Pharmacists most likely saw change coming, but I suspect that they didn’t expect it to arrive so soon. The Harper Review and the Abbott government’s plans to overhaul the Pharmaceutical Benefits Scheme will remove the comfortable profit margins pharmacists have been sitting on for years.
The reality is that Australia’s pharmacies, unlike their counterparts in other countries, have been living in a parallel universe protected from the sorts of competition other retailers, like florists and newsagents, have had to deal with and survived. There’s no reason why pharmacists can’t do the same.
The regulations governing the sector’s existence come from another era. Under the rules, pharmacies can only be owned by a registered pharmacist, a scheme that locks out big retailers like Coles and Woolworths.
Also, individual pharmacies are protected from each other – a new one cannot be opened closer than 1.5 kilometres away from an existing pharmacy. Relocations have to be less than 1 kilometre in a straight line. And premises must not be directly accessible by the public from within a supermarket.
Also, there are limits on how many pharmacies individual pharmacists can own and co-own. In Victoria, it’s three.
Health Minister Sussan Ley has signalled the first set of changes with her plans to contribute about $3 billion of savings to a total healthcare target of $7 billion in this month’s budget by removing subsidies from several over the counter medicines and allowing pharmacies to discount the co-payment patients pay on pharmaceuticals.
The government’s changes will basically deregulate their profit margins on prescribed drugs. This will create competition. Many pharmacies will sell prescribed drugs for cheaper, some might sell it for cost price. This will certainly see chemists competing for business. And it will force many pharmacists to shut down, unless they change their business model.
This means pharmacists will have to change the paradigm that has governed their businesses. They have to stop seeing themselves as pharmacists. Instead, they will have to become retailers who sell drugs.
Pharmacists have been hearing this for years but have been saying it’s optional. That will no longer be the case.
The next set of changes have been flagged by the Harper Review which has recommended dumping pharmacy location regulations setting out where pharmacies can be located including their distance from competitors and ownership rules that require pharmacies to be owned by registered pharmacists.
The Harper review says these restrictions must be scrapped to increase competition.
Predictably, pharmacists have slammed Harper’s proposal, saying this sort of deregulation would give supermarkets the power to compete with local pharmacies and that, they say, would drive independent operators out of business and make health care second to profit. In any case, they argue the big supermarket chains could never be a legitimate part of the health system. Not when they profit off cigarettes and alcohol.
The pharmacists could be fighting a losing battle. These rules are likely to be targeted by the government following the Harper Review.
The pharmacies have been fighting against supermarkets expanding into the pharmacy space. What they weren’t expecting was an attack coming the other way with discount chain pharmacies like Chemist Warehouse with its aggressive pricing expanding into the supermarket space.
The Pharmacy Guild of Australia, one of the most powerful unions in Australia, has campaigned against Chemist Warehouse, at one stage even referring them to the Australian Competition and Consumer Commission for misleading advertising and putting out stories in the media that these sorts of chains are putting small independent pharmacies out of business.
The reality is that it’s happening anyway. A 2014 IbisWorld report, Pharmacies in Australia, says that independents could be forced out of the industry by a combination of low-cost warehouse-style pharmacies and prospective changes to the Pharmaceutical Benefits Scheme which have always been up for discussion.
Now imagine what will happen to profit margins if the changes to the PBS go through and if supermarkets are allowed into that space.
Pharmacists need to change their business models. If they want to survive, they have to position themselves as retailers who sell prescription drugs. One of the major consequences of such a paradigm shift will be the need to adopt processes and systems that work well in retail, replacing the traditional business model of Australian pharmacies.
One pharmacy group that had the foresight to adopt such an approach is Quality Pharmacy Group (QPG). In 2009, Retail Directions worked with QPG to implement its Retail Management Platform which caters for head office retail ERP, Point-of-Sale and other omni-channel functions.
Retail Direction’s platform allows Quality Pharmacy Group to centrally manage customer and sales data, across its head office and pharmacies, giving the group unprecedented insights into their customer profiles and enabling targeted promotional campaigns.
Larry Field, Quality Pharmacy Group CEO, had this to say, “Since putting Retail Directions’ solutions in place, our gross margins have improved substantially. By automating our systems, we’re also able to redirect staff who were previously doing ordering and replenishment to areas of the business such as customer service. We’ve received great feedback from customers about this and have seen a vast improvement in sales and services across all our pharmacies.”
In summary, the path has already been cleared and proven. It is now up to the other pharmacy groups to follow QPG’s lead, but will they realise that this is the last chance to make such a move? Some might…