Alliance Boots is poised to challenge the Department of Health on its decision last week to reduce the fees it pays to pharmacies and cut the price of medicines.

The retailer said the changes will reduce the margins on generic medicines, which has affected Boots and the pharmacy market as a whole. It is working with the Pharmaceutical Services Negotiating Committee (PSNC) to challenge the decision.

An Alliance Boots spokeswoman said: “We need the Department of Health to commit to investing further in pharmacy to deliver additional services. We are keen to work with the PSNC and Department of Health to explore new service provision options for the benefit of our patients and customers.”

Cuts made under the Government’s medicine-pricing scheme, known as clawback, were greater than expected. The Department of Health will reduce the amount it pays for generic medicines purchased on the NHS by£400 million and make a 31 per cent cut in dispensing fees paid to pharmacies for medicines.

Lloydspharmacy managing director Justin Ash said: “This cut – for that is what it is – appears to demonstrate a lack of joined-up thinking by the Government. It has reduced the fees for pharmacies just days after the Secretary of State signalled his intention to expand the role of pharmacy in primary care.”

Retail Interface Consultancy managing director Gary Cormack said the clawback will hit profits of retail pharmacies, but it is still a healthy market. He said the NHS forecasts a 4.7 per cent growth for England in prescriptions from April 2007 to March next year. “The news will not affect volume, but it will affect value,” he said.