‘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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