CWH calls for urgent ownership rules reform

Chemist Warehouse was unable to raise a significant bank loan against its annual turnover – thanks to the ownership rules, it says

The exact figures are redacted in the group’s submission to Queensland’s pharmacy inquiry, but the case illustrates how Chemist Warehouse is restricted by the legislation, it says.

“The requirement that only pharmacists may own pharmacies, and that a pharmacist can own only five pharmacies in any one state, is unnecessary regulation that should be repealed,” it says.

“These constraints are creating financial instability that is more likely to threaten than secure the ability of the industry to continue to provide equitable and affordable access to medicine.

“The ownership rules, coupled with changes in the supply chain relationships in the industry in recent years, have created a serious capital constraint for the pharmacy industry.

“In practice, a group of pharmacies cannot accurately demonstrate its financial success or ability to meet substantial repayments, because pharmacy businesses must be registered in the name of individuals, rather than as part of a group.”

The ownership legislation limits the market for individual pharmacists who want to dispose of their business – suppressing prices and limiting credit worthiness, the group says.

“For larger pharmacy enterprises, such as Chemist Warehouse, the ownership structure required by the current regulatory regime prevents capital raising to support innovation, expansion and modernisation,” it says in its submission.

“This constraint on Chemist Warehouse’s ability to operate as any modern business should, is illustrated by the fact that the business has previously been unable to raise an $XX million bank loan against an annual turnover at the time of $X billion with a X% profit margin.

“The complex ownership arrangements these regulations force on pharmacists who wish to be part of the Chemist Warehouse group of companies, means the banks cannot be confident that they will be able to secure collateral against their loans.”

Chemist Warehouse says that retail pharmacy in general in Australia is “under capitalized,” which means innovation through investment is stymied, leading to inefficiency and higher prices for consumers.

Chemist Warehouse’s submission also states that while the group understands that the rationale for pharmacy regulation is aimed at a desire to ensure equitable access, “the effect of these regulations threatens the opposite”.

“The impact of regulation has been to raise costs for consumers, to prevent innovation in the industry and to undermine the value of investments.

“Chemist Warehouse contends that this heavy-handed regulation of the industry could put at risk its long-term viability.”

The group believes the ownership regulations should be reformed “as a matter of urgency,” it says.

The Inquiry is looking into a number of issues, particularly around the scope of practice of pharmacists as well as the establishment of a Pharmacy Council in the state.

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