‘Chemist Warehouse’s price discounts are benefiting consumers.’


Chemist Warehouse Woden, September 2013.
Chemist Warehouse believes there is not enough competition under the current pharmacy model.

There’s no evidence that the growth of discounters like Chemist Warehouse is hurting consumers, says the Grattan Institute

In its submission to the Queensland Parliamentary Inquiry into the pharmacy sector, the Institute recommends “cautious removal” of the ownership rules, and supports pharmacists providing “a much broader range of health services”.

“The local chemist shop owned and staffed by a friendly pharmacist was the industry model in the mid to late 20th century,” the submission states.

“This model of pharmacy provision is still enshrined in Queensland legislation—albeit allowing our friendly pharmacist to own another four pharmacies in Queensland.

“But the current legislation governing ownership is a charade. The industry is being transformed with banner groups uniting the independent pharmacies, and big box discounters also providing added value to consumers.

“The largest chain, Chemist Warehouse, is estimated to account for 15% of Pharmaceutical Benefits Scheme sales nationwide.

“There is no evidence that this transformation is causing consumers harm – in fact to the contrary, Chemist Warehouse’s price discounts are benefiting consumers.”

Red tape – the ownership rules – is constraining industry aggregation and innovation, Grattan says.

However, if the rules are lifted and “extreme concentration” of ownership results, consumers are unlikely to benefit in terms of cost savings, it warns.

The Institute says the rules ensure that most pharmacies operate with high capital costs and low economies of scale.

“This leads to higher dispensing costs, which put pressure on the PBS. If Australia were to abolish the pharmacy ownership rules, the cost of providing over-the-counter medicines would likely fall.

“Large groups of pharmacies (i.e. the retail point only) could also merge under a single owner, with economies of scale driving down their average procurement, logistic and marketing costs.

“Supermarkets could use their already large and well-established supply networks, retail outlets and customer bases to supply medicines at particularly low costs.”

Savings might not flow to consumers of the government, it warns.

However, “we have not raised these risks of deregulation with the aim of discouraging liberalisation. There is little sense in preserving an extremely inefficient dispersion of ownership in order to prevent oligopoly.

“This is a job better left to the Australian Competition and Consumer Commission, as it currently is in most other industries.

“Nevertheless, care must be taken to ensure that the benefits of deregulation are shared by all parties. Regulators must ensure that greater concentration of ownership does not lead to abuse of market power.

“Government must ensure that cost savings achieved by larger retailers are reflected in the dispensing fees they are paid.”

 

Deep expertise

The Grattan Institute also says Australians miss out as a result of current limitations on pharmacists’ scope of practice.

“Pharmacists are highly trained, have deep expertise in medicines, are among the most trusted of all professionals, and are located in communities throughout Australia. Yet their role is far more limited in Australia than in many other countries.

“People have to wait longer and travel further to see a GP for a service that their local pharmacist could have just as easily provided. Sometimes they become sicker in the interim, increasing costs on the individual and thehealth system.

“There is good evidence that pharmacists can safely administer vaccinations, provide repeat prescriptions to people with simple, stable conditions, and work with GPs to help patients manage chronic conditions. Allowing them to do so would improve the Australian health system by reducing pressure on the primary care system and improve consumer access to care.”

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22 Comments

  1. Greg
    26/07/2018

    “People have to wait longer and travel further to see a GP for a service that their local pharmacist could have just as easily provided. Sometimes they become sicker in the interim, increasing costs on the individual and the health system.”
    Do the Grattan Insitute fail to see that the exact reason for this are the very Rules (sorry, “Red Tape”) they spent the first half of the article disparaging??

  2. chung Liauw
    26/07/2018

    We are in a major transition point in community pharmacy.
    While there are no rights and wrong from either side of the fence, a change is happening, It is time we embrace the wisdom of the past and learn from the trend that is unfolding.
    The obvious observation is that the consumer, our customers have evolved, they are better informed, they demand choice, they want immediate benefits and are no longer subservient to the institution of health.
    The success of the current disruptors in the marketplace provides us with the pulse on the consumer and we need to extracted and incorporated into our more conservative approach; to allow pharmacy to continue to play its important role in the welfare of the community.
    We have always sat uncomfortably but successful in the role of health professional and business, a unique entity in health. We are best place to address this new consumer revolution.
    For practical purpose, fight the fight but we need to start looking for new models, not just more of the same.
    The population base in australia is comparatively small, the franchise model is also flawed, it is a self limiting model. Take the USA, two players CSV and Walgreen dominate, now you have the imbalance of a just a strong corporate retailer behaviour which has resulted in the lost of health services that used to provided by pharmacies like those in Australia. As a result of this the missing services are now taken up in the public health services. (more cost to Government or us taxpayers)
    Note to thought leaders: “need to develop new models” and we still have the opportunity to not let the tail wag the dog. Individual pharmacist must get involved – do not leave it to others.

    • David Lund
      26/07/2018

      Haha. Companies in control of the PBS and taxpayers money. That’s a recipe for disaster

  3. Apotheke
    26/07/2018

    The Pharmacy Guild should get out of the way of Pharmacists developing alternative modes of practice outside the four walls of a community pharmacy. Licking and sticking plus selling sundries is NOT the only way for a Pharmacist to earn a living. We had a viable way forward with a new model via the HMR and RMMR models of practice. Who effectively destroyed that and made it a financially unviable mode of practice. I give everyone one guess.

    • jason northwood
      26/07/2018

      I don’t know – was it the consultant pharmacists that overgrazed the commons ? there was only ever a fixed budget once that was used up the well was dry

      • Greg Kyle
        03/08/2018

        Question for both Jason & Willy – should the dispensing fee budget be similarly capped? That would provide a level playing field…
        I guarantee the answer to this would be a resounding ‘No!’ because there is no pharmacist control over how many prescriptions are written and presented for dispensing. Similarly, an accredited pharmacist has no control over how many medication reviews (of either type) they are sent (referral process). Therefore, the gaze should fall on those responsible for providing a fixed budget that was not adequate for the demand … the single organisation that negotiated the Guild Government Agreements!

        • Jarrod McMaugh
          03/08/2018

          Greg, your analogy is flawed.

          Before the caps were introduced on HMR, I had many discussions with Medicare about a practitioner in my region who had an arrangement with a local GP.

          This arrangement saw all patients from this surgery (including those who were not this GP’s patients) who met specific “criteria” referred to a single pharmacist who provided HMRs, as well as “finder’s fees” to the GP for these referrals.

          These patients were also encouraged to change pharmacy when we started to question the need and validity of these HMRs

          Medicare was quite interested, but the conversation ceased when they introduced caps, as they saw this as a solution to the issue.

          Now, audits along with caps would have been a good outcome, but to suggest that caps were not necessary, or that pharmacists have no capacity to influence the number of referrals they receive is inaccurate…. especially since there were clearly advertisements within pharmacy online communities from people who had created a business practice that I could only describe as “industrialised” for providing fast-turn around (and dubious quality) HMRs.

          • Greg Kyle
            09/08/2018

            Yes, some (emphasis on some) accredited pharmacists may have had an arrangement like this (I have no personal knowledge of any cases, unlike you). However, some (again emphasis on some) community pharmacy owners provide incentive packages to their local prescribers to send scripts their way eg a hamper for the GP in a local practice who wrote the largest number of prescriptions that the pharmacy dispensed that month! I have personal knowledge of this practice. These people exist in all the spheres of practice…

          • Greg Kyle
            09/08/2018

            Yes, some (emphasis on some) accredited pharmacists may have had an arrangement like this (I have no personal knowledge of any cases, unlike you). However, some (again emphasis on some) community pharmacy owners provide incentive packages to their local prescribers to send scripts their way eg a hamper for the GP in a local practice who wrote the largest number of prescriptions that the pharmacy dispensed that month! I have personal knowledge of this practice. These people exist in all the spheres of practice…

          • Jarrod McMaugh
            10/08/2018

            Greg, for the cases you discuss, have you reported those people to the department of health, their state’s health ombudsman, and AHPRA?

            I did in the case I observed.

            To the point, there is a fundamental difference between medication dispensing, and provision of HMR.

            Medications are needed, acutely or ongoing, for pretty much everyone at some point in their life.

            HMR is very much not like this – there is a small population of people who benefit from it, and an even smaller population of people where the evidence shows a positive cost/benefit analysis (MSAC so far has been unimpressed with the idea of funding HMR as a MBS item due to this).

            Capping a service that requires universal access, based on the argument that a service that has limited scope (regardless of the benefit it provides) is also capped, is faulty logic.

            I suspect you already know this

        • jason northwood
          07/08/2018

          Yes, Greg , what that organisation should have done was negotiate an UNLIMITED BUDGET ! the Treasury could have just kept printing money – which would have lead to hyper inflation but who would care so long as you could do as many HMRs as you want. Economics is the science of choice – when faced with unlimited demands but a finite budget choices have to be made.

          • Greg Kyle
            09/08/2018

            I have no problems with a limited budget, but a realistic one! Perhaps applying the same argument, the dispensing fee budget should also be capped?

        • Paul Sapardanis
          07/08/2018

          Greg your argument is flawed as the referrer is financially rewarded in HMR referrals yet is not when it comes to prescribing

          • Greg Kyle
            09/08/2018

            The prescriber receives a consultation fee for the consultation where the prescription is written – how is this not being similarly rewarded? There are also the pharma kickbacks to consider … for prescribers and pharmacy owners.

          • Paul Sapardanis
            09/08/2018

            Again consultation fee is paid if a prescription is written or not or if the prescription is filled or not.

        • Anthony Tassone
          07/08/2018

          Greg

          Respectfully (and adding to Jarrod’s sentiment) there are some short comings in the comparison comparing capping a HMR budget with that of dispensing.

          HMRs as a service are still undergoing a cost effectiveness assessment as part of the 6CPA, the results of which will help inform future funding.

          Furthermore, the best cost effectiveness or benefit would be gained from the best patient targeting of the service.

          I am not being critical of HMRs as I am an accredited pharmacist myself and conduct them regularly for patients referred to my pharmacy.

          Without wanting to cover old ground on an online forum around this matter, it was the Guild in the first instance who negotiated funding for the program and have successfully negotiated funding in subsequent agreements.

          Anthony Tassone
          President, Pharmacy Guild of Australia (Victoria Branch)

          • Greg Kyle
            09/08/2018

            Anthony, has dispensing also been through a cost-benefit analysis? If we’re talking about a level playing field, surely this should also happen? I have no issue with comparisons, but we should ensure that all the items being compared have been through the same analysis. After all, the Guild in the last agreement started a concerted push to rebrand dispensing as a professional service, rather than a technical function. Therefore, both should receive the same level of scrutiny.
            Yes, the Guild did get RMMR and HMR into the agreements initially. Since then, the Guild seems to have had little interest in RMMR – perhaps because they can be performed by any accredited pharmacist? Similarly the interest seemed to wane (certainly to me as an outside observer, and then accredited pharmacist) when a direct referral model came in, rather than having to be channeled through a pharmacy.

            Will the Guild provide the economic modelling that was done for the last 2 agreements to determine the adequacy of the quantum of funds included to be allocated for HMR? This would surely allay such concerns about the quantum of funding provided in the agreements…

          • Jarrod McMaugh
            10/08/2018

            “has dispensing also been through a cost-benefit analysis?”

            C’mon greg, that’s an absurd question.

            Medicines themselves go through PBAC, and dispensing fees are regularly reviewed.

    • Willy the chemist
      27/07/2018

      One guess? ….overzealous accredited pharmacists. We used up all the allocated budgets.

  4. Greg
    26/07/2018

    “People have to wait longer and travel further to see a GP for a service that their local pharmacist could have just as easily provided. Sometimes they become sicker in the interim, increasing costs on the individual and the health system.”
    Do the Grattan Insitute fail to see that the exact reason for this are the very Rules (sorry, “Red Tape”) they spent the first half of the article disparaging??

  5. PharmOwner
    26/07/2018

    Low prices benefit consumers? There is only benefit if the stuff works and the “consumer” needs it in the first place. Something like 50% of CWH turnover comes from outside the dispensary. That’s a huge amount of vitamins, herbal supplements and other junk being used to prop up the dispensary and fatten profits. Real/traditional community pharmacies only derive around 20-30% of turnover from non-dispensary sales.

  6. Willy the chemist
    27/07/2018

    Comparable “1st world developed” countries like USA and Singapore have largely deregulated pharmacy and large corporatised pharmacy companies.
    My experience whilst working and visiting those countries were that their cost of OTC medicines were much higher than here in Australia.

    Incidentally other than a few lost leaders, Coles and Woolsworth supermarkets cannot compete even on prices with our many discount pharmacies today.

    Grattan Institute claim that people have to travel further to see a GP whereas they could have easily visit a pharmacy is the exact reason for the location rules. In comparable 1st world developed countries with privatised pharmacy, Singapore & USA, the distribution of pharmacies are not even. In the major cities, there is a high density of pharmacies. Once you go out into the suburbs, they are not well distributed as in Australia and often you have to drive up to 20 minutes to find one.

    Finally Grattan institute claim that the higher dispensing costs puts pressure on the PBS. What world do they hail from? Are they telling Australians that the “leader” of the free world has the most efficient and cost effective healthcare system?

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