Time to break the great pharmacy racket

By Leith van Onselen

You would be hard pressed to find a bigger racket than Australian pharmacies.

How many any other industries in Australia have had laws implemented that ban new entrants from opening within 1.5 kilometers of an existing business?

How many other industries allow only registered professionals in the field to own and operate a business?

And how many other industries get to entrench a cartel in a bilateral agreement with the Government every five years?

Last week’s release of the Harper Review into competition policy recommended that the Government deregulate pharmacy ownership, by dumping pharmacy location and ownership rules, noting that “such restrictions limit the ability of consumers to choose where to obtain pharmacy products and services, and the ability of providers to meet consumers’ preferences”.

As expected, the rent-seeking Pharmacy Guild immediately hit back, claiming that deregulation would give supermarkets the power to compete with local pharmacies, driving independent operators out of business and putting health care second to profit.

However, as argued by Fairfax’s Peter Martin today, overseas experience shows that relaxing location and ownership rules, and allowing qualified pharmacists to dispense drugs in supermarkets (amongst other places), slashes costs for consumers, whilst also improving convenience:

The best estimate suggests the decision to allow supermarkets to sell medicine cut the prices charged [in Britain] by 10 to 30 per cent. Few in Britain would turn back the clock.

The rules governing Australia’s pharmacies are so strange we’ve come to think of them as normal. They apply in no other industry…

It’s illegal for a pharmacy receiving government payments to be located in or accessible from a supermarket, defined in the 56-page handbook as “the type of store in which a person could do their weekly shopping from fresh food (dairy, meat, bread), pantry items, cleaning products, personal care items and other household staples (laundry pegs, plastic food wrap)”

The more important effect of the location rules is that they protect pharmacies from price competition and from competition for the government payments that make up over half of pharmacies’ incomes…

It’s far from true that Australian pharmacists support the restrictions. The Pharmacy Guild of Australia represents only the 4000 who own pharmacies. Another 20,000 are locked out of ownership and forced to work for those who got in early…

The Community Pharmacy Agreement pays the pharmacies to do the things many of us might have thought they did routinely, such as dispensing drugs and keeping electronic records. Its annual cost has climbed from $546 million in 1991-92 to $3.087 billion in 2013-14

The only saving grace in Australia has been the emergence of Discount Chemists Warehouse, which is owned by an elaborate network of 300 separate pharmacists, and has challenged the old protected model and lowered pharmacies’ margins. Anyone that has shopped in one of these stores would realise just how much they were being ripped-off by traditional pharmacies. Obviously relaxing ownership and location rules would provide further gains to Australian consumers.

Like the Harper review, the Productivity Commission has for more than a decade pushed for changes to pharmacy ownership rules to enable pharmaceutical products to be sold in supermarkets (amongst other places), and has described the current restricted arrangements as adding “to health care costs for little apparent benefit”. The fast emergence of Discount Chemist Warehouse has shown that there is a strong appetite amongst consumers for more competitively priced pharmaceuticals. So why not enhance competition even further by allowing pharmacies to also operate in supermarkets, as is the case in Britain, New Zealand and the United States?

If the Government is fair dinkum about ending the age of entitlement, it should prioritise pharmacy reform, and in the process save consumers and taxpayers significant money in the process.

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Comments

  1. Will a consequence of such a reform mean the death of small pharmacies and the market controlled by two or three oligarchic big players?
    It has already happened in hardware.

    • moderate mouse

      Yeah, just look to liquor and meat, and you’ll have your answer. There were 3 times as many independent butchers in Sydney in 1985 as there is today, and gee isn’t meat so cheap at Coles and Woolies…..NOT! (Cheap cuts perhaps, high prices)

      It costs $23 bucks for a six pack of Little Creatures at my ‘local’…..a name starting with Vintage and ending with Cellars and owned by Coles. It cost US$10 for a six pack of Deschutes Mirror Pond Pale Ale (a better beer than Creatures hands down) in the local servo when I lived in the states a couple of years ago.

      History will be repeated in pharmacies across the country – and we will end up with concentration of ownership, not competition.

      • Our local butcher (northern rivers NSW) is as cheap as the local Coles (one supermarket town).

        And they’re thriving. (Big beef area though, so people eat a lot of meat in this area).

        Also on booze, isn’t it the case that a) US has bigger scale, b) is closer to Mehico = $20 slabs of Corona and c) lower booze taxes?

      • As I understand it, tax on beer is levied according to the mass of alcohol (but apparently tax on wine is different). Assuming that is correct, it is hard to believe tax is responsible for the $23 six pack when Aldi sells a six pack with similar total alcohol for $10 – tax should be almost equal for both the Coles six pack and the Aldi six pack.

      • It costs $23 bucks for a six pack of Little Creatures at my ‘local’…..a name starting with Vintage and ending with Cellars and owned by Coles. It cost US$10 for a six pack of Deschutes Mirror Pond Pale Ale (a better beer than Creatures hands down) in the local servo when I lived in the states a couple of years ago.

        Comparing booze prices across countries isn’t really fair. Way too much interaction with the tax system.

      • @statsailor correct.

        “…the volume of alcohol calculated by multiplying the actual volume of product by its alcoholic strength (for beer, the first 1.15% of alcohol content is free of excise duty)” http://bit.ly/1FhbKzM

      • @ubietz,

        In which case it is hard to conclude other that when the duopoly owned bottleshop in a shopping centre is selling six packs for mostly $18-20 apiece while the Aldi in the same complex is selling them for $10-$12 apiece, there is a gouge at some point in the duopoly supply chain, and the duopoly seems like the most likely gouger.

        EDIT: And, in answer to Dom’s point, it seems hard to argue moving control of the pharmacy market from the existing monopolists to the supermarket oligarchs will assist consumers very much. Skillful careful legislation could assist, so a good outcome could depend on the probity and intelligence of our lawmakers.

      • I get a tad annoyed when “foreign” beers are brewed in Australia by Australian brewers under licence yet we get charged foreign beer prices for them.
        Seems like a bit of scam.

      • I remember the first time I tasted Australian-brewed “Heineken” – I thought it had spoiled/ been contaminated with a cleaning chemical or something. I looked for signs of a date on the label, and discovered a brewery address. Then I pulled the last good tasting empty out of the recycling bin for comparison, and felt a Hulk-like rage wash over me when I realised what had happened…

        EDIT: Same place of purchase, for same price, difference buried in fine print

    • ErmingtonPlumbing

      Yes Dom it sounds good in theory ( more competition ) but in reality would just be another giveaway to the Corporate Plutocracy.

      Another assault on the middle class. Soon the only members of said class will be the Apparatchiks of the Corporate world and the children of the formerly more successful.

    • @Dom & @mm

      Depends on how the laws are changed. Also are either of you familiar with the current status quo? I have multiple pharmacists and pharmacy owners in the extended family. It has got to be one of the biggest scams/rentier economies in Australia. Neighbourhood pharmacies changing hands for multiple millions just because the government has mandated no competition for them.

      • Perhaps the pharmacy industry is not the best example, and i have no interest apart from seeing towns (& suburbs?) around Australia being destroyed by duopolies in all retail areas. A lot of money being taken out of communities and lining the pockets of the powerful.
        And everyone wonders why there are no jobs for the young.

  2. ceteris paribus

    Are you commentators kidding? Community pharmacies have been ripping us off for years. Just compare the current price differential with Chem Wharehouse. It will knock your socks off.

  3. If the US experience is anything to go by, where the likes of Walmart quickly dominated the pharmacy market in whatever location they were situated in. Seems to me we keep getting pushed to a US style market, where in the name of competition, choice actually gets reduced, not expanded.

    Either it’s a cartel of small business owners or a cartel of a few big players, in the end we’ll still be ripped off.

    • Walmart is a good pharmacy. They employ qualified pharmacists and the prices are fantastic. They have a list of medicines that they sell for $4 a bottle, many of which sell for $35-$70 a bottle here in ‘the smart country’.

      • Agree, I take medication myself and whilst in usa I found that I could get jumbo packs for $8 usd… In straya id get half the amount for $44 AUD…

        People argue profit before health, just how many unhealthy are unable to afford or are rationing their meds due to high prices on meds and everything else in this country?

  4. The kiwis fixed this at least 5 years ago and you can now get your pharmas at Woolies when you buy your groceries. In a separate self contained area with a registered pharmacist. No brainer as Woolies is 24/7.

  5. Walmartification proceeds apace…. price is the monkey goo that makes some demand their – own – demise…

    Skippy…. every commenter above should have their job subjected to Walmartification…. crappy wages yet cheap prices for beer….