The Stalinism on Australia’s high streets

TERRY BARNES
Australian Financial Review
The competition review led by Ian Harper has tackled both the pharmacists’ near-monopoly ownership of Australia’s 5000-plus community pharmacies and the myriad rules controlling where a pharmacy can dispense medicines under the Pharmaceutical Benefits Scheme (PBS).
Stalinist location rules have been in place, with relatively minor modifications, ever since the Hawke government made the first five-year Community Pharmacy Agreement with the owners’ union, The Pharmacy Guild of Australia (PGA).
What is in place today remains a Kafkaesque bog of red tape and bureaucracy protecting the interests of the very few – pharmacist proprietors and guild members – from the great many – taxpayers, consumers and even non-proprietor fellow pharmacists.
In 2012, I wrote that location rules “protect the position of the relatively few retail pharmacists who have provider approvals in commercially desirable locations against the many who don’t”. Nothing has changed. Establishing a new pharmacy 1.501 kilometres in a straight line from an existing premise is OK, but establishing one 1.499km away is not. Establishing a pharmacy within a private hospital with 150 inpatient beds is fine, but if just one of those beds closes, no can do.
Throw in relocation, regional approvals, shopping and medical centre rules, and more, and it still involves great time and cost to fulfil the government’s detailed compliance criteria (not least the 1.5km-long piece of string emanating from “the mid point of the public access door for each of the premises”).

FOUR ANTI-COMPETITIVE PROBLEMS
PBS location rules entrench four serious anti-competitive problems. First, making the establishment or relocation of a rival pharmacy so expensive, laborious and time-consuming deters all but the most cashed-up pharmacist proprietors, or those willing to incur sizable debts to wholesalers and others in order to realise their ownership aspirations.
Second, by entrenching scarcity value, the rules not only artificially inflate a brokerage market in which PBS approvals can be bought, sold and “parked”, they also pump up the resale value of pharmacies for their owners and help keep the door firmly shut on young and female pharmacists trying to break in. Not that the old hands care about that.
Thirdly, and most importantly, location rules kill genuine competition and consumer choice based on consistently high quality and service across all pharmacies. Entrenching professionally and commercially inefficient pharmacy operators – shielding them from vigorous competition – certainly benefits proprietors and consultants who game the system. But it does nothing for the patients and consumers who are supposedly the centre of the PGA’s universe.
From next year, when the current pharmacy agreement expires, let anyone who wants to establish or relocate a pharmacy be eligible for a PBS approval, provided they satisfy state ownership legislation (assuming it resists deregulation) and is in good professional standing. If an efficient pharmacy practice or business wants to move next door to an established competitor and blow them out of the water by providing better professional services in a better-run business, let them. If this forces inefficient pharmacies to improve or die, that’s no one’s problem but their own.

SIMPLE SOLUTION TO LOCATION CONCERNS
The PGA would contend that such rationality would destroy the PBS distribution network that has been built up by location rules under successive pharmacy agreements. But such hyperventilating is easily dealt with: if the federal government wants to ensure localities are not underserviced because they are less commercially attractive or more remote, it can offer contestable financial incentives to approved proprietors to fill the gaps. Better still, it should put all future PBS pharmacy approvals to locality-based tender, with price and service as key criteria.
To any rational policy mind, pharmacy location rorts must go. But, fearing the PGA’s wrath, the Abbott government is so far defending it and disowning Harper, even before starting negotiations on the next pharmacy agreement.
The PGA forgets that the 1999 Wilkinson review of pharmacy regulation concluded that the PBS location rules were (and are) “inherently anti-competitive in their operation and effects”. Since then, the PBS itself has been reformed by the Howard, Rudd, Gillard and now Abbott governments to make it more efficient and cost-effective. In that spirit, Health Minister Peter Dutton should stare down the PGA and consign the location rules to history. There are better ways to ensure a safe, competent and efficient dispensing network for PBS medicines.
Terry Barnes is a policy consultant who advocated co-payments for bulk-billed GP services, and wrote the 1999 Wilkinson report on pharmacy regulation.