‘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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31 Comments

  1. Michael Khoo
    06/12/2017

    Small suburban pharmacies like mine are often the central hub of small strips of shops, they help keep local communities viable, and are one reason that small community shopping centers survived the onslaught of mega-malls and supermarkets. We serve the mums with kids, the elderly and disabled, the type of people who are invisible to “free market libertarians” who see only consumers and not individuals. If the last two decades have taught economists anything, it is that the laissez-faire policies of the Regan/Thatcher era did not result in better services and more competitive marketplace, particularly for the provision of essential public services.

    • NMBP
      09/12/2017

      Copy that Michael and if I may add, small businesses, and the broader middle class pays more tax as a percentage of income where large corporations and larger structures overall are able to afford the luxury of paying much less tax as a percentage. Millions of dollars leaving the country. Plenty of examples to prove this point. So decimate the middle class, the small family owned business and the country as a whole will suffer. The primary producers in food and our farmers have been screwed by the monopolies and duopolies formed and some will only survive if they bow to their masters. Now that ALDI and Costco have entered, the battle for supremacy begins and if as consumers we “benefit” by the competition at some point one or two will prevail. What then? Can you imagine? Recently a Queensland market poll has shown that a majority of consumers would vote for de-privatisation of key industries and would support politician who will go after that.

  2. Nicholas Logan
    06/12/2017

    Rhodes, Leyonhjelm et al are suggesting that the pharmacy profession completely do away with any semblance of patient focus.

    • Jon Redshaw
      06/12/2017

      Well yes,because all that matters is cheaper prices of course!

      • Dave Wane
        07/12/2017

        The market will determine what the customers want. As it should be.

        • Andaroo
          10/12/2017

          Agreed. Consumers as an aggregate don’t have the overall intelligence and emotional liability of a toddler at all. Similarly, actual toddlers should not have the parental restraints imposed on them restricting their choice and ability to do and go where they want. Traffic will determine which children the parents wanted. As it should be….

        • PharmOwner
          10/12/2017

          Smokers want tobacco. Alcoholics want booze. Heroin addicts want heroin. Should we just sell these people everything that there is a market for, and make a profit from it, even if it is detrimental to their health? What about selling homeopathic products?

          • Andrew
            11/12/2017

            Ear Candles

    • Mick Rhodes
      12/12/2017

      Sir – As I wrote “our” reports your misquoting my facts is rubbish. I have NEVER said to do away with any semblance of Patient Focus. I have in fact advocated very strongly for the opposite. Had you actually bothered to read our reports and submissions you would see why. Our 1st report (An Independent Perspective) is here http://bit.ly/2kBN4nS. Our 2nd report (The Compelling Need for Change) is here http://bit.ly/2kzNmvx. Our submission on Red Tape Reduction is here http://bit.ly/2j6vOqO and the supporting material to that for the Consultation to Collection Portal and the Supply Change Portal is here http://bit.ly/2kbispA. Further as I presented to the Senate Select Committee (my opening address is here http://bit.ly/2AHzHZx) and was present when representatives from the PSA and PGA presented I can assure you all Senators, including Senator Leyonhjelm NEVER advocated that the pharmacy industry do away with a patient focus. This is also clearly in the Hansard transcript.

      • Anthony Tassone
        12/12/2017

        Hello Michael

        I have ‘bothered’ to read your submissions and the evidence given to the Senate Select committee on Red Tape.

        There is a disturbing level of inaccuracies in the information that you have presented under the guise of being an ‘industry analyst’.

        Here are but a few examples from the Senate select committee hearing and responses given on Monday 27th November:

        -Incorrectly claiming that the Competition and consumer review chaired by Professor Ian Harper and the Pharmacy Remuneration and Regulation review chaired by Professor Stephen King called for the abandonment of Community Pharmacy Agreements and the Community Service Obligation.

        Mr Rhodes:
        “Back in 2015, the Auditor-General criticised the opacity and lack of accountability of how CPA arrangements come about and the lack of transparency in delivering value in those arrangements. Other studies such as the King and Harper reviews have also been conducted and have called for the CPAs and the CSOs, or community service obligations, to be abandoned. The five-year moribund and static CPA terms are only negotiated between the PGA and the government at the exclusion of patients; suppliers; employee pharmacists and hospital pharmacists; and educators and accreditors. My question is: how on earth is that representative of the industry?”

        Fact: This is incorrect. That Harper Review final report did not call for either the CPAs or the CSO to be abandoned. The Interim King Review Report didn’t call for the removal of the CPAs and in terms of the CSO, it listed three alternatives, including one to remove and one to retain the CSO.

        – Again, making claims of inclusions in the Harper Review that weren’t actually present;

        Mr. Rhodes:
        “Secondly, one of the things I called for in my submission was an authority called the PRISEA, which is the PBS price scanning and enforcement authority. This is not a new idea. It was also, I think, recommended by Professor Harper when he did his review in 2015”.

        Fact: There is no reference in the final report by Professor Harper to this.

        – Then not representing clearly the price reductions that occur due to price disclosure;

        Mr. Rhodes:
        “One of the problems we have in the market at the moment is the delay with which price reductions come through the system. For certain molecules, say, in the generic space, often the price is pegged to the highest-cost medicine, not the lowest-cost medicine. If you have a solution that says, if we’re going to sell medicines and that’s pegged at the lowest price, what is that lowest price worth?’ That could be two per cent, five per cent or 10 per cent of savings in a $16 billion funded PBS scheme right now.”

        FACT:
        Price Disclosure is for brands of F2 drugs. This is generally multi‐branded drugs but it can be for single branded. Specifically:

        A. Where the drug is new to F2:
        • existing brand (usually moving from F1 or combo list) – starts price disclosure from the day the drug is on F2
        • new brand on day drug moves to F2 – starts price disclosure from listing date

        B. Where the drug is already on F2
        • New brand – starts price disclosure from listing date.

        Generally, two Weighted Average Disclosed Price (WADP) calculations are performed: 1) WADP calculation with all brand data and 2) WADP calculation without originator brand data. Then the WADP calculation that results in the lowest price proceeds.

        Pharmaceutical benefits and services expenses were $13.4 billion in 2016-17, representing 18% of Federal Government expenses related to health.

        – Then further, incorrectly stating that pharmacies don’t present the ‘PBS price’ at point of dispensing.

        Mr Rhodes:
        “One of the things that is frustrating for pharmacies is that when they’re dispensing medicines and giving customers a tax invoice, you don’t actually see the PBS price. And we’re saying you should see the PBS price, so you do not get overcharged for that medicine. But we’re also saying that, with that supply chain portal solution, sometimes manufacturers and wholesalers have an abundance of stock, so why not put out there an option to buy stock at a lower price? It’s pure supply and demand.”:

        FACT:
        The pharmacist has to print the full cost on the dispensing label under Section 64 Labelling of pharmaceutical benefits – full cost, of the National Health (Pharmaceutical Benefits) Regulations 2017:“A pharmaceutical benefit supplied by an approved supplier must be labelled with the words “full cost” followed by the full cost of the pharmaceutical benefit.’ This “full cost” is not the Patient Co-Payment but is often greater than what the patient will pay.

        If a pharmacy can purchase a medicine for less than the Agreed Ex-Manufacturer Price then this price will be captured by the Price Disclosure mechanism and the Government will decrease the AEMP to that which exists in the market. This is how Price Disclosure works – the price is linked to what PBS medicines are really selling for, that’s why the price of medicines comes down annually.

        – Then, just getting the figure for the Administration Handling and Infrastructure fee plainly wrong also;

        Mr Rhodes:
        “They are who benefit, ultimately. Right now, the government pays a pharmacist or a pharmacy—the AHI fee per dispense went from $7.50 to $10.50 in the last budget. That extracted $600 million extra until 2020 to fund the industry. That AHI fee stands for the admin handling and inventory fee. Let’s look at that: it’s actually paid to the pharmacy owner, yet it’s the pharmacist who bears the cost and liability to provide that service. Let’s extend this out a little bit further. If I’m a pharmacist and I own two pharmacies, three pharmacies, four pharmacies, and I’m doing 200 scripts a day—multiplied by $10 per script dispensed, multiplied by four pharmacies—that’s 8,000 bucks a day that I’m giving to a very privileged ownership group to support the industry.”

        FACT:
        The AHI for 2016-17 is $3.54 for Tier 1. The statutory AHI rises to $3.94 for 2017-18, an increase of $0.08 due to CPI indexation and $0.32 additionally in the most recent Budget in recognition of less than expected volumes, with a total cost over 3 years of $200m. The $600m was for the allocation of existing CPA funding for new and expanding patient programs.

        The average pharmacy dispensed approximately 140 prescriptions per day in 2016-17 according to Date of Supply and official pharmacy figures, with only ~100 of these being above co-payment dispenses

        There are quite a number more inaccuracies of fact given to this Senate committee that may be best put into a more extensive article for AJP readers to consider.

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

  3. Jon Redshaw
    06/12/2017

    This is the bit that has me concerned:

    “fantastic, very interesting. I think we’re all saying the word ‘interesting’. But I actually think it was interesting in an extremely positive way” about the submission from Rhodes – he seems very anti-pharmacy in general, and for the committee to say this is positive seems to me to be extremely worrisome.

  4. NMBP
    07/12/2017

    I am yet to see any hard evidence from any country around the world where predatory pricing, deregulation and free market forces have improved the health outcomes of consumers. These politicians are using great wording that sounds wonderful to anyone that has no idea of what the health industry is all about. The concern for me is that this rhetoric coming from these politicians is getting noisier…

    • Dave Wane
      07/12/2017

      So are you against a free and open market? And if so, why? Do you really believe that ant business should have taxpayer-funded protection from competitors?
      I hope not.

      • NMBP
        07/12/2017

        No Dave I am not against a free and open market with fair play for all. The notion that we are in an open and free market is a total capitalist fallacy but I do not want to argue that. The banking industry has tax funded protectionism does it not? Because we have to have a strong banking sector? Or was that not noticed after the 2008 GFC? To argue that health and education have to be subject to the same market forces as petrol (ha,ha,ha there is a good example Dave), Food (there is another duopoly right there) and off course other non essential sectors, is like arguing that we need to have competition within our armies and police forces. To make sure I am clear: the whole health care system needs a lot of work BUT deregulation of this industry will NOT lead to better health outcomes and savings. It will be another disaster just like the TRICKLE DOWN BS from Thatcher and Reagan era. It will provide a platform for the global giants to gobble up just another country’s industry for PROFIT. No country has ever benefited from that. So see Government protectionism is not such a bad thing. We really should be doing it for a lot more industries. Read the Bretton Woods (Globalisation) story and its impact on nations around the world. Much bigger picture rather than small minded arguments.

        • PharmOwner
          08/12/2017

          But flogging off the old SEC and opening up the electricity sector to competition is working well for consumers, right?

          • NMBP
            09/12/2017

            Touché PharmOwner. ABC online posted recent results of a market poll on De_privatising some of the state’s industries. The great majority would support taking back these sectors. What does that tell you? So instead of research and development and investment and partnering with the private sector to improve and make it affordable for ALL, we privatise.

    • Dave Wane
      07/12/2017

      Australia once had a two airline policy and the most expensive aifares in the world.
      We also had only one telco and the most expensive phone calls in the world.
      Why should any industry have any kind of protection racket?

      • PharmOwner
        17/12/2017

        “Why should any industry have any kind of protection racket?” I fail to see how the pharmacy industry has a “protection racket” as you put it, operating. As I understand it, a protection racket refers to organised crime threatening business operators with violence if they don’t pay “protection” to the criminals. If you have evidence of any kind of a protection racket occurring, you should report it to the Federal police.

    • Bryan Soh
      29/03/2018

      that is exactly right. Look at the banking sector. Deregulation and free market forces were tossed up to be a boon for the economy, instead what we got was the 2008 global financial meltdown due to unchecked practices by the investment banks. Thanks to free market and deregulation, these banks have grown so large to effectively become monopolies in their subsequent markets, making the notion of a free market as equal opportunities for all as a great fallacy.

      Another great example is the american healthcare system. It is run like a giant corporate machine, with free market forces the name of the game. Has that resulted in better and equal access to health for all Americans??? Go figure

  5. Andaroo
    10/12/2017

    Doesn’t matter which scoring system you use below, they score highly and they’re about the right age now too. It’s not determining their level of patient focus though….

    DSM IV-TR
    The APA’s Diagnostic and Statistical Manual of Mental Disorders, fourth edition, text revision (DSM IV-TR) defines antisocial personality disorder as:
    A) A pervasive pattern of disregard for and violation of the rights of others, occurring since age 15 years, as indicated by three or more of the following:
    1.failure to conform to social norms with respect to lawful behaviors as indicated by repeatedly performing acts that are grounds for arrest;
    2.deception, as indicated by repeatedly lying, use of aliases, or conning others for personal profit or pleasure;
    3.impulsivity or failure to plan ahead;
    irritability and aggressiveness, as 4.indicated by repeated physical fights or assaults;
    5.reckless disregard for safety of self or others;
    6.consistent irresponsibility, as indicated by repeated failure to sustain consistent work behavior or honor financial obligations;
    7.lack of remorse, as indicated by being indifferent to or rationalizing having hurt, mistreated, or stolen from another.

    B) The individual is at least 18 years old.

    C) There is evidence of conduct disorder with onset before age 15 years.

    D) The occurrence of antisocial behavior is not exclusively during the course of schizophrenia or a manic episode.
    DSM-5

    The essential features of a personality disorder are impairments in personality (self and interpersonal) functioning and the presence of pathological personality traits. To diagnose antisocial personality disorder, the following criteria must be met

    A. Significant impairments in personality functioning manifest by:

    1. Impairments in self functioning (a or b):
    a.Identity: Ego-centrism; self-esteem derived from personal gain, power, or pleasure.
    b.Self-direction: Goal-setting based on personal gratification; absence of prosocial internal standards associated with failure to conform to lawful or culturally normative ethical behavior.

    AND

    2. Impairments in interpersonal functioning (a or b):
    a.Empathy: Lack of concern for feelings, needs, or suffering of others; lack of remorse LP after hurting or mistreating another.
    b.Intimacy: Incapacity for mutually intimate relationships, as exploitation is a primary means of relating to others, including by deceit and coercion; use of dominance or intimidation to control others.

    B. Pathological personality traits in the following domains:

    1. Antagonism, characterized by:
    a.Manipulativeness: Frequent use of subterfuge to influence or control others; use of seduction, charm, glibness, or ingratiation to achieve one’s ends.
    b.Deceitfulness: Dishonesty and fraudulence; misrepresentation of self; embellishment or fabrication when relating events.
    c. Callousness: Lack of concern for feelings or problems of others; lack of guilt or remorse about the negative or harmful effects of one’s actions on others; aggression; sadism.
    d. Hostility: Persistent or frequent angry feelings; anger or irritability in response to minor slights and insults; mean, nasty, or vengeful behavior.

    2. Disinhibition, characterized by:
    a. Irresponsibility: Disregard for – and failure to honor – financial and other obligations or commitments; lack of respect for – and lack of follow through on agreements and promises.
    b. Impulsivity: Acting on the spur of the moment in response to immediate stimuli; acting on a momentary basis without a plan or consideration of outcomes; difficulty establishing and following plans.
    c.Risk taking: Engagement in dangerous, risky, and potentially self-damaging activities, unnecessarily and without regard for consequences; boredom proneness and thoughtless initiation of activities to counter boredom; lack of concern for one’s limitations and denial of the reality of personal danger.

    C. The impairments in personality functioning and the individual’s personality trait expression are relatively stable across time and consistent across situations.

    D. The impairments in personality functioning and the individual’s personality trait expression are not better understood as normative for the individual’s developmental stage or sociocultural environment.

    E. The impairments in personality functioning and the individual’s personality trait expression are not solely due to the direct physiological effects of a substance (e.g., a drug of abuse, medication) or a general medical condition (e.g., severe head trauma).

    F. The individual is at least age 18 years.

    Antisocial personality disorder falls under the dramatic/erratic cluster of personality disorders, “Cluster B.”

    ICD-10
    The WHO’s International Statistical Classification of Diseases and Related Health Problems, tenth edition (ICD-10), has a diagnosis called dissocial personality disorder (F60.2)
    It is characterized by at least 3 of the following:
    1.Callous unconcern for the feelings of others;
    2.Gross and persistent attitude of irresponsibility and disregard for social norms, rules, and obligations;
    3.Incapacity to maintain enduring relationships, though having no difficulty in establishing them;
    4.Very low tolerance to frustration and a low threshold for discharge of aggression, including violence;
    5.Incapacity to experience guilt or to profit from experience, particularly punishment;
    6.Marked readiness to blame others or to offer plausible rationalizations for the behavior that has brought the person into conflict with society.

  6. M M
    12/12/2017

    The author decided not to include the rest of the questions..
    Senator LEYONHJELM: Who would benefit from lower prices?
    David Quilty: tried to give a general answer.
    Senator LEYONHJELM (interrupted Mr Quilty): Who will benefit from lower prices?
    David Quilty: Consumers will benefit from lower prices. (Point proved and made clear)

    The real answer is consumers/Patients, government and taxpayers will benefit from lower prices.

    • Mick Rhodes
      12/12/2017

      As I was there I can confirm you are absolutely correct.

      • M M
        12/12/2017

        I was there too and I have the full transcript 🙂

  7. Mick Rhodes
    12/12/2017

    Sir – As for credentials I bring under-graduate qualifications and 3 master degree’s coupled with extensive industry wide experience. Having researched the industry in detail and having very constructive business and industry relationships with at least 30 plus pharmacists I can assure you I am fully cognisant and in fact empathetic of what a pharmacist does and what challenges they have. Two of my closest friends are pharmacists. In fact all of my submissions and commentary have been in support of Employee Pharmacists, so before you comment on me get your facts straight and read your material. As I wrote “our” reports your comments are both erroneous and out of touch. Your can read our material here and see I have advocated very strongly for overall societal value for patients, pharmacists and government. Had you bothered to read our reports and submissions you would see why. Our 1st report (An Independent Perspective) is here http://bit.ly/2kBN4nS. Our 2nd report (The Compelling Need for Change) is here http://bit.ly/2kzNmvx. Our submission on Red Tape Reduction is here http://bit.ly/2j6vOqO and the supporting material to that for the Consultation to Collection Portal and the Supply Change Portal is here http://bit.ly/2kbispA. Further as I presented to the Senate Select Committee (my opening address is here http://bit.ly/2AHzHZx) and as I was present when representatives from the PSA and PGA presented I can assure you all Senators, including Senator Leyonhjelm have also NEVER advocated that the pharmacy industry do away with a patient focus. This is also clearly in the Hansard transcript.

    • Michael Khoo
      15/12/2017

      Expertise and Bias are not mutually exclusive.

      • Mick Rhodes
        15/12/2017

        Neither is ignorance.

        • Michael Khoo
          19/01/2018

          I consider you far from ignorant….

          • Wilson Tan
            16/04/2018

            but maybe just misguided…. just sayin’

    • Anthony Tassone
      15/12/2017

      Hello Michael

      I agree that it is important in the debate that participants ‘get their facts straight.’

      I would highly recommend you take your own advice on this point, please refer to my earlier post in this thread (of which I did not actually canvas all the simple inaccuracies and incorrect statements you made in your evidence as there are others).

      Giving evidence to a Senate committee comes with great responsibility, a responsibility to get at least the basic facts right.

      Whether you are biased or not is a matter for another debate – but it was disappointing for an individual who purports to be an ‘industry analyst’ that there was this level of inaccuracies in the transcript of your evidence.

      If that was me I would reflect very long and hard about my contribution to the debate once these factual errors had been made known.

      The swag and array of qualifications you hold whilst impressive does not distract from this critical point.

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

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