The new Administration Handling and Infrastructure (AHI) Fee, set to replace the pharmacy mark-up component of remuneration, is a coup for the Pharmacy Guild, says industry analyst Bruce Annabel.
Annabel says that while it’s not a pot of gold for pharmacy, the AHI fee, which uncouples pharmacy remuneration from the price of medicines, will help maintain the profitability of many pharmacy businesses.
“It was crashing into the basement, and the Guild has basically stopped the descent at Floor Two,” he told the AJP.
“Pharmacies won’t get a reprieve from price disclosure, because the discounts will keep falling. And that floor will be lower if pharmacies, pharmacists and groups decide to still aggressively discount below patient copay scripts.
“My own rough calculations indicate that the Guild has managed to cobble together a fee-based dispensing income average of $11.50 per script – and according to my modelling, if they hadn’t done that, income per script was well on its way to $10 – $10.50 per script. So they’ve done a good job.”
Hits to wholesalers and manufacturers under the proposed legislation will have an impact on pharmacy business, he warns.
“For pharmacy this means a knock-on effect, and I can see the wholesaler discount disappearing within the next two years,” Annabel says.
“Manufacturers have really been smashed, so again this will reduce or cut any sort of direct discount trading terms offered by manufacturers direct to pharmacy; the same thing applies to the generic medicines industry as well, as with price cuts they’ll have to keep clipping their discounts.”
The value of this fee from 1 July 2015 will be:
- Where the Approved Price to Pharmacist (wholesaler PBS list price) is up to $180.00: $3.49 per prescription.
- Where the Approved Price to Pharmacist is between $180.00 and $2,089.71: $3.49 plus 3.5% of the amount by which the price exceeds $180.
- Where the Approved Price to Pharmacist is $2,089.71 or above: $70.00.
“It’s basically insulated pharmacy from the depreciating effects of price disclosure, and the latest invention of price disclosure, the super cycle, and the F1 cuts, which will be significant,” Annabel says.
“The only question mark on my mind is far down the track, if lots of blockbusters get listed and distributed by community pharmacies maybe the percentage could have been good – but for the foreseeable future the handling fee is an excellent move.
“For me, the fee is the key or hallmark of the whole Agreement: and it’s also indexed, along with the dispensing fee.
“It’s allowed dispensing to be reasonably profitable: not the massive amount of money you could make over the last five years, which was rather like the mining industry in that it was a bubble that was never going to last.
“It’s a coup for the Guild, and of course the Agreement then offers real opportunities for those who want to do more than just dispense.”
Annabel says he’s excited about the doubled funding for continuing and expanded pharmacy professional services, and he hopes that pharmacy owners and managers will take advantage of the opportunities they represent.
“I really hope the industry latches onto these services, to prove that pharmacy can do more than just fulfil a supply function,” he says.
“We must remember the Harper Review: the report recommending deregulation of location and ownership rules is still the elephant in the room, and everyone knows it’s there!
“The only thing that will make that elephant go away is if pharmacy really covers itself in glory by proving to the players and the patients what they can do.”