Don’t alter a framework that works: economist

Prof Ergas

A leading economist has backed the existing location and ownership rules of community pharmacy.

Delivering the annual Judy Liauw address at the Pharmacy Connect conference in Sydney, economist Professor Henry Ergas analysed the two main pillars of community pharmacy regulation and found they deliver significant benefit to consumers and to taxpayers.

“The critical starting point is that community pharmacy is not merely another retail service; rather, it is a crucial part of the health system, providing services to consumers on behalf of the Commonwealth,” Prof Ergas said.

“Those services, which include dispensing and a host of quality control, advisory and ancillary services, have a major impact on health outcomes—if they are not readily available to those who need them, or are not provided correctly, they can seriously damage the health and quality of life of consumers.

“That means the Commonwealth, and the community more broadly, have a vital interest in their provision; that interest is made all the greater by the fact that community pharmacy, if it does its job well, reduces the costs of achieving the health’s systems overall objectives, while poor performance in community pharmacy increases costs, including in terms of the burden that then falls on other parts of the health system, such as medical practices and hospitals.”

Prof Ergas drew on work commissioned by the Guild from MacroPlan Dimasi which showed the effect of the Location Rules was to ensure a very high level of access for Australian health care consumers.

For example, in the capital cities, the study showed the average resident is located one kilometre from the nearest pharmacy, while 95% of consumers are no further than 2.5 kilometres from a pharmacy.

Outside the capital cities, country residents are just 6.5 kilometres on average from the nearest pharmacy, with 72% having a pharmacy within 2.5 kilometres. 

Prof Ergas said that the “difference between the location pattern that would be chosen on a purely financial basis, and the location pattern that reflects the community need for pharmacy services, justifies a measure of Commonwealth involvement in location decisions”.

“Achieving the twin goals of providing for pharmacies to be located where they are needed, and yet avoiding duplication, requires a geographical pattern of pharmacy location that has some degree of dispersion to it, with less clustering of outlets—and so less close duplication—than usually characterises retail markets.

“In other words, to meet the Commonwealth’s aims, pharmacies should be located in places which differ from those that would likely be chosen simply under profit-maximisation and in a manner that limits purely overlapping outlets.”

He also backed the ownership rules, saying they ensure owner-pharmacists have considerable “skin in the game”. 

“That gives them strong incentives to maximise the goodwill in their asset, not least by providing excellent customer service; this ‘skin in the game’ aspect also enhances owners’ incentives to conduct themselves and their pharmacies ethically and professionally, and not risk loss of registration and, therefore, loss of value in the pharmacy,” he said.

“It is inconsistent with the evidence to claim that the location and ownership rules reduce access or undermine efficiency—on the contrary, that evidence suggests they result in a high level of community access while underpinning a dispersed ownership structure which serves the interests of the Commonwealth, of individual proprietors and of consumers. Whatever claims might be made in theory, these practical outcomes demand and deserve substantial respect.

“In short, one needs to be extremely cautious in altering a framework that is well grounded in economic analysis, compellingly supported by evidence and—most importantly— works,” Prof Ergas said.


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  1. Andrew

    “Economist paid by the Pharmacy Guild backs Guild position”.

    Ask literally any other professional economist in Australia and they will disagree with Prof Ergas, with references and examples.

    • Emmanuel Mahlis

      By changing ownership of pharmacies we open Pandora’s box. Arguing over what is best model is anathema to controlling the standards and delivery of care controlled by Government, for obvious reasons. If ever we changed ownership consider Nationalising Pharmacy ownership. This will keep the greedy corporates away from creating a profit driven primary health care service. Currently we have a semi – nationalized pharmacy ownership and Government can control Pharmacy owners extremely well. Imagine completely the USA or UK situation. Standards are very low and there is no R&D of any significance within the profession for community pharmacy. It got so bad in the UK that the Nurses Organisations took over most of the community pharmacy role to voice standards in pharmaceutical care. Australia should use current model and enhance it even more. Improve it and let it keep evolving and adapting to needs of our society.

      • Emmanuel Mahlis

        I also feel same rules should apply to medical Centres. I beleive and think it’s proper that a Doctor should own his own practice. It’s obvious. I know GPs working in clinics owned by others and they are influenced heavily to make money for the owner of the clinics.
        The patient’s welfare and Government spending and creating an advanced efficient primary HealthCare service requires each component to be working in harmony and unison with each other.
        The goal is to create a healthy society.

        • Timeforchange

          Doctors always own their own business. It is called a ‘provider number’. A pharmacist may own or lease a premise that medical services are conducted at but they have never ‘owned’ a medical centre. Doctors have autonomy over their own billing as well as their practice. Pharmacists have no autonomy. We work in ‘approvals’ that are assigned to a minority of pharmacists with no tender process. A pharmacist is not paid as a provider and hence is not autonomous as we can be relieved of our role if it doesn’t suit the ‘ owner ‘ of the ‘approval’. It is time to pay ‘pharmacists as providers ‘. Dispensing and professional services may be assigned to a provider number. If a pharm wants to work in a partnership or for someone else’s pharmacy they can negotiate a percentage of their income after cost of goods sold – just as a doctor negotiates a percentage of billing with the medical centre they choose to work at. A pharmacist can own a front of shop with or without others and again negotiate a profit share with other providers or insulate front of shop from dispensing business. If individual providers are responsible we may see far less fraud in the system that currently has very little accountability as the ‘pharmacy’ is currently billing the government rather than an individual. Pharmacists may be empowered to improve patient care if they are personally liable and responsible for their income and professional activity.

      • Angus Thompson

        As a UK trained pharmacist and one who maintains an interest in UK pharmacy matters I would not disagree that all is not rosy in the UK Pharmacy garden. But to suggest that “It got so bad in the UK that the Nurses Organisations took over most of the community pharmacy role to voice standards in pharmaceutical care” is little bizarre – where’s your evidence of that Emmanuel?

    • Coalface

      I completely agree with Andrew’s comment. Well predicted!

  2. pagophilus

    Economists don’t live in the real world. They deal with numbers, not people.

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