The pharmacy racket must end

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ScreenHunter_2078 Apr. 16 12.28

By Leith van Onselen

 The Australian’s Janet Albrechtsen has written a cracking article today attacking the Abbott Government for refusing to free-up competition in the pharmacy industry, which she argues is one of the nation’s biggest entitlement racket:

So here we are again. A Coalition government is back in Canberra, with the same union-busting, free-market messages in addition to one heck of a new target — ending the age of entitlement. Yet, in a case of deja vu, one union behind one industry in Australia has done a clever job of removing itself from the dartboard of reform… [The] pharmacy cartel — an entitlement racket if ever there was one…

Few other unions get to entrench a cartel in a bilateral agreement with the federal government every five years… the Cartel Pharmacy Agreement stipulates PBS pharmacy location rules for the establishment of new pharmacies and the relocation of existing ones…

It’s a neat protection gig if you can get it.

State and territory laws also help entrench the pharmacy cartel with competition stifling ownership rules — only a registered pharmacist can own a pharmacy…

And then consider the complicated, double-dipping system of dispensing fees set out in the Cartel Pharmacy Agreement paid to pharmacists for simply doing their work, filling patient prescriptions…

And still there are no signs the Abbott government intends to blow open the pharmacy cartel….

Albrechtsen’s singling-out of pharmacies is justified.

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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”. Of course, the rent-seeking Pharmacy Guild opposes such changes, as it would open the industry up to competition and reduce pharmacist’s ability to extract super profits.

Moreover, even logical reforms – such as the previous Federal Government’s minor changes to the Pharmaceutical Benefits Scheme (PBS), in which it proposed to shorten the time limit required for drug manufacturers to tell the Federal Government the price at which they sell medicines to pharmacists to 12 months from 18 months (reducing the cope for pharmacies to earn fat margins at taxpayers’ expense) – were subjected to heavy lobbying by the Pharmaceutical Guild, along with calls for taxpayer compensation (on top of the $3 billion already received to dispense PBS drugs).

If the Government was fair dinkum about ending the age of entitlement, it would place pharmacy reform front-and-centre, and in the process save consumers and taxpayers significant money in the process.

Of course, when it comes to entitlements and Coalition policy, it seems anyone wearing a hard hat or blue overalls is fair game, whereas those in white coats are off limits.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.