the information was not disclosed, I do not think that such disclosure would have made any difference. PSNC was aware of the percentage involved in the cuts and, since no analysis beyond the 15% suggestion had been made, could have obtained information from in particular the small pharmacies. If it had known what the Department had done, it would have been in no better position. And, as I have said, I do not think that it was irrational of the Department to consider that there was no need to try to obtain any more reliable information, if that were indeed possible, since the cost of so doing outweighed any possible benefit. Furthermore, PSNC could as suggested without too much difficulty have obtained such information as it considered necessary. I appreciate the Department had power to require pharmacies to give relevant information, but again the cost and effort involved in such an exercise was reasonably considered to outweigh its benefit.

It follows that I do not find there to have been any breach of the Tameside principle. Albeit the failure to disclose the information obtained was regrettable and as it seems to me unjustified, it did not in my judgment make any difference to the result. Thus whether by use of discretion or of the statutory provision I do not think relief is appropriate. Similarly, I do not think that the failure to disclose what had been done to try and assess the likely number of closures from the profit margins was so unfair as to amount to unlawfulness. I do not doubt that there seems to have been no good reason not to disclose what had been done, but the fact that more could have been done does not produce unlawfulness. Furthermore, as I have already said, I do not think that the disclosure would have made any difference to the result.

I now turn to the grounds particularly relied on by NPA, namely the failures to comply with the requirements of s.1C of the 2006 Act and with the PSED. Mr Lock told me that this was the first case before the court which had had to deal with the application of s.1C. Before going further, it would assist to emphasise that s.1C is headed ‘Duty as to reducing inequalities’ and obliges the defendant to ‘have regard to the need to reduce inequalities between people of England with respect to the benefits that they can obtain from the health service’. This, as Mr Eadie accepted, showed that in 2012, when this provision was enacted, Parliament recognised the existence of inequalities and the need to reduce them. The duty imposed by s.149 of the Equality Act 2010 requires a public authority to have ‘due regard to the need to eliminate discrimination and (s.149(1)(b)) to ‘advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it’.

The distinction between the obligation to have regard and to have due regard was raised. Reliance was placed by Mr Eadie on the distinction, arguing that due regard imposes a higher duty. There are indeed observations by judges which state that the adjective ‘due’ means that the court should not simply consider whether regard was had at all. Particular reliance was placed on observations of Langstaff J in R (MS) v. Oldham MBC [2010] EWHC 802 (Admin). In paragraph 18 he said:-

“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 [2009] 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.

I am satisfied that there is no ambiguity which enables Pepper v. Hart to be applied. But I am equally wholly unpersauded that there is in reality any material difference between the obligations to have regard and to have due regard. Merely to have regard in the sense that the existence of the statutory requirements is recognised is never likely to suffice, albeit much will turn on the nature of the matters to which regard must be had. In s.1C it is a specific need to reduce inequalities so that the defendant is obliged to show that that need is recognised and that what is proposed does not in his view at the very least cause an increase in such inequalities. All that ‘due’ adds in my view is a specific recognition that the effect of the decision on the specified matters must be properly taken into account. It could indeed be argued that ‘due’ does not strengthen but rather weakens in that it recognises that there may be circumstances in which regard is not needed. But it seems to me in any event that the argument was a barren one having regard to the nature of the obligation in s.1C.

That there are such inequalities is, as I have said, recognised. A NICE report described them thus:-

“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.

Before the consultation exercise commenced, a submission to ministers of 6 November 2015 drew attention to the need to consider the PSED under s.149 of the 2010 Act. Equally, the duty under s.1C was identified. Both duties were dealt with in a submission of 14 October 2016. Attention was drawn to the distinction between the PSED and the s.1C duties since the latter did not depend on inequalities which might be based on protected characteristics. The focus in relation to s.1C was on access. It was noted that access was greater due no doubt to the existence of the clustered pharmacies in areas of highest deprivation. The conclusion was (paragraph 168 of the document addressing the defendant’s statutory duties):-

“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.”

Mr Lock submits that this focus on access and the major use of PhAS being in rural areas, where it would benefit not only small but also chain pharmacies, fails to take into account that in deprived areas there is likely to be increased need for access to services as populations age and the evidence is that existing pharmacies are working to capacity. Further, if pharmacies close there is likely to be greater pressure on GPs and in such areas there are fewer GPs. While this possibility was recognised, the answer given is in effect that for commercial reasons if one pharmacy closes another nearby will want to take steps to absorb the services by increasing staff. This would have to mean employing the expensive staff, namely the qualified pharmacist. I have to consider whether that assumption is reasonable. If in rural areas or anywhere access to a pharmacy is made too difficult, that will create an inequality. But the concern that PhAS, which essentially deals only with access, does not meet the problem that there will be added pressure on GPs has some validity. However, the defendant did clearly have regard to it and it cannot in my judgement be said that his view that the changes would not exacerbate inequalities was irrational. Furthermore, the existence of efficient pharmacies which would meet the needs of the community was clearly a desirable objective.

I have considered and recognise the strength of the points made by Mr Lock in relation to the s.1C duty. He has relied on evidence from a working pharmacist in a deprived area in Walsall. She opened her pharmacy under the 100 hour rules in 2012. She identified all the services she provides, some of which are separately paid (for example stop smoking services). There is an under provision of GPs in the deprived area. She has grave doubts whether her pharmacy would remain viable as she has to have a pharmacist available for all of the 100 hours. Further, the local GP’s surgery closes overnight from 5.30pm to 8.30am and over weekends. She observes in paragraph 31 of her statement that the assumption that the range of services will continue even if there are closures is ridiculous. A high proportion of those attending and seeking advice are reluctant to visit GPs, even if they could. Another witness owns three pharmacies in Wiltshire. The cuts have meant that he has had to abolish his free prescription delivery service and reduce the opening hours of one of his pharmacies. The cuts required have reduced the service available to those who need them. He is clear from his own experience and from discussions with other pharmacists that as a result of the cuts services have been reduced, particularly to elderly patients and the disabled and other vulnerable groups.

The PSED was considered separately. In the impact statement no great detail is included. But it was recognised that 29% of pharmacists were from ethnic minorities and many were women. It was also recognised that closures would impact on the disabled and elderly. But the overall view, which it is submitted could not be regarded as irrational notwithstanding the evidence to which I have referred, was that closures, particularly where there were nearby pharmacies, would not have a damaging effect. The need for saving of money was inevitably driving the decision and careful consideration had been given to the possibly damaging effects.

NPA raised two further grounds in its skeleton argument. The first was that the failure to estimate the number of pharmacies which would be likely to close was a fundamental flaw in the whole exercise. That argument I have dealt with in my conclusions on the absence of such estimate. Secondly, it is said that there was a failure to discharge to s.1C and s.149 duties because of the limited scope left to the decision maker once commitments had been given to the Treasury by the defendant about the reductions. That argument adds nothing since it has been recognised that the overall savings required by the Treasury had to be made.

I recognise that the evidence produced does indicate a real risk that there will be less access because of the inability to keep some pharmacies open for as many hours as at present and some services such as free delivery may have to cease. The concern that there will be pressure on GPs in deprived areas where they are scarcer and on A&E units in hospitals is a real one. But it must be borne in mind that these changes affect pharmacies and are not directly concerned with the possible adverse effects on the NHS generally. But the key question is whether the system now in operation was reasonably considered to avoid, largely through PhAS, with a breach of either the s.1C or the PSED duty. It is entirely reasonable for the defendant to think in terms of access for all pharmaceutical services. It is only if the Wednesbury test is met that the new system would be unlawful. That is in my view not established despite the difficulties and hardships which may well arise. I would only add that where cuts in remuneration are made some hardship is inevitable.

In essence I accept Mr Eadie’s argument which I have summarised that proper regard was had to the two different duties. Cuts of the nature required will inevitably produce some hardships for individual pharmacies and for some who make use of them. But that cannot mean that in times of the need for some retrenchment no cuts can be made. The Department has, as the material now disclosed shows, given detailed and careful consideration to the way in which the cuts can be made. I do not doubt that some criticism is properly made in that it is possible to think that different means might have been better. But that is not for this court, since it is only if unreasonableness is established that it is proper to intervene.

I am bound to say that I have with some regret concluded that I cannot properly quash the decision. It is equally unfortunate that the goodwill which existed between the PSNC and the Department has been lost. There is undoubtedly blame to be placed on the Department for failing to provide the analysis leading to 15% and for not producing as soon as it was known that proceedings were contemplated all the material which JH has now produced.

I am conscious that I have not specifically referred to more than a fraction of the volume of material put before me. I have of course considered all submissions made and I hope I have made clear why I have decided as I have. To have referred to all material in greater detail would have made this already overlong judgment far too unwieldy.