Refining the model

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Wholesale distribution model could fall over without sensible financial reforms, say industry bosses who dismiss King Review recommendations

Recommendations for reform to the wholesale distribution system made by the Review of Pharmacy Remuneration and Regulation (King Review) will be unsustainable and risk destroying the industry, its leaders believe. 

Presenting the NPSA response to the King Review, its chair Mark Hooper, CEO of Sigma Healthcare, said “the public takes for granted the ease and price of medicines access. But the economics of what we do are increasingly coming under threat. Eventually the model will break…”

Mr Hooper said at Pharmacy Connect in Sydney that the key wholesaler concerns remain the increase in number of low-cost drugs continues to erode wholesale margins.

“By 2020 around 84% of PBS medicines will be under $15, and therefore represent an economic loss for wholesalers. Plus there is inadequate compensation in the supply chain for the wholesale supply of high-cost medications”.

The impact of these issues has now been magnified by the proposals of the King Review.

“From the wholesaler perspective King was a pretty disappointing report. There was seemingly no consideration of our recommendation for a wholesaler floor margin in the final report. It’s findings just don’t make any sense.”

The King Review’s interim report provided three options for the supply chain:

1 – a manufacturer distribution model: Mr Hooper said this would bring greater administration requirements and cost for pharmacy, with no discernible benefits, plus there would be an increased risk of stock shortages, negative impact on service levels and pricing. This move is opposed by all major stakeholders, including the Guild

2- continuing current CSO arrangements with a uniform 24-hour delivery window: This would require funding issues being addressed, such as the introduction of a wholesale floor margin similar to pharmacy’s Administration and Handling (AHI) fee, a margin ceiling for high-cost drugs and retention of the CSO – with indexation.

3- A further, separate review of the CSO

Mr Hooper said the NPSA submission to the review emphasised their concern that an uncertain remuneration environment creates uncertainty, discouraging ongoing investment, and wholesalers are delivering more units for less cost.

“Ultimately this will make the current wholesale model unsustainable. But there is a solution within the current funding envelope, that doesn’t require additional funding and resources,” he said.

Professor Stephen King’s seeming view that the CSO was a “lazy policy” was incorrect, Mr Hooper said, and his supposed preference for a Pfizer Direct kind of model would be a backward step for medicine supply.

Former Health Minister Michael Wooldridge, chairing the session said Professor King seemed to look to Canada for his preferred supply model, but that this was a country without a national medicines policy, with each province making its own arrangements.

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