Supermarkets are preparing to open up to 500 new pharmacies because of the proposed scrapping of rules which allow the NHS to control where prescription drugs can be dispensed.
A near doubling of the big stores' existing stake in the £8.6bn a year business of providing medicines is expected following proposals from the office of fair trading, which says an open market would benefit consumers and cut bureaucracy for the health service and pharmacists.
Local NHS officials at present only allow contracts to dispense state prescriptions where it is deemed "necessary or desirable" and small businesses fear they could suffer at the hands of another assault on the high street by the big supermarket chains.
The Department of Health says the proposals need close examination to see what effect they might have on plans to improve pharmacy services, including creating more one-stop shops where doctors, pharmacists, nurses and other professionals are all on one health centre site.
The proposals come less than two years after price fixing rules were abandoned for over-the-counter drugs, but big price cuts, up to 30% on some products, have only been made in some supermarkets. Most money in pharmacies comes from dispensing NHS prescriptions, up to 80% in small businesses.
The OFT argues that they, as well as supermarkets and pharmacy chains, will have wider freedom to compete, not only on price but on advice and service, such as more home delivery and longer opening hours.
It accepts there is a shortage of pharmacists, who require five years training, but does not believes supermarkets will automatically poach staff by offering higher wages.
The OFT says over the last 15 years controls over entry to the pharmacy market have meant that it has remained stuck on around 12,250 businesses, nearly all with NHS contracts. This has stymied rapid response to customer demand.
Deregulation will save consumers an estimated £30m a year through lower prices, while the NHS will save £10m in administration costs and businesses £16m in licensing and appeals.
Huge sums have changed hands, sometimes a reported £1m, when big pharmacies have taken over contracts from other businesses. At present the supermarkets have less than 5% of the NHS contracts, with well under a third of the stores run by the big four chains having pharmacies.
John Vickers, director general of fair trading, said: "Pharmacies are a vital part of the health care system, but entry regulations are impeding new sources of supply to the market. These regulations restrict competition and choice for consumers, impose a regulatory burden and limit the ability of businesses to respond to evolving customer demands."
The Consumers' Association welcomed the recommendations, saying the OFT convincingly showed changes would not damage existing distribution of pharmacies. But the Department of Health should revamp its essential small pharmacy scheme to ensure that areas with poor provision did not continue to lose out.
Tesco, which has dispensing pharmacies in about one in four of its stores, said it was keen to provide more. Boots said it would seek to have more pharmacies.
John D'Arcy, chief executive of the National Pharmaceutical Association, said newcomers to the market could "cherry-pick by establishing pharmacies in well serviced and profitable urban areas with high customer footfall. The stark reality is that people in rural, isolated or deprived areas may suffer reduced access as their local pharmacies struggle to survive".
The big pharmacy companies saw their shares fall back after the OFT report. Boots closed 6p lower at 541p, while Alliance Unichem lost 11p to 445p.
