A debased prescription for change


King Review interim report findings won’t pass the test of public scrutiny, argues Dr Rohan Miller

An interim report titled Review of pharmacy remuneration and regulation was quietly published recently which could have far reaching consequences for everyone who uses prescription medication, over the counter medicines or seeks health advice from their family pharmacist. In short, all Australians. I believe the interim report is riddled with erroneous assumptions and should not be allowed by the government to play any role in the future of the sector.

The approach taken by the interim report and the jargon used leaves no doubt that the authors were led by a rational economist. The King Interim Report also reflects the farce of Yes Minister, as former Minister Ley’s carefully selected team leader, economist Stephen King, has already pre-determined that there should be change and consolidation in the Australian community pharmacy sector.

This is where taxpayers and people interested in good governance, or quality evidence-based regulatory reflection are entitled to be very disappointed. In November 2015, King was appointed to lead the review into pharmacy remuneration and regulation. In December 2015, King (2015) published a paper claiming that pharmacies were among the usual suspects protected by anti-competitive regulations. King provided no empirical analysis to support what seems to be nothing more than his opinion. Not surprisingly, the Interim Report also reflects King’s view that the Australian community pharmacy sector needs to change and become more competitive.

In the same 2015 paper, King specifically argued that Friendly Societies should not be “discriminated against” when it comes to operating pharmacies. Interestingly, or perhaps co-incidentally, the East Yarra Friendly Society, that operates pharmacies through the Chemist Warehouse brand, commissioned a Deloitte Report (2016) that was submitted to the King Review (submission #218).

There appears to be a substantial potential conflict of interest in the King Review that would be far too surreal for a Yes Minister plot. Having prepared a report in support of the East Yarra Friendly Society / Chemist Warehouse case for the sector’s deregulation, Deloitte accepted a commission from Professor King’s team on behalf of the Australian Government.

When challenged on the alleged conflict of interest, Professor King is reported to have denied any conflict and to have claimed that Deloitte “was hired to provide analysis of selected overseas pharmacy models and would not be providing advice”. What is the point of commissioning Deloitte (2017) unless their work was to be used to advise the King Review? Indeed, conclusions (p.113) such as “Reforms, innovations and trials are necessary to ensure the development and transformation of community pharmacies and the pharmacy industry as a whole” look for all intents and purposes like advice.

The Deloitte (2017) report itself states that the company was “commissioned by the Australian Government Department of Health to undertake a literature review of community pharmacy in Australia” and several other places and “is an input to the broader Review of Pharmacy Remuneration and Regulation” (Deloitte 2017 p. 1). Again, it seems very clear that the reason for retaining Deloitte was to obtain “advice”.

The original East Yarra Friendly Society/The Chemist Warehouse funded Deloitte (2016) report claims to focus on “Reforming ownership and location rules for community pharmacy in Australia”, two of the fundamental components of the King Review. This report is prescriptive of how the pharmacy industry should be structured. It is cited in the government funded Deloitte report (2017), along with a number overlapping references (although the citation methods used in the two Deloitte reports inexplicably varies).

While various reports from the equivalent of Pharmacy Guilds in places like Sweden, Denmark and Japan are cited in the Deloitte’s government funded report, a glaring omission to this literature review is any apparent reference to material submitted by, or available from The Pharmacy Guild of Australia. So Deloitte’s report informing the King Review cited its own report funded by interests associated with Chemist Warehouse, but ignored the report from the Guild representing Australian pharmacists?

But wait, there’s more. During the brief period when the public was able to comment on the review, information was released in such a way that stakeholders found it almost impossible to respond in an informed fashion. Taxpayers and community pharmacy clients deserve much more than what seems to be a self-serving regulation of information.

Given the potential influence the two Deloitte reports may have on Stephen King and his panel, shouldn’t all documentation be disclosed for public scrutiny in a timely fashion? After all, transparency is something the King Interim Report is seeking.

If there is to be a review, community pharmacy and Australian taxpayers deserve a review that is free from potential bias. As an ageing nation with an increasing need for health support, it is imperative a review into community based pharmacy properly meets our needs. A simplistic economic approach that, for example, largely overlooks costs (compare the rents on Toorak Road in Melbourne with Lithgow in NSW) and focuses on selected constructs such as fixed pricing, suggests there are fundamental flaws in the King Review.

The Interim Review argues for economic change. It should be proposing ways to improve our health outcomes. Somehow, the report argues for cost cutting (p.9) regardless that our society is increasingly dependent on pharmaceuticals (p.10). The administration of pharmaceuticals is to be dictated by “return on investment,” not health outcomes.

The King Review gives little or no consideration to the likely implication of removing restrictions on pharmacy ownership which would include a bigger operator being able to systematically “out-compete” smaller operators, gain market power, and then  exploit this market position. Sometimes anti-competition laws exist for reasons, even if some economists seem to assume the market should be deregulated.

Just who will the final King report impact? The short answer is everyone who will get a medical prescription filled, or pops into their local pharmacy to buy over the counter medication, or discuss a small medical problem.

So, why aren’t these report findings being disseminated through a range of media to inform people?  Probably because it won’t pass the test of public scrutiny.

Dr Rohan Miller is a Senior Lecturer in Marketing at the University of Sydney Business School.

He has no conflict of interest to declare.

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4 Comments

  1. Mick Rhodes
    07/08/2017

    Sir, I’m unsure as to your reference of “quietly published”. Forums all over the internet have been abuzz, discussing this review for at least 6 weeks now and it has made the news of the mainstream news channels and the ABC.

    As for the pre-determination of change, this has been going on WELL BEFORE the King interim review and only now are people starting to have a voice. Its findings may not sit well with certain industry groups but it does not mean they’re not valid. And it was actually the public consultation that determined change should happen not any pre-determination of that change.

    The Deloitte report you mentioned was a microcosm of only 1 of over 500 submissions received in to the panel. While it was given due consideration, it was hardly the agenda setting content you deem it to be. King posed 144 highly detailed questions after public consultation and those questions frankly have been around for at least a decade long before King came along. Deloitte’s work on the overseas model review is both well-known and formed part of the input to the review itself. And it is not uncommon for consulting companies whom develop expertise to be engaged to assist further in any review.

    As for the reformation of ownership and location rules, we don’t need a Deloitte report to supposedly inform that. For those 25000+ employee pharmacists whom provide most of the services in the industry it’s as plain as day this is required and why it is so vehemently opposed by the Guild (PGA). As for your claim the PGA submission was ignored, the King review calls out through the report a number of contributions made by the PGA. Conversely King review also calls out the lack of cooperation the PGA recommended it members undertake particularly in response to the transparency of input and operating costs and funding. The PGA supported the review in the first instance in 6CPA but at the first sign of required transparency refused to cooperate. The simple fact is many of the interim recommendations in the review are an anathema and deeply threatening to the PGA.

    Any notion that the review was simplistic is also misleading. The review is an extensive piece of work. King et al argue for a sustainable model that both supports and enhances the NMP and most importantly removes the funding inefficiencies (like CSO’s) that could support the broader system. He also called for the CPA’s to be abolished so that all stakeholders are represented as opposed to a privileged few.
    Your claim the report argues for cost cutting is also misleading. There may and should always be opportunities to cut costs, which for societal value is a good thing but not at the expense of not meeting the NMP objectives, however the report also states the argument to both maintain or even increase fees paid to pharmacists for dispensing (p.88-90).

    Anything that further facilitates anti-competitive practices protects a privileged few (pharmacy owners) against an un-privileged many (concession card holders, the elderly as well as the low wages paid to pharmacists) is simply not fair for the majority. The simple economic fact is restricting the supply of anything only maintains higher input and selling prices. King calls this out in detail. And any notion then endless inefficient funding is permissible is neither accountable to the health system itself nor the Australia taxpayer. As micro-economic reform is ultimately dependent on the human behaviour adjustment of the buyer and sellers in the market, anything that enhances the NMP, reduces price, increases medicine access, increases competition, ensures quality of services provision and ensures pharmacists are paid better than they are now and ultimately makes existing well-run community pharmacies stronger certainly has my support.

    • Andrew
      07/08/2017

      Hi Mick,

      While I broadly agree and support many of the points you make in your reports I’m a bit suspicious about your dodging a couple of direct questions regarding the funding and provenance of the report.

      Can you give us any guidance in this regard?

      • Mick Rhodes
        07/08/2017

        Hello Andrew,
        Thanks for your question. Please see end note reference ii in the report (version 2a) which we submitted in response to the Interim King Review. That text states “Rhodes Management and Michael Rhodes were not paid in any way for the first report or for this report. Michael and Rhodes Management are NOT members of any industry body or any pharmaceutical body and are completely independent. We have no conflicts of interest. It is this complete independence that allows us to research, analyse and comment without fear or favour on the industry, its obvious shortcomings and the participants in it. To maintain this independence this report was commenced in early May 2017 and concluded on June 26 2017. The Part 2 version authoring of this report was done independent and sight unseen of The King Review (which we look forward to reviewing after we make our report public). The Part 2a version of this report considers The King Review content in the Executive Summary.”

        Notwithstanding my own personal efforts in this have resulted from a now deep interest in the matter and having some time to commit research and commentary (which isn’t always available!). This had initially come about through a number of employee pharmacists colleagues whom approached me to looked at the industry (resulting in our first report), then subsequently researching and authoring our second report as my interest in the industry and it’s obvious shortcomings increased. Again however I can assure you we are aligned to nobody and are completely independent which makes our reports both topical and of substance because we simply have no fear calling out the vested interests of certain industry bodies. Trust this clarifies for you. 🙂

        • Andrew
          07/08/2017

          It does very much, thanks for the response.

          At face value then it seems that your report is probably the most objective of the bunch….not withstanding my confirmation bias.

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