A new report from The Grattan Institute recommends that responsibility for setting pharmacy remuneration be shifted to the Independent Health and Aged Care Pricing Authority, in order to ensure Australians can safely and easily access essential medicines.
Pharmacies are a major recipient of government healthcare spending. They are set to receive $26 billion over five years for dispensing medicines and providing services. Yet the standard guardrails that should accompany billions of dollars of public expenditure – a strong evidence base, pricing for value and transparency on quality and outcomes – are missing in action.
That would be worrying anywhere, but it’s especially worrying in pharmacy. In this sector, these billions of dollars of public spending go to essential services delivered by private businesses, which are represented by a formidable lobby group that is also a major political donor.
We need strong governance to make sure Australians can safely and easily access essential medicines, and to ensure patients and taxpayers get good value for money. But the rules for the pharmacy sector seem to rotate around a different axis altogether: guaranteeing a great deal for pharmacy owners.
Pharmacy fees and regulations are set through Community Pharmacy Agreements. These agreements are negotiated every five years between the federal government and the Pharmacy Guild of Australia – the lobby group for pharmacy owners.
This process ticks every box on the bad-governance checklist.
First, there is no one else at the table. Only the Guild and the government are involved in the final decisions. Consumer groups, employee pharmacists and the pharmacy owners not represented by the Guild are only consulted.
Second, there is no public evidence underpinning the decisions. There is no independent assessment of what dispensing a medicine actually costs a pharmacy. There is no independent assessment of the sector’s profitability. The only quality assessment program is run by the Guild.
Third, there is no transparency about the process itself. Negotiations happen behind closed doors, on a timetable and terms that are never disclosed. The public sees only the final agreement.
There is no other corner of Australia’s health system where a vested interest gets this much control and has this little accountability. The story of how we got here is just as unique.
Until the late-1980s, pharmacy remuneration was set by an independent tribunal. Back then, the funding formula paid small pharmacies more for each script dispensed. The result was too many small, inefficient pharmacies proliferating along high streets. In 1989, the tribunal decided to change the funding formula to treat pharmacies the same, regardless of size, and to sharply cut funding.
That prompted a fierce campaign from pharmacy owners, including some who closed their pharmacies in protest. The government responded by sidelining the tribunal and negotiating directly with the Guild, striking the first Community Pharmacy Agreement in 1990.
Seven agreements later, a compromise in a political crisis has become standard procedure. The emergency scaffolding is still holding up the building.
These agreements have, predictably, led to great outcomes for pharmacy owners. The amount pharmacies are paid for each prescription has increased nearly 50 per cent in real terms over the past 30 years. Pharmacies are guaranteed a fixed level of funding, even if the volume of scripts decreases. Regulations stop new pharmacies opening near existing ones, shielding incumbent owners from competition.
It doesn’t have to be this way. In our review of pharmacy policy processes in comparable countries, Australia’s was the worst. While processes vary, there was no other country we studied that combined Australia’s total lack of representation, evidence and transparency. Even Wales, the country with the second-worst governance, has all pharmacy owners represented, while the Guild represents only a majority.
A new Grattan Institute report tracks a clear path to reform. The current Community Pharmacy Agreement should be the last. Responsibility for setting pharmacy remuneration should instead shift to the Independent Health and Aged Care Pricing Authority, which already does this for public hospitals and aged care. Its practice of collecting cost data, consulting widely and publishing its methodology is exactly what pharmacy funding currently lacks.
If the government is not willing to do this, the pharmacy agreements must at least be reformed. The negotiations should include organisations that represent the pharmacy workforce and consumers as equal participants. Decisions should be grounded in cost data collected before negotiations begin, and the decision-making process should be transparently documented.
Remuneration based on costs would put downward pressure on medicine prices. Pharmacies would be paid fairly but based on terms set by an independent umpire rather than negotiated by their peak body.
Strong governance would deliver what eight negotiated agreements have not: a deal that puts patients and taxpayers first.
Peter Breadon
Peter Breadon is Director of the Health Program at Grattan Institute and lead author of Grattan’s new report, Sickly sweet: It’s time for a sugary drinks tax.