Healthy Skepticism Library item: 2706

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Publication type: news

Stafford A.
Pharmacy talks end in whimper, not bang
The Financial Review ( Australia) 2005 Oct 31
http://newsstore.fairfax.com.au/apps/browseArchive.ac?sy=nstore&cls=631

Notes:

Ralph Faggotter’s Comments:

This article demonstrates a classical dilema faced by modern governments.

How do you deregulate and still contain government spending?

This problem is particularly galling as your Economic Rationalist ideology tells you that this dilema is theoretically impossible.

Full text:

Pharmacy talks end in whimper, not bang
Author: Annabel Stafford
Date: 31/10/2005
The Financial Review, Page: 8

The incumbents have staved off attacks from newcomers, writes Annabel
Stafford.

More than five months after they began and almost four months after they
were supposed to finish, negotiations for the $11 billion, five-year
Community Pharmacy Agreement are drawing to a close.

The talks, which have claimed the scalp of Pharmacy Guild of Australia
president John Bronger and outlived the tenure of almost the entire
negotiating team from the Department of Health and Ageing, are expected
to be signed off by federal cabinet next week.

The battle over how much the pharmacy sector will be paid to deliver
pharmaceutical benefits scheme (PBS) drugs over the next five years has
pitted some of Australia’s most powerful interests against one another.
In the end, though, it is the incumbents who win.

Pharmacists and pharmaceutical wholesalers will be protected for another
five years from Woolworths chief executive Roger Corbett’s plan to get
in on the medicine game.

And the “big three” pharmaceutical wholesalers – Mayne, Sigma and
Australian Pharmaceutical Industries – have successfully guarded their
turf against big pharmaceutical companies such as GlaxoSmithKline, which
were beginning to deliver their own drugs, and the smaller wholesalers
competing on the high-volume PBS items.

Pharmacists’ projected payments over five years are understood to have
contracted from $11.75 billion – based on a 29 per cent increase in
volume of prescriptions – to about $11 billion, which is believed to be
based on growth closer to 21.5 per cent.

And in a late change to the deal, the pharmacists have lost their
protection against future policy changes, which reduce PBS growth and
therefore their income, sources have told The Australian Financial Review.

An earlier draft of the Pharmacy Agreement committed the government to
compensate pharmacists for any lost remuneration caused by policy
change. Sources have told The Australian Financial Review that in the
latest version the government is beholden only to negotiate with
chemists “in good faith” to ensure the industry as a whole remains viable.

Already the amount the government pays pharmacists, which is based on a
percentage of the drug price plus a dispensing fee, has been hit by a
cut in PBS growth this year, itself a result of government increases to
patient co-payments and cuts of as much as 12.5 per cent on some PBS drugs.

The initial $11.75 billion deal implied expected PBS growth of between 6
to 7 per cent a year, according to a Citigroup report released last week.

But government spending on the PBS in the year to September was only 4.6
per cent higher than the previous corresponding period and the number of
prescriptions filled actually dropped 7.3 per cent, the latest
government figures show.

Citigroup health-care analyst Andrew Goodsall acknowledged the Pharmacy
Agreement “was probably calculated on a higher [PBS] growth rate” than
we’re currently seeing, “but I don’t think anyone thinks this will last”.

The government is telling pharmacists to be thankful that Woolworths was
not let loose in the sector and that despite some small relaxation in
protection, they are still protected by “location rules” that stop new
chemists from setting up within 1.5 kilometres of existing ones.

Woolworths had promised to save the government $500 million a year and
to cut drug prices to consumers by 30 per cent, which federal Health
Minister Tony Abbott used to push the pharmacists to give him savings of
more than $460 million.