Tuesday, April 07, 2015

The pharmacy protection racket that keeps prices high

Do you ever yearn for a return to the days before supermarkets when shopping meant a separate trip to the green grocer, the dry goods grocer, the butcher, the baker and the delicatessen?

Me neither. Life has become busy. Two-earner families shop at one-stop shops because we no longer have time for repeated stops.

Except for chemists, where we are forced to.

Hours after last week's Harper Competition Review recommended an end to pharmacy ownership and location rules the Pharmacy Guild defended them by appealing to nostalgia.

"By ensuring that pharmacy ownership is widely spread, the major supermarket chains are prevented from securing the high degree of market dominance they have obtained in other areas such as grocery retailing" it said, apparently under the delusion that we would prefer our groceries to be sold by someone other than the big supermarket chains.

The truth is we've voted for the supermarket chains with our with our feet. We are likely to continue to vote for them should they be able to sell pharmacy-only medicine and dispense prescriptions (using qualified pharmacists) as they can in the United Kingdom. The best guess is its decision to allow supermarkets to sell medicine cut the prices charged by 10 to 30 per cent. Few in the UK would turn back the clock.

The rules governing Australia's pharmacies are so strange we've come to think of them as normal. They apply in no other industry. Whereas any Australian can own a doctor's surgery or an electrical or plumbing business, only qualified pharmacists can own new pharmacies. The restriction isn't to ensure that those qualified pharmacists work in the pharmacies, many of them own many pharmacies or are retired. It's to make sure no-one else can own them, because apparently supermarket goods and pharmacies don't mix. It's illegal for a pharmacy receiving government payments to be located in or accessible from a supermarket, defined in the 56-page handbook as "the type of store in which a person could do their weekly shopping from fresh food (e.g. dairy, meat, bread), pantry items, cleaning products, personal care items and other household staples (e.g. laundry pegs, plastic food wrap)".

Except for those supermarkets operated by pharmacists *within* their pharmacies. Brisbane's SuperPharmacyPlus has set up an IGA within it allowing customers to "grab it and go".

If you can't find a pharmacy near you, there's a good reason. The industry is effectively closed to new entrants. Any pharmacist trying to set up a shop within 1.5 kilometres of an existing one is denied the use of the Pharmaceutical Benefits Scheme. There are exceptions - pharmacies can be closer within shopping centres (so as not to annoy the likes of Westfield) but there needs to a distance of 500 metres between them when measured in a straight line "from the mid point at ground level of the public access door of each of the premises". In country towns pharmacies have to be 10 kilometres apart.

The Guild says the rules ensure pharmacies are evenly distributed. But they don't always.

The Canberra suburb of Hackett remains a black hole after a pharmacist went to the expense of fitting out a shop only to be told she couldn't use the Pharmaceutical Benefits Scheme because she was 1.345 kilometres rather than 1.5 kilometres away from her nearest competitor. The Harper Review was told a much needed medical centre at Ingham in North Queensland was all set to go until an existing pharmacist moved to a boatyard within 1.5 kilometres of it preventing it from incorporating the pharmacy that was needed to make it a commercial proposition.

The more important effect of the location rules to protect pharmacies from price competition and from competition for the government payments that make up over half of pharmacies' income. Harper says if there are areas of Australia left unserved after the location rules go (as there are now in Indigenous areas) the government should consider allowing doctors to dispense medicines themselves.

It's far from true that Australian pharmacists support the restrictions. The Pharmacy Guild of Australia represents only the the 4000 who own pharmacies. Another 20,000 are locked out of ownership and forced to work for those who got in early. These "employee pharmacists" are represented by Professional Pharmacists Australia which supports a review of the location rules and has incidentally asked the Audit Office to conduct a complete audit of all public money handed to the Guild.

The Audit Office had a brush with the Guild just last month. In its report on the Guild's funding agreement with the government it didn't know what to make of an organisation it described as variously: an industry association, a publicly funded administrator at times acting as an agent for the department of health, a recipient of government grants, an owner of businesses selling products to pharmacies, and an advisor to the health department through its membership of boards.

The Community Pharmacy Agreement agreement pays the pharmacies to do the things many of us might have thought they did routinely, such as dispensing drugs and keeping electronic records. Its annual cost has climbed from $546 million in 1991-92 to $3.087 billion in 2013-14. Not that you've seen this in the budget papers, where it is lumped in with the cost of the Pharmaceutical Benefits Scheme. The Audit Office had to work it out itself. Its report found the health department kept no formal records of its negotiations with the Guild ("not consistent with sound practice"), paid it $31.2 million over five years to administer the agreement (some of it without informing the health minister), and was unable to get data from it about how much its members actually paid for the medications they sold.

It would be easy to get the impression pharmacy owners have access to government funds and government protection on a scale undreamed of by other industries now that the car industry is departing. It would be easy the get the impression that the comments about record keeping and financial management reflect badly on the then head of the department of health Jane Halton, who now runs the department of finance. It would be easy to get the impression that something has to give. Harper has given it a push.

In The Age and Sydney Morning Herald

Related Reading

. Want a pill that will make you rich? David Leyonhjelm, Australian Financial Review, September 19 2014

. A prescription for privilege, Terry Barnes, June 16, 2011

. A prescription for pharmacy reform, Terry Barnes, Policy Summer 2011-12

. Harmacy: The Political Economy of Community Pharmacy in Australia, David Gadiel, Centre for Independent Studies, 2008

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