Need for pharmacy reform ‘dire,’ says health economist

"rules" spelled out on corkboard

Australian community pharmacy is in “dire need of reform,” a prominent health economist has written.

On today’s The Conversation, Philip Clarke, Professor of Health Economics at the University of Melbourne, writes that the ownership and location rules have “effectively prevented new entrants into the sector and created what economists call monopoly rents for existing pharmacy owners”.

“Monopoly rents represent the benefits that an industry gains from politically-enforced regulations to restrict competition,” Prof Clarke writes.

He cites the Harper Review’s recommendations that pharmacy be gradually deregulated, and a similar recommendation from the 2014 National Commission of Audit report – plus the report from the Australian National Audit Office’s performance audit of the Fifth Community Pharmacy Agreement.

Under a subheading titled, “who wants to be a millionaire?” Clarke writes that business sale prices for inner-city and suburban pharmacies, running into the millions, “lock out” many young pharmacists from ownership, and saddle new entrants with high levels of debt.

“All this creates what might be termed a cycle of rent-seeking: while the ownership and location rules protect existing owners, the next generation of pharmacy owners will have to buy their businesses at inflated prices,” Prof Clarke writes.

“And this makes new owners seek ever more protection from competition to make their business profitable and, in some cases, viable.

“Of course, the lack of competition in the sector comes at a cost to the consumer, both in terms of the choice of where they can shop and in the prices that must be paid.

“As the ANAO report demonstrates, a packet of aspirin, which may cost as little as $3 in retail marketplace costs up to $12 when it is dispensed under the PBS.”

He says that the economic arguments for increasing competition in pharmacy are strong, but the politics are a challenge for politicians wanting to change the current rules – and quotes Machiavelli, who said there is there is: “nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than a new system. For the initiator has the enmity of all who would profit by the preservation of the old institution and merely lukewarm defenders in those who gain by the new ones.”

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