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Bad medicine: why we don’t need a 7th Community Pharmacy Agreement

If you have ever wondered why you can’t pick up your prescription medicines from your GP’s surgery or collect them from a supermarket, along with your grocery shopping, the answer is probably the Community Pharmacy Agreements (CPAs).

These agreements between the Federal Government and the Pharmacy Guild (the peak body for retail pharmacy owners) include funding for the supply of PBS medicines plus a byzantine collection of rules restricting the ownership and location of pharmacies.

Since the 1990s a series of reviews and inquiries have consistently pointed out that these agreements are anti-competitive and put the interests of pharmacy owners before those of consumers.  

Government bodies, such as the ANAO, have also found that the agreements do not adhere to accepted standards of accountability and transparency.

Yet successive governments have ignored these findings and each agreement since 1990 has become more comprehensive (and more expensive).

Current Minister Greg Hunt is on the brink of signing another five year agreement with the Pharmacy Guild, committing over $20 billion of taxpayer funds to support a further five years of anti-competitive and anti-consumer practices. 

Below, Croakey editor Jennifer Doggett outlines the key findings of previous reviews of the CPAs and highlights the urgent need for reform of the retail pharmacy sector.

This article was supported by the Judith Neilson Institute and originally published at Inside Story. It is re-posted here with permission.


Jennifer Doggett writes:

Back in the late 1920s a young woman named Phyllis Forster finished her course at the Victorian College of Pharmacy and enlisted as one of Australia’s first female trainee pharmacists.

Phyllis Foster eventually became Phyllis Grant and had a daughter, Kathinka, who happens to be Greg Hunt’s mother. Perhaps it’s no surprise that Australia’s health minister has always been a strong supporter of pharmacy.

But supporting the pharmacy profession need not mean supporting the business interests of retail pharmacy owners, especially given the volley of reports and inquiries calling for changes to the five-yearly Community Pharmacy Agreements, or CPAs, that spell out how the government supports and regulates the industry.

A detailed blueprint

The latest and most thorough of those reviews was commissioned by Mr Hunt’s predecessor, Sussan Ley, and came up with a detailed blueprint for change. Yet Mr Hunt is on the brink of signing another CPA with Pharmacy Guild of Australia, which represents pharmacy owners, without having signalled any basic change in approach.

Unless he significantly revises the terms of the CPA he will be committing the government to another five years of restricted competition and stifled innovation after the current agreement expires on 30 June.

The CPAs come with a big price tag for the federal government. The six since 1990 have committed the government to spending a sizable chunk of its total health budget — in the case of the current agreement, $18.9 billion over five years — on pharmacy.

This funding comprises $15.5 billion from the Commonwealth and $3.4 billion from patient contributions for the supply of PBS medicines and related programs, such as home medicine reviews.

Pharmacy services are vital, of course, but these agreements cover much more than the dispensing of medication. What started in 1990 as an agreement for funding prescription medicines has steadily broadened to include other regulatory matters, including the ownership and location of pharmacies.

Anti-competitive rules

Controversially, the agreements restrict pharmacy ownership to qualified pharmacists (with a limit of five pharmacies per pharmacist) and prevent new pharmacies from opening within a certain distance of an existing pharmacy (usually 1.5 kilometres in cities and ten kilometres in regional areas). They also prohibit pharmacies from operating within or being directly accessible from supermarkets.

These are the rules that stop consumers from picking up prescriptions at their local supermarket or getting their scripts filled at their GP’s surgery by an in-house pharmacist. In areas that pharmacists don’t see as economically viable — including many parts of rural and remote Australia — the rules preclude existing healthcare services from running a pharmacy with a pharmacist in charge.

For remote communities like Lajamanu in the Northern Territory or Purnululu in Western Australia, where just three pharmacies cover an area around the size of  New South Wales, the nearest pharmacy can be eight hours or more away.

Reviews and inquiries

Given that these are among the most restrictive rules in any industry in Australia, it’s not surprising that a succession of inquiries and reviews have called for them to be loosened.

In 2014, for instance, the National Commission of Audit argued for “opening up the pharmacy sector to competition, including through the deregulation of ownership and location rules.”

The following year, the Competition Policy Review declared community pharmacy to be one of the priority areas for “immediate reform action.”

In 2018, a Senate committee recommended that the government “enhance competition in the delivery of pharmaceuticals listed on the Pharmaceutical Benefits Scheme, with priority given to consumers rather than pharmacy owners.”

Consumer and stakeholder views

Consumer groups and other health organisations have also called for change. The Consumers Health Forum of Australia argues that government support of for community pharmacies should be “more transparent and contestable” and the location rules should “be removed to allow for competition, innovation and new pharmacies.”

The Grattan Institute recommends “cautious” removal of the ownership rules: “Like the location rules, these appear much more effective in protecting the commercial interests of pharmacy owners than in serving the public interest.”

The medical profession seems to agree. Harry Nespolon, president of the Royal Australian College of GPs, wrote last year that “the current laws are anti-competitive, without any benefits to consumers.” His words were echoed not long after by Australian Medical Association president Tony Bartone. And earlier this year the Australian Healthcare and Hospital Association declared that the restrictions “should be subject to an independent, rigorous and transparent public interest test.”

The Guild position

The Pharmacy Guild’s position is that ownership and location restrictions are necessary to ensure quality, safety and accessibility. But the official inquiries have agreed that location restrictions aren’t necessary to guarantee a reasonable distribution of pharmacies in most areas of Australia.

And they have pointed out that restricting ownership of a pharmacy to a qualified pharmacist makes no sense when many pharmacy owners don’t themselves work in their pharmacies, instead employing other pharmacists to provide services.

Brands like Chemist Warehouse and Priceline, which operate under franchise (or similar) arrangements linking individual pharmacies under a single brand, also undermine the Guild’s argument against the involvement of other parties, such as supermarkets, in retail pharmacy.

A policy challenge

Part of the challenge for governments is that retail pharmacies are a health service wrapped up in a small business.

Governments clearly have an interest in funding the supply of PBS medicines and this may require some support for retail pharmacy infrastructure. But it seems clear that this support shouldn’t extend further than is necessary to ensure a reliable and high-quality supply of medicines.

A lack of pricing data

An important role of the CPA is to set a fair price for dispensing PBS medicines, and to do this governments need access to accurate information about the costs of providing this service.

But separating the health-related activities of retail pharmacies from their sale of cosmetics, perfume and other products can be difficult.

The Guild has resisted attempts to obtain independent financial data from the sector, leaving the government largely reliant on the information provided by the Guild.

With Australians filling around 300 million prescriptions each year, even a small overestimate in the cost per prescription can mean large amounts of money for government and a financial windfall for pharmacy owners.

Poor governance

The widely recognised flaws in the CPAs don’t end there. Adding to the policy black hole is the lack of any independent oversight: the agreements are struck in secret, and no impartial body has the job of making sure they’re honoured.

It’s true that an agreement consultative committee oversees payments to pharmacists, making sure they meet their community service obligations and checking that the rules governing location and electronic prescriptions are observed.

But four of its members are nominated by the Pharmacy Guild and four by the health department, leaving consumer interests, doctors’ groups and other experts entirely out of the picture.

When the fifth CPA was evaluated back in 2015 by an external team — itself a first — its governance and administrative arrangements were found to be out of step with normal public sector principles of contestability, transparency and independence.

Among interest groups, only the Guild believed that the consultative committee was as representative as required, the evaluation reported.

“Many stakeholders” believed that, at a minimum, the committee should include representatives of state and territory governments, the Pharmaceutical Society of Australia and consumer organisations.

ANAO Report

Concerns were raised the same year in an Australian National Audit Office report on the fifth CPA, which found that the evaluation framework made no provision for reviews of the agreement’s two major financial components: pharmacy remuneration and community service obligation payments to pharmaceutical wholesalers.

Pharmacy remuneration, which accounts for around 90 per cent of funding under the fifth CPA, “has not been fully reviewed since 1989.”

The Audit Office report is scathing about the health department’s administration of the fifth CPA. “Shortcomings in Health’s performance reporting and fifth CPA evaluation framework mean that the department is not well positioned to assess whether the Commonwealth is receiving value for money from the agreement overall, or performance against its six principles and objectives.”

 As a result, “there is no ready basis for the Parliament or other stakeholders to determine the actual cost of pharmacy remuneration delivered under the fifth CPA.”

Despite this finding, reporting on expenditure under the sixth CPA is still inadequate, with the relevant page on the health department’s website not having been updated for five years.

The King Review

The range of criticisms from different bodies might explain why the government hasn’t yet acted, if not for the fact that it already has the blueprint for reform written by the independent high-level panel appointed by Sussan Ley.

The panel was chaired by economist Stephen King, a commissioner with the Productivity Commission, and its other members were Jo Watson, an experienced consumer advocate, and Bill Scott, a pharmacist and pharmacy owner and former president of the Pharmacy Guild.

It was Australia’s most comprehensive review of the pharmacy sector and possibly the most extensive review ever of any sector of the health system.

A series of meetings with peak health consumer, pharmacy and industry bodies led to a discussion paper that generated over 500 written submissions.

A series of public forums in cities and regional areas culminated in a live national webcast. An interim report in June 2017 generated another 201 submissions, with the peak bodies also giving feedback on the interim report. Six commissioned research reports fed into the process.

The final report

In its final report in September 2017, the panel proposed a twenty-year plan to create a “consumer-centred, integrated and sustainable community pharmacy sector which is adaptive to the inevitable changes in healthcare given Australia’s ageing population, rapid advances in technology and ongoing PBS [Pharmaceutical Benefits Scheme] reform.”

Forty-one of its recommendations were a consensus view of all three panel members, with two versions of the remaining three recommendations provided, one version supported by Professor King and Ms Watson and the other by Mr Scott.

Central to the review’s recommendations is the removal of ownership and location restrictions.

In line with the findings from previous inquiries, the review found that the current restrictions reduce competition and allowed monopolies or virtual monopolies to exist in local areas, resulting in higher prices, less variety, lower-quality service (reduced opening hours, for instance) and increased travel costs.

It also recommended an end to the ban on pharmacies being accessible from within a supermarket.

The review echoed concerns about a lack of transparency and accountability in the administration of CPAs, recommending that future agreements concentrate primarily on dispensing services and include other stakeholders, specifically the Consumers Health Forum of Australia and the Pharmaceutical Society, the professional body for pharmacists.

Other recommendations included the development of an easily accessible and searchable atlas of all community pharmacies in Australia and the possible creation of a twenty-four hour hotline to provide pharmacist advice and medicines information to consumers. Restrictions on the Aboriginal Health Service’s owning and operating a pharmacy at its own premises would be lifted.

Machine dispensing would be trialled in a small number of secure locations not currently served by a community pharmacy. Homeopathy and homeopathic products would not be sold.

The Government’s response

And the government’s response? In May 2018 it