With the Government desperately trying to revive a co-payment policy that has been declared DOA by Senate balance-of-power holder Clive Palmer, attention is turning to other areas of health financing that could deliver Budget savings.  A senior health policy analyst and regular Croakey contributor who writes under the name of “William Foggin” has provided the following analysis of the current regulatory environment for pharmacy. He proposes a number of reform measures, in particular lifting current ownership restrictions, that would both save health dollars and leave the door wide open for major chain stores and corporations to enter the previously closed pharmacy market.

“William Foggin” writes:

As the Government struggles to find savings to replace those that may be lost in the Senate, it could usefully return to the pharmaceutical benefits scheme.  The budget included significant savings to the budget from increasing co-payments under the scheme: a simple cost transfer from taxpayers generally to sick people.  But it did nothing to address the cost of the scheme as a whole.

In post-budget commentary Ross Gittins in the Sydney Morning Herald on 26 May observed that

Much could be done to reduce the cost of the pharmaceutical benefits scheme by taking a tougher line with foreign drug companies over generics and the “evergreening” of patents, not to mention the chemists’ union.

Better use of generic alternatives has been canvassed frequently by various commentators over recent years, but the chemists’ union has largely escaped notice.

The chemists’ union – the Pharmacy Guild – has been highly successful over the years in looking after its members’ interests.  Pharmacy legislation in every jurisdiction limits pharmacy ownership to registered pharmacists (with some exemptions for friendly societies) – in distinction to legislation covering dentists or doctors which places no restrictions on practice ownership.  The Guild managed to persuade the 2000 National Competition Review of pharmacy ownership to conclude that

While they are serious restrictions on competition, the current limitations on who may own and operate a pharmacy are seen as a net benefit to the Australian community as a whole[1].

Anybody reading the full discussion of the costs and benefits of the limitations[2] is likely to find this conclusion somewhat surprising.

On the costs side, the review noted that:

…current State legislation keeps non-pharmacist entrepreneurs, managers and enterprising non-pharmacist businesses out of the community pharmacy market.

This particularly excludes owners and managers of non-pharmacist retail enterprises that could either host or integrate a pharmacy as part of their wider infrastructures and cost bases. Businesses that could easily own integrate a pharmacy into their complementary operations could include supermarkets, department stores, specialty health and beauty chain stores, experienced overseas-based pharmacy chain operators, and large shopping centre complexes.

In turn, integrating into large corporate structures could enable pharmacies to be operate at a lower unit cost per item sold, by lowering average overheads through sharing infrastructure with other parts of a retail shop or complex. Pharmacies in chain companies, and even franchises, could benefit from the benefits of shared corporate and administrative costs, and from common stock purchase and ordering arrangements with wholesalers and manufacturers of medicines and general products.

The consumer may expect that lower overheads and better operating margins in these circumstances may lead to lower unit costs, and hence to lower prices and more services.

One could add that the Government could also benefit from lower unit costs and prices by reducing dispensing fees and the allowable mark-up on medicine wholesale prices.

On the other side of the coin, the alleged benefits were:

  • underpinning the ease of Australians’ access to community pharmacies wherever they live;
  • assisting the efficient allocation of scarce public resources on pharmacy services, and medicines generally;
  • improving the capability to link community pharmacy, through professional proprietorial involvement, to overall health care provision and multi-disciplinary service provision;
  • promoting industry-wide awareness of professional pharmacy objectives as well as commercial objectives; and
  • maintaining a direct line of accountability for professional services conducted in pharmacies.

It is not at all clear that restricting pharmacy ownership to pharmacists has a positive impact on access in rural areas.  Were Boots, Walgreens or CVS ever to be allowed into the market, they may find it easy to persuade a young pharmacist to spend three years on rotation in a rural area on a promise of a later job in town.

The “efficient allocation of resources argument” correctly notes that pharmacists provide diagnosis and treatment for minor ailments, thus saving the health system money.  It then asserts without evidence that pharmacy-owning pharmacists are more likely to provide these services.

There is then a somewhat bizarre argument that dealing with the Guild (as an organisation of pharmacy-owning pharmacists) had allowed the Commonwealth to achieve savings through the community pharmacy agreements.

The last three arguments essentially boil down to a claim that pharmacist-owners need to be in charge to ensure professional behaviour:

A benefit of restricting pharmacy ownership is that a pharmacist proprietor is arguably more likely to place professional judgments before commercial considerations than a nonpharmacist or, as it is sometimes expressed, “put people before profit”. This assumes that a pharmacist is prepared not to sell or provide a given medicine or service to a consumer, if there is a professional judgment that the sale would be unwise or unnecessary.

Readers who remember the “fries and coke” deal between the Guild and Blackmores to sell complementary medicine in association with some prescriptions[3] may be inclined to discount this benefit somewhat.  So would readers finding homeopathic remedies on pharmacy shelves, given the NHMRC’s recent finding, after an exhaustive review of the evidence, that “there is no reliable evidence that homeopathy is effective for treating health conditions”[4].

In any event, since 2000 the restrictions on pharmacy ownership have been maintained.  At regular intervals (usually just before an election) the Guild extracts commitments from both major political parties not to weaken those restrictions, and in particular not to let supermarkets enter the pharmacy business.

Minister Dutton at a pharmacy conference in March “re-committed to the government’s pre-election undertaking that retail giants will not be allowed into pharmacy” – a statement “greeted with pleasure by Guild national president George Tambassis”[5].

Over a quarter of PBS expenditure goes on supply chain remuneration[6]. While it is hard to identify exactly the distribution between the wholesaler and the pharmacy, estimates are that around 15% of PBS expenditure finishes up in the hands of the pharmacist. That works out at well over $250,000 per pharmacy annually, including a 10% mark-up and a $6.60 dispensing fee.  (In addition, pharmacies are remunerated for scripts that cost less than the general co-payment.)

Would greater competition allow the Government to pay less for dispensing PBS scripts?  Surely a Government interested in market solutions, competition and fixing the “Budget emergency” would want to give it a go.  At the very least, given it is almost fifteen years since the last review, it should commission a hard-edged re-examination of the current restrictions on ownership.







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