Govt has locked in ‘protection racket’ for Guild: PPA


pharmacy sign green cross

The pharmacist union has criticised a health amendment bill that removed the location rules sunset clause

Three weeks ago, the National Health Amendment (Pharmaceutical Benefits – Budget and Other Measures) Bill 2017 was welcomed as “good news” by the Pharmacy Guild of Australia, as one of the interlinked changes was the removal of the sunset clause on pharmacy location rules.

The bill was backed by the Federal Opposition with Shadow Health Spokesperson Catherine King saying: “Since 1990, rules have existed to limit how close a new pharmacy can be to an existing pharmacy. These rules have a sunset clause in the Sixth Community Pharmacy Agreement.

“This bill will remove the sunset clause, meaning existing arrangements will continue post 2020.

“Labor will not stand in the way of this change,” Ms King said.

Meanwhile, Professional Pharmacists Australia has criticised the “premature” passage of the Bill into law, which is argues “locks in unfair location rules that effectively run a protection racket for existing pharmacy owners”.

“By banning new pharmacies from entering the market within a radius of existing businesses, location rules lock employees out from owning their own pharmacy,” said Professional Pharmacists Australia President Geoff Marsh.

“The Federal Government has ignored the King Review by locking in location rules beyond 2020, along with every review of the sector for the past 15 years, which have argued for their removal.”

The PPA points out that the King Review interim report suggests it may be appropriate to remove the existing rules.

“The removal of the sunset clause on location rules by the Federal Government has deliberately pre-empted the findings of the King Review and undermine any evidence-based policy recommendations it may make,” says Mr Marsh.

“The Government has also ignored the community’s clearly stated opposition to location rules evidenced by the submissions made to the King Review.

“Thanks to the Turnbull Government the pharmacy industry continues to be ring-fenced from competition in Australia.”

The Pharmacy Guild has responded by saying PPA is “misguided” about location rules.

“Unfortunately the PPA displays a misguided understanding of the purpose and public benefit of the location rules,” said a spokesperson for the Guild.

“The rules deliver a viable pharmacy network for the benefit of all Australians, while also providing certainty and sustainability for thousands of pharmacy small businesses and their staff.”

Guild Executive Director David Quilty said in his latest editorial said that as a result of the amendments, which were supported by the Coalition, Labor and the Greens, location rules will ensure that all Australians will continue to have timely and equitable access to medicines through a well distributed community pharmacy network, 

“Location Rules provide a level of certainty for the owners of nearly 5,700 pharmacies who invest their private capital in the infrastructure that is required to deliver the PBS on behalf of the Commonwealth.

“It is reasonable and sensible to afford a level of regulatory certainty to the owners of these businesses, who as effective agents of government, are meeting the capital costs entailed in building and maintaining the national PBS delivery network,” said Mr Quilty.

“It is sometimes argued by opponents of the Location Rules that they are restrictive and anti-competitive because they prevent any pharmacist from opening up a pharmacy in any location.

“This misunderstands their public policy purpose and ignores the international experience when such Rules either don’t exist or are dismantled.

“The purpose of the Location Rules is to ensure that all Australians, regardless of where they live, have timely and equitable access to the PBS delivered through an efficiently distributed network of viable community pharmacies.

“The Location Rules encourage the establishment of pharmacies in areas of unmet or increased public need – including in rural and regional locations and outer metropolitan suburbs – while curtailing over-concentration in locations that are already well served by existing community pharmacies.”

Previous The week in review
Next Health Minister to speak at APP

NOTICE: It can sometimes take awhile for comment submissions to go through, please be patient.

24 Comments

  1. Andrew
    05/03/2018

    Honest question – is there anyone not Guild-affiliated who supports the location laws?

    • Steve Flavel
      05/03/2018

      Is there anyone not Guild-affiliated for whom this possibly relates?

      • CameronW
        05/03/2018

        Potential future Pharmacy Owners? (AKA Employee Pharmacists)

        • PeterC
          05/03/2018

          Not pretending to be an expert but surely investors whether existing or potential seek certainty and stability above all else and so the arguments would be firstly that Location Rules provide that, and secondly that the people most likely favoured by LR relaxation would be existing players with deepest pockets: think yellow boxes. I suspect it is one of those ‘on balance’ type of arguments. No-one can blame the Guild for acting to secure its members’ investments and its employees’ jobs and future ownership prospects.

        • Andrew
          08/03/2018

          Maybe it’s in the ECP’s interest to support removal of the location laws?

          It would instantly remove the location law premium on existing businesses and might sharpen the focus and patient outcomes of the poorer performers lest a better operator takes their customers.

          • Jarrod McMaugh
            08/03/2018

            I’d be very interested to see your reasoning on how you think this would have any impact on the ability of an ECP to enter the market.

          • GlassCeiling
            08/03/2018

            Removal or a relaxation of location rules would reduce rent seeking from landlords dramatically . Right now many leases are fixed to specified buildings ( shopping centres) and /or primary leaseholders ( eg med centre). Distance rules and limited retail zones can significantly diminish lease options hence pharmacy rents are often double ++ rents of other retailers per square metre. Let’s face it the landlords know that without a lease we don’t have a business plus there will be others offering big rent to take an approval and this artificially inflates rent.
            Price disclosure is bringing cogs down and a simple fit out can be done very cheaply ( try kitchen joiners!). Finance the IT and fit out and away you go with a little cash at bank.
            Not everyone wants to own a pharmacy so that owners would need to have good financial and professional relationship with employed pharmacists in order for them to work for them .Location rules are the reason CW have been so successful to date – they have had plenty of optionless staff to pay award rates to artificially reducing wages.
            Location rules have created going concern assets and great cash flow hence the Guild holding on for grim death to location rules at the expense of non-owners and the community at large. Good businesses will always be saleable assets in the right hands – location rule relaxation or removal will simply accurately reflect the true market value of a pharmacy rather than large valuations simply due to location rule goodwill.
            If ECPs with reasonable experience get out and have a go rule removal or relaxation will be a godsend for them and retention in the industry. The community will see pharmacy as a health care destination rather than simple retailers in many current instances due to more invested owners and staff and any argument for rural stores disappearing can be explained away when rural incentives are continued- we need them now for goodness sake with location rules!

          • Jarrod McMaugh
            08/03/2018

            None of that is actually correct; although it seems to be at first glance.

            First, rents for pharmacies are higher not because of locations rules, but due to the perceived capacity for pharmacy to generate higher income per square meter than comparable businesses (ie retail business). This is driven by the nature of the products sold, the average markup, capacity to merchandise space effectively (ie facings per square meter), foot traffic, and the presence of an expert in store to recommend products (as opposed to self selection or non-expert advice).

            Location rules have a modest impact on rents; they are not the greatest driver of rental costs. All of the other issues you raised with regard to rental pricing is not unique to pharmacy. Pharmacies attract higher rents because they are traditionally reliable businesses that are not only long-standing tenants, but they tend to be able to afford higher rents than other businesses that would occupy the same space.

            Cash flow from a pharmacy business isn’t driven by the location rules; it is driven by the PBS licence. Without it, you may note that locations rules don’t apply… it is the capacity to generate income via the collection of patient rebates on PBS medications that makes a pharmacy business attractive.

            The abolition of location rules and ownership rules as they stand would not improve the capacity of an ECP (or anyone else) to purchase a pharmacy…. it would make it next to impossible. If location rules were abolished, i would expect an aggressive expansion of specific brands of pharmacies so that every pharmacy in the country has 1 or 2 discounters as neighbors within a year. If ownership rules were relaxed or abolished, 5(ish) companies would begin aggressively purchasing pharmacies – ECPs would have zero chance to buy a pharmacy. The feeding frenzy to become the dominant chain would drive prices up temporarily; anyone who didn’t sell at the time would be left feeling very cold a year later.

            Location rules actually help ECPs. Ownership rules more-so (especially if they were restricted further)

            Lets look at a different scenario to highlight my point…. perhaps ownership rules were tightened, but location rules were abolished.

            You approach a bank saying that it is now your time, you would like to create a pharmacy from scratch, based on your experience as a PIC or manager up to this point. The bank will be asking you for a sizeable deposit (higher than now), and a business partner with experience to assist you in ensuring you have the capacity to safeguard their investment. Pharmacy businesses are now less safe as an investment, because competition has increased (whether beneficial or not).

            If you get the money, you decide on a place to put your pharmacy. If it is in a suburban area, It will be within sight of another pharmacy (one that is probably already established). From my experience, in every Australian City I have visited, I can find a pharmacy within walking distance. they aren’t rare or clustered in enclaves – they are well distributed (this is, of course, the intent of the location rules). Wherever you place a pharmacy, there will be competition already there ahead of you.

            If you don’t set up a new pharmacy, perhaps you purchase one that an existing owner must divest themselves of……. OR the existing use of skilled legal practitioners is expanded to ensure that no pharmacy really changes ownership in anything but the paper trail.

            Lastly, those brands of pharmacies that are very good at opening new franchises in every nook and cranny of the country now have no limitations (other than names to put on the doors). Perhaps you become one of those names on the door…. or one of our colleagues does and opens THEIR new pharmacy right next to yours. If business is still doing well, that’s ok, the next pharmacy that is “owned” by one of your current colleagues will open up on the other side of you eventually, and perhaps one across the road.

            Of course, so many new pharmacies isn’t really sustainable. There are efficiencies to be found if one pharmacy services 300 scripts a day, rather than 4 pharmacies servicing 75 scripts a day. Of course, those pharmacies “owned” by your colleagues will have an amazing capacity to absorb loss in the short term, while also benefiting from scaleable efficiencies such as distribution networks, processes, awards, and trading terms….

            Oh, did I mention trading terms? The chance of a new pharmacy getting favorable trading terms in the first few years is already difficult – no one wants to give credit to a new business owned by a first-timer. Your cashflow will be challenging, while any of your colleagues who “owns” a pharmacy amongst the aggressively expanding groups will have that advantage over you. While you price in a manner that ensures you can pay all of your bills on time, your new neighbours will be pricing their products to ensure that you CAN’T pay your bills on time.

            This is the reality. Pharmacy owners are already working in this environment now, with the ownership and location rules in place. If these two protections were removed, then the short term is a boom in loss-leading pharmacies attempting to gain market share (if they don’t have it now) for 2-5 years (depending on how long the bloodbath lasts for), with eventual rationalisation to fewer and fewer very large pharmacies (mergers of all those banner group pharmacies…. but guess who’ll have the negotiating power in that scenario).

            Whether you like location rules or not isn’t really relevant. Removing them is not an answer to gaining a foothold as a new owner in pharmacy. Removing them guarantees you’ll never be in a position to buy. Ever.

            PS, the union is all for pushing for location rule elimination…. but think about this – why do they want to remove a rule that they claim would allow more of their members to become owners, when owners can’t be members of their organisation. Do you think they want more people to leave PPA and join the Guild (or not)? PPA isn’t interested in losing members, they are interested in ownership and location rules that put them in a position of negotiating power. This means the entry of large businesses (supermarkets, hospitals, existing brands) so they can do enterprise bargaining. You should always be suspicious of the motives of any group that lobbies for an outcome that would ostensibly reduce their membership (and therefore income) base…. they are seeing a bigger picture that you are not.

    • Anthony Tassone
      05/03/2018

      Andrew

      The Department of Health’s own Post-Implementation Review- Amendments to the National Health Act 1953 to extend the Pharmacy Location Rules to 30 June 2015 that was conducted in 2011, provides an outline explaining the need for the Location Rules (listed below).

      “The community pharmacy network is the distribution system for the PBS. If the pharmacy network, left unaided, cannot deliver reasonable access for all Australians, as was the case immediately prior to the commencement of the First Agreement, then some regulatory intervention in the market is needed to ensure that medicines are available (to all Australians) efficiently and equitably through the PBS.

      Without a well distributed network of pharmacies, consumers in rural and remote areas would experience distance barriers to access to pharmacies. As was the case before the First Agreement, it can then be difficult or expensive for consumers to access needed prescription medicines, which is counter to the key pillars of the NMP.

      This also results in poorer health outcomes for rural and remote Australians than for those in urban or near-urban areas.

      The Government is interested in a well distributed network of approved community pharmacies that closely matches the demographic distribution of the Australian community which, in addition to the supply of medicines subsidised under the PBS, can deliver a range of pharmacy services that form part of the Fifth Agreement.”
      (Source: Post-Implementation Review (Amendments to the National Health Act 1953 to extend the Pharmacy Location Rules to 30 June 2015, 2011)

      The above extract demonstrates a clear recognition from the Department of Health of the Commonwealth government of the vital policy objective and outcomes of pharmacy location rules in striving to deliver national medicines policy.

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

      • Andrew
        05/03/2018

        Thanks Anthony. However with the opacity of PGA dealings with the government it might be a bit of a stretch to say that this was an *independent* decision. Excuse the cynicsm but I’ve seen sausages being made.

        • Anthony Tassone
          05/03/2018

          Andrew

          The PSA, being a peak-pharmacy body and membership organisation representing employee pharmacists is also in support of pharmacy location rules. This was demonstrated most recently in their response to the Interim report of the Pharmacy remuneration and regulation review;

          https://www.psa.org.au/submissions/psas-response-to-the-review-of-pharmacy-remuneration-and-regulation-interim-report-2017

          Dr. March is quoted as stating the following in the above article;
          “The removal of the sunset clause on location rules by the Federal Government has deliberately pre-empted the findings of the King Review and undermine any evidence-based policy recommendations it may make,”

          There is no evidence to support the; dismantling, dilution or removal of location rules.

          Instead, critics have continued to peddle an ideologue that strives for competition for competition sake whilst ignoring the competitive nature of the current market and then suggesting that we should deregulate a system that is providing accessibility to PBS medicines, to then re-regulate or provide safeguards for certain areas to hopefully try and achieve the same outcome we have now.

          Now that doesn’t make sense.

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

  2. GlassCeiling
    06/03/2018

    If pharmacy owners are ‘effective agents of government ‘ then David Quilty will have no problem referring all pharmacy sales to a tender process whereby the taxpayer will receive a tendered quality service provider rather than arms length or highest bidder providers .
    Distribution of pharmacy is but a smokescreen for maintaining the status quo.

    • Jarrod McMaugh
      06/03/2018

      There’s a big difference between small business owners being “effective(ly) agents of government” and actually being a government agency that must be sold by tender.

      The first instance is caused by a disproportionate amount of power in the negotiating capacity of government with small business – the other removes small business altogether and creates a government system.

      The first instance is what we have, and provides government with the best of both worlds – effective, efficient distribution or medications, without anywhere near the cost or waste a government system would create.

      • GlassCeiling
        06/03/2018

        Location rules guarantee distrubution of pharmacies- they do not guarantee an effective or efficient distribution.
        There is no argument that the location rules and ACPA assess no more than a persons right to occupy a premise and qualification as a pharmacist or pharmacist body corporate in order to take on the effective government agent role . There is no accounting for experience , post grad qualification , business management skill and most relevant to taxpayers there is no requirement to perform any more than a basic dispense service . Choose to close on Sunday? No prob. Choose to close Sat after 12? No problem. No NDSS , no professional services no problem. New $28 per hour pharmacist employee replacing underappreciated and burnt out former staff member every 3 months = no problem. What are the minimum required opening hours of an approved pharmacy? The taxpayer must accept the choice their local owner makes in the quality and hours of service that they receive – despite potential owners ” locked out” of ownership capable of offering enhanced services.

        • Jarrod McMaugh
          06/03/2018

          Sure

          But the fact that pharmacies are still subject to market forces in almost all setting throughout Australia means that this does ensure efficient distribution.

          Owning a pharmacy is not (despite thoughts to the contrary) a licence to print money or to run an inefficient business.The carpark out the back of my pharmacy is full of very nice cars… none of them owned by a pharmacist; all of them are owned by people who work part-time hours.

          • GlassCeiling
            06/03/2018

            You are a quality and forward pharmacist Jarrod. You are not representative of all owners- many of whom do have a licence to print money.

          • Jarrod McMaugh
            06/03/2018

            Well I’ll take th complement, but keep in mind that as an owner, I’m a member of a few groups similar to the PSA ECP Facebook group, but for owners.

            A very large portion of those people in those groups are young pharmacists and those who own one of two pharmacies…. Small business not absent owners.

            I tend to find those types (absentees) are few and far between, despite the perceptions

          • GlassCeiling
            06/03/2018

            As a former owner I was and am acutely aware of the gaming of the system – money and who you know is paramount often over and above quality and enthusiasm.
            There are many absentee owners. There is no referenced evidence to prove or disprove this assertion which is a problem in and of itself- where is the accountability associated with these rules?

          • Amanda R
            06/03/2018

            I agree with GlassCeiling. You speak the truth 100%. The system is heavily geared towards absentee owners who are making an absolute packet. Not only do they gain yearly drawings but also significant capital gains. These gains are also often beneficiary to a DOUBLE 50% CGT discount as a massive added bonus. These owners need not lift a finger. Such ‘owners’ are simply present for profit. Zero actual involvement until it’s time to reap their rewards.
            To be fair, I’ve personally made significant amounts from various pharmacies in a relatively short time as a present owner. It is satisfying personally to make a difference and see positive outcomes AND be thanked by the public for it.
            It DOES take a lot of hard work but it is essentially simple with the current system even though the Govt. have directly and indirectly introduced certain, shall we say, brakes to pharmacy profit over the years.
            As GlassCeiling mentioned – to those at the top of the industry (think BIG names – group owners) its all* about the money, money, money!
            * and I mean ALL; clinical interventions and outcomes are meaningless unless they translate into profit!

          • CameronW
            08/03/2018

            I know of very few pharmacies in my area where the owner is significantly involved in running the business. I am a pharmacist manager and I think it is bizarre that in the 18 months I have been in my current position I have not met, nor had a single conversation with the owner of the pharmacy that I work for.

          • GlassCeiling
            08/03/2018

            This is the two tiered system of pharmacy we have inherited from the Guild. Owner and pharmacist staff is a metaphor for master and slave. The Guild in NSW lobbied and won enhanced absentee ownership in the early to mid 2000s by increasing pecuniary interest from 3 to 5 pharmacies .
            Absentee ownership is good for nobody but the absentee and the Guild collecting their annual membership fees.
            Absentee owners make a fortune off the back of their colleagues that are often locked out of ownership.
            Unlock the rules for pharmacists, remove absenteeism and watch hospital admissions reduce . When a person owns their business or has choices they take ownership of their role in a community – we see apathy in our industry and associated misadventure due to a lack of ownership and investment in community and health.

          • Andrew
            08/03/2018

            Had similar experiences – worked in several shops where staff had never met the owner.

            A pop-audit of owner’s CPD or clinical knowledge would be interesting……I wonder how many would pass.

          • Tony Lee
            18/03/2018

            Good one Andrew. An algorithm to determine ownership would have the complexity of Hawking black hole. An analogy that comes to mind is in the Pirates of Penzance where ‘they had never met the Admiral because the Admiral had never been so sea’.

          • Amanda R
            06/03/2018

            Jarrod the cars parked in the car park are not often indicative of the cars kept in their garages for the weekend! Many luxury european or indeed exotic car owners will be getting around in an old or cheap daily – usually the delivery vehicle! 😉
            Like many owners, I certainly did not want my patients knowing what cars I drove.
            Let’s just say that I know a couple of high-end car dealers that reliably inform me that many of their clients are indeed pharmacists (this actually should encourage those starting the profession – I hope – keep working hard and you too will eventually own what ever vehicle/boat/luxury item etc you like!). Good luck!

Leave a reply