‘What would be the problem with more Chemist Warehouses offering lower prices to consumers?’: Leyonhjelm

The Guild’s David Quilty has defended the ownership and location rules to the Senate’s red tape inquiry

Pharmacy stakeholders including the Guild, Pharmacy Board and PSA, as well as industry analyst and sector critic Michael Rhodes, have appeared in front of the Committee on Red Tape, which is examining the effect of red tape on pharmacy rules.

As well as outlining their own submissions on the subject, the representatives answered a series of questions including several posed by Chair David Leyonhjelm, Senator for the libertarian Liberal Democratic Party.

In posing one question, Senator Leyonhjelm said that the location rules “don’t serve a useful purpose in metropolitan areas for the simple reason that, if there is an oversupply and they’re unprofitable, some will cease business anyway in the same way that, if you have too many shoe shops, milk bars or shops like those, they will cease business and the profitable ones will survive and the market will deal with it”.

David Quilty replied that loosening the location rules in metropolitan areas and retaining them in rural areas would likely see more pharmacists seek to open pharmacies in cities rather than country areas.

“In effect, the flow-on impact of that opening up in the capital cities is likely to become an oversupply, where people, for better or worse, prefer to live,” he said. “It then turns into an undersupply in rural areas, so I don’t think that necessarily works.”

“I understand Chemist Warehouse doesn’t agree with you,” Senator Leyonhjelm said.

“What would be the problem with more Chemist Warehouses offering lower prices to consumers? Where’s the problem?”

Mr Quilty responded that the issue here was whether it made sense that one provider dominates the pharmacy environment.

“They offer a particular type of pharmacy solution, very much focused on price,” he said. “That’s not to say that other pharmacies are not focused on price, and it’s not to say that Chemist Warehouse doesn’t put pressure on other pharmacies to reduce prices.

“Like any other market, if you find that one provider becomes dominant, that will be the entire focus of pharmacy. And we think that that there is a need for differentiation, both on price and on the array of services, particularly for patients with chronic health conditions.

“What you tend to find in pharmacy is that Chemist Warehouse is focusing a lot on the over-the-counter products—which is an important part of the market—and then, for periodic users of pharmacy, some of the higher-service pharmacies are really focused on those patients that take large numbers of medicines, have real chronic needs, and build a real trust-based relationship with their local pharmacist.”

Senator Murray Watt also asked whether retaining the location rules increases prices for both consumers and the Government.

“There is scant evidence to back up that claim,” Mr Quilty said.

He cited a Choice study which showed that the prices paid by patients in pharmacies for certain OTC medicines was cheaper than in supermarkets.


Open up the industry?

The committee also heard from industry analyst Michael Rhodes, who said that “both government and patients deserve better from the pharmacy industry,” again calling the CPA a “dinosaur” and saying they provide “zero innovation and excessive red tape”.

“The industry is a mishmash of disaggregated silos led by the PGA,” he said.

“This disaggregation manifests itself in vested self-interest in the respective silos, poor and opaque information quality, and the extraction of extra funds from government for pharmacy services negotiated by the PGA. Ironically, those services can’t even be provided, and the attempt to do so is done by stressed, underpaid, lowly-motivated and highly-trained employee pharmacists who… substantially outnumber—and, frankly, outperform—their owner-masters by a ratio of six to one.

“The collaboration of pharmacists with doctors, hospitals and other allied health professionals is frustrating, procedurally inefficient, woefully non-transparent and error prone, which can harm patients.

“The problem is each participant in the industry represents their own siloed self-interest and perspective, which, in the context of the whole industry, is inefficient, expensive and lacks transparency.”

He outlined a series of proposed solutions including abolishing the CPA and CSO.

“You’ve got to open up the industry and you’ve got to let supermarkets enter the industry,” he said.

He also said that there are “businesses out there losing money that just shouldn’t be providing a service”.

Senator Leyonhjelm described Mr Rhodes’ submission as “hard-going in places but interesting,” while Senator Stirling Griff called it “fantastic, very interesting. I think we’re all saying the word ‘interesting’. But I actually think it was interesting in an extremely positive way”.

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