‘Systematic market failure’ under King options

Without CSO or other appropriate funding, the community pharmacy model would fail, wholesalers have warned

The Review of Pharmacy Remuneration and Regulation Interim Report outlines three alternative options relating to the distribution of medicines to community pharmacy.

The Review Panel’s preferred alternative suggests putting the obligation of medicine delivery directly on manufacturers through a panel of distributors, while the second retains the Community Service Obligation.

The last of the three alternatives suggests a “separate review of the CSO to ensure current arrangements demonstrate value for money”.

Wholesalers say the second option is acceptable – provided future sustainable funding requirements for wholesalers are addressed – but they do not support the first or third options.

In its formal response to the interim report, the National Pharmaceutical Services Association calls for a more robust assessment of the role full-line wholesalers play in the delivery of the National Medicines Policy.

In its response, the NPSA outlined several general and specific concerns with the Interim Report’s findings, which it says fail overall to sufficiently recognise the complex, interdependent relationships that exist across the pharmaceutical supply chain and for the wholesaling industry in particular.

“There is a lack of rigour in assessing the practical implementation and the subsequent implications, intended or otherwise, of its alternatives,” says NPSA chairman Mark Hooper.

“In supplying our response, we have addressed those concerns and proposed alternate solutions.”

There is particular concern over the spectre of a Manufacturer Distribution Model.

“Implementing a Manufacturer Distribution Model offers no obvious benefit and has significant drawbacks, including greater regulatory burden for government; greater administrative burden for pharmacy; increased risks to medicines availability due to diminished system redundancy; greater complexity across the supply chain and the potential for market power imbalance,” Mr Hooper says.

“It is not supported by NPSA and we are yet to find an industry association in the entire medicines sector who does,” he adds.

“We are talking about a critical medicine supply chain that underpins the Government’s own NMP.”

NPSA says that it’s “quite clear” from the Interim report that the Review Panel considers the CSO pool to be bad policy.

“It is also clear from the Interim Report that the Review considers the ‘unregulated’ direct to pharmacy distribution model as superior and preferable to current arrangements, and that adjustments to the wholesale mark-up would both provide adequate remuneration to wholesalers and better reflect the range and volume of medicines supplied to pharmacies,” the submission states.

NPSA says the CSO does not fail as a mechanism, but only falls short in the “quantum of compensation it affords full-line wholesalers which accept the NMP-linked supply and distributional obligations it imposes”.

“That full-line support is something that a direct to pharmacy distribution model does not offer,” it says in the submission.

Wholesaler trading terms underpin the viability and profitability of community pharmacy, NPSA says.

“The cost of acquiring that working capital from institutional lenders and other formal sources would cost pharmacies a considerable deal more, which would in turn, be passed on in costs to consumers and taxpayers or pharmacies would be closed down.”

Major changes to the PBS remuneration structure, including the removal of the CSO and making trading terms subject to more formal regulation, along the lines suggested in the Interim Paper, would remove any incentive on the part of wholesalers to provide working capital funding to pharmacies, the submission says.

“Further, without the CSO and/or appropriate funding, the funding of working capital would be unlikely and this would result in systematic market failure of the community pharmacy model.”

The NPSA also said it supports the inclusion of other stakeholders, in addition to the Pharmacy Guild, in Community Pharmacy Agreement negotiations.

“We do not believe that the Guild can be expected to speak on behalf of, or be accountable to Government for the performance of third parties, such as wholesalers,” the submission says.

Read the full NPSA submission here.

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