Pharmacy explainer: what are the benefits of deregulating the pharmacy industry?

Prescription pharmaceuticals

Prescription pharmaceuticals Photo: Louie Douvis

What are the current controls on the operation of pharmacies?

Under state laws, with limited exceptions, you have to be a pharmacist to own a pharmacy. State laws also impose limits on how many pharmacies each pharmacist can own. Federal laws govern where pharmacies can be located, and these are so complex the handbook to explain them runs to 56 pages. In short, a pharmacist must obtain approval from the federal government to open a new pharmacy or to move or expand an existing pharmacy. Generally a new pharmacy can not be opened within a certain distance of an existing pharmacy, usually either 1.5 kilometres or 10 kilometres, depending on the area. These rules also ban pharmacies being placed either within or in a position directly accessible from a supermarket.

What changes did the federal government’s review recommend?

The Review of Competition Policy, chaired by Professor Ian Harper, recommended these restrictions be removed, finding they were imposing costs on consumers, limiting choice and thwarting the ability of suppliers to meet customer preferences. The location rules are part of a five-year agreement between the Commonwealth and the Pharmacy Guild of Australia, who are negotiating a new deal to replace the current one, which expires on June 30. The review suggested the location rules be relaxed as part of the next agreement as the first step towards their complete removal. To ensure pharmacy services are delivered to rural and remote areas, it suggested the government provide direct funding to operators, possibly through a tender process, to provide services in areas where a pharmacy might not be commercially viable.

If implemented, what practical changes would the consumer notice?

We would expect to see more pharmacies, particularly in affluent or densely populated areas. We could see pharmacies in supermarkets, whether owned by the retail giants such as Coles and Woolworths, or by independent pharmacists renting space to take advantage of the foot traffic. It’s likely more pharmacies would stay open outside standard business hours, and prices for non-PBS medicines and other products should drop. The impact on prices for PBS drugs would probably be limited, because in many cases the price the consumer pays is a contribution set by government which is less than the actual cost of the drug. However, for off-patent drugs, retail chains may be able to negotiate better prices with suppliers and pass the savings on to customers.

Who would be the winners and losers from the reforms?

Consumers would benefit from lower prices for some drugs and other items, and greater choice about where and when they obtained their medications. Pharmacy groups have suggested the quality of service would suffer, but the review suggested the government could ensure an adequate standard of safety and care by imposing obligations on pharmacies as a condition of their licensing or their remuneration. (The Commonwealth pays pharmacists fees to dispense PBS drugs on its behalf.) Existing pharmacies, particularly smaller operators, would likely be worse off, their margins squeezed by competition. On the other hand, chains such as Chemist Warehouse, whose ambitions for expansion have been thwarted by the existing rules, would find it easier to grow, and the supermarkets would gain a new, lucrative and stable revenue stream. But entry of the supermarket giants could be bad news for suppliers, if they used their enormous purchasing power to demand lower prices from wholesalers.

What would it mean for national health costs – would there be any economic benefit or reduction in rising rates of spending?

There’s little reason to expect these changes on their own would have a large impact on the broader economy or the budget. Given PBS drugs can be dispensed only with a prescription, growth in the number of pharmacies shouldn’t lead to significant changes in the volume of medications taken by patients. The government negotiates prices with drug companies, and in recent years has introduced and refined processes to reduce these prices when the drugs come off patent. Former federal health department head Stephen Duckett has demonstrated that even after these changes, the prices Australia pays for many off-patent drugs is much more than authorities in New Zealand, Britain and the Canadian province of Ontario pay for the same drugs. He has proposed a system of international price benchmarking to get better value, a change which he admits would reduce pharmacy incomes. Such bold reforms might be easier for governments to implement if the political clout of pharmacists is diminished by the removal of ownership and location restrictions.

Data mining customers’ preferences to increase sales and profits has driven the supermarkets’ recent innovations – from loyalty schemes to petrol discounting. Should consumers fear their spending on medicines and health might be used in a similar way?

Prescription drugs are restricted in ways that groceries, and even cigarettes and alcohol, are not. Pharmacists can’t stimulate demand for prescription medicines in the same way supermarkets can make us want chocolate or ice-cream. Pharmacists and others, including Small Business Minister Bruce Billson, have argued that a pharmacy is not like any other retail business. Medicines used inappropriately can be deadly. Pharmacists are trained to consider a person’s conditions and other medications they may be taking and provide them with advice to ensure they take their medication safely. That said, there are ways of protecting professional standards while relaxing ownership and location rules.  

These changes ring a bell. Why didn’t these reforms get up before, and will it be any different this time?

Various reviews dating at least as far back as 2000 have considered these issues and made recommendations for reform. Most recently, last year the Commission of Audit recommended location and ownership rules be removed.

Why no government has been brave enough to implement reform probably has a lot to do with the legendary lobbying power of the Pharmacy Guild. The guild has shown it is capable of exploiting the high levels of public trust in pharmacists, and mobilising its thousands of members across the country, to fight changes that threaten pharmacist interests. Having sustained serious wounds in his brawl with doctors over a Medicare copayment, Tony Abbott is said to have no desire for a fight with pharmacists.

Source Article from http://theage.com.au/federal-politics/political-news/pharmacy-explainer-what-are-the-benefits-of-deregulating-the-pharmacy-industry-20150404-1mee0k.html
Pharmacy explainer: what are the benefits of deregulating the pharmacy industry?
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