Deregulate pharmacy in next 12 months: paper

"regulation" written on many road signs: deregulate pharmacy

The Efficiency in Health research paper from the Productivity Commission has recommended Australia deregulate pharmacy: reform to the ownership and location rules are inevitable and should be undertaken within the next 12 months, it says.

The paper identifies and assesses ways to improve the operation of the Australian health system, based on a roundtable the Commission held with health policy experts in November 2014 and follow-up research.

It looks at several aspect of the health system, including pharmacy and the PBS, preventive health, clinical guidelines, the health workforce, private health insurance and more.

“Restrictions on retail pharmacy location and ownership are clearly more about protecting the vested interests of incumbent pharmacists than about promoting consumers’ interests and maximising benefits for society as a whole,” the report says.

“These rules limit competition in the sector and can make it harder for some consumers to access pharmacy services.”

It says the adverse impacts of location and ownership rules have “long been recognised,” including reducing consumer access, convenience and value.

It says the location rules make it more difficult for consumers to compare price and service offerings between pharmacies.

“This acts to reduce the competitive pressure on pharmacies to reduce prices or increase service offerings (including opening hours),” claims the report.

“In competitive markets without these restrictions, firms would be able to open or relocate where the commercial opportunities are greatest.

“But this is not the case for pharmacies: the location rules can prevent a pharmacy opening in a high‑demand area if another pharmacy is already present, or from co‑locating with another business (such as a supermarket) where this improves convenience for consumers.”

Meanwhile, the ownership rules hurt consumers by reducing innovation and entrepreneurship in the sector, the paper says.

“Excluding corporations (such as supermarkets and general retail outlets) and non‑pharmacists from owning pharmacy businesses limits the scope to leverage specialised management skills and expertise that could reduce costs and improve service quality.

“Coupled with limits on the number of separate businesses a pharmacist may own, this limits opportunities to reduce costs (and prices) by operating on a larger scale or across a broader range of service offerings.”

The report says that arguments in favour of keeping the rules, such as access in rural and remote areas, the maintenance of ethical and professional standards, the need to avoid oversupply of pharmacies in some areas, and preventing the exercise of market power are “not compelling and have been widely and repeatedly refuted”.

“Proponents of retaining the location and ownership restrictions often point to the good outcomes for consumer safety and access that have been achieved,” the paper says.

“However, there is no clear link between the location and ownership restrictions and the attainment of these outcomes.

“And given the other policy measures in place for safety and access purposes (including registration requirements for pharmacies and more direct measures to improve access in rural areas), the restrictions are unlikely to play a significant role.

“They are a poorly targeted and costly way of pursuing safety and access objectives, and have come at a significant cost to the community.”

Governments could encourage pharmacists to operate in underserved areas by providing direct subsidies, consumer safety depends on pharmacist conduct not business ownership, and there is no reason to treat pharmacy differently from other sectors of the economy, the paper says.

“All regulations should be reviewed over time to ensure they remain relevant, proportionate and cost effective,” it says.

“Pharmacy location and ownership regulations do not meet these tests — they limit competition, reduce consumer value and convenience, and are out of step with other areas of the health sector (such as general practice).

“Resistance by vested interests is not a sufficient reason to retain regulations that are not in the public interest.

“Governments will need to publicly build the case for reform and ensure that other policy arrangements are adequate to protect consumers (through the continuation of registration standards to protect safety, and subsidies to support access to pharmacy services in rural areas).”

Removing location and ownership restrictions does not mean removing all regulations on pharmacies, says the paper.

“In the long term, reform is inevitable.

“Consumers will increasingly question why they cannot purchase pharmaceuticals in the same way that people in other countries do — for example, in New Zealand, the United Kingdom and United States, consumers can buy prescription medicines in supermarkets (dispensed by a qualified pharmacist) or fill prescriptions online.

“Removing location and ownership restrictions now would give Australian pharmacists the opportunity and incentive to adjust to these developments.”

The paper follows the publication of the Harper Review into competition, which also called to deregulate pharmacy.

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