Government versus pharmacists in search for big savings

The government is locked in a major battle with pharmacists as it looks for A$3 billion in budget savings from the pharmaceutical supply chain.

The current five year A$15.4 billion Community Pharmacy Agreement between the government and the Pharmacy Guild runs out at the end of June and a deal must be reached for a new one to start on July 1.

The agreement sets out the government remuneration for pharmacists for dispensing Pharmaceutical Benefits Scheme medicines.

Sources in the sector said the government was playing “hardball” in the talks over the new agreement; the government says the same of the pharmacists. The pharmacists are arguing that they have already contributed substantially to savings over the previous five years and should not be squeezed further.

The government is also negotiating with the drug companies as it seeks the A$3 billion in savings.

In last year’s budget the government announced an increase in PBS patient co-payments and safety net thresholds – this was to produce savings of A$1.3 billion over four years from January 1, 2015. But the government has not been able to get the legislation through parliament.

The current battle with the pharmacists follows the government’s earlier bruising stoush with the doctors, leading to it eventually abandoning its planned Medicare co-payment, which it could not get passed. The doctors waged a fierce battle against the new co-payment; the pharmacists did not fight so hard because the planned measure was a rise in an existing co-payment.

In the mix in the negotiations with the pharmacy sector is the recent recommendation from the Harper review of competition policy which said that the current restrictions on the ownership and location of pharmacies are not needed.

At present pharmacies can only be owned by qualified pharmacists, can’t be located in supermarkets, and cannot be within a certain distance of another pharmacy.

The government can use the rules as a bargaining chip in its push for savings. It also wants to find some ways to get more competition into the sector, and is in a position to exert pressure because the location rules have a sunset clause of June 30.

The Harper report said that the ownership and location rules should go “in the long-term interests of consumers. They should be replaced with regulations to ensure access to medicines and quality of advice regarding their use that do not unduly restrict competition”.

The report said the negotiation on the next Community Pharmacy Agreement provided an opportunity for the government to implement relaxation of the location rules, as part of moving towards eventually removing them.

The Pharmacy Guild points to the fact that the Coalition before and after the election expressly supported the present pharmacy ownership model and the location rules.

It says the implementation of the Harper recommendations would just give more market domination to Coles and Woolworths with no benefit to consumers.

Tuesday’s Essential poll found that just over four in ten people believed the May 12 budget would be bad for them personally while about half thought it would be bad for older people and those on lower incomes.

The only groups that more people thought the budget would be good for rather than bad were “people who are well off” (49% good, 9% bad) and business (32% good, 17% bad).

But compared with expectations about the 2014 budget people were notably less pessimistic about the coming budget being bad for them personally and for particular groups, especially older Australians, average working people, and families.

While last year 55% predicted the budget would be bad for them personally, this has fallen 14 points to 41% this year.

Prime Minister Tony Abbott has been strongly pressing the point that the government’s second budget won’t hit families.

Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.