Editorial

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Welcome to the first homepage edition of i2P for 2012.
In many ways it has been a slow start to the New Year because of having to deal with the “leftovers” from 2011.
One of those items for i2P was that a third-party provider to the site did not advise of a code change to the security section in our subscribe panel, creating a range of frustrated subscribers not able to get on board.
We apologise to all those potential subscribers who were unable to register with us in the second half of 2011, but if you try once more you should have no problem.

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Volume 2012 Number 1

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A once in every five years opportunity that must be taken.

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Neil Retallick articles by this author...

Neil Retallick is a former General Manager, Merchandising, for National Pharmacies, the successful community pharmacy model owned by the Friendly Societies. Neil holds a Graduate Diploma of Marketing from Monash University, is a CPM and a graduate of the AICD.He began his career with Myer Stores Ltd and worked for FMCG companies including TIA (Sheridan) and Pacific Dunlop. Prior to these roles Neil worked for Cadbury Schweppes Drinks Division - Grocery, and Trimex Pty Ltd in Victoria in State management roles. He is currently Chief Executive Officer at the  Combined Dispensaries in Sydney and is a Member of the Advisory Board at Ehrenberg-Bass Institute for Marketing Science

On July 1 2006, the Federal Government reduced the pharmacy wholesaling margin from 10% to 7%. This action was an outcome of the Government’s negotiations with the Pharmacy Guild as these two parties hammered out the 5 year deal that was the Fourth Community Pharmacy Agreement (4CPA).
To put this change into today’s context, Sigma’s wholesaling business turned over around $2.4 billion in the last twelve months.
If 70% of this turnover is generated by dispensary medicines, and if 65% of these are PBS items, then the 4CPA pulled about $33 million in revenues off Sigma’s top line in today’s dollars.

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At the same time, the Government introduced a Community Service Obligation arrangement whereby wholesalers who met a number of requirements regarding stocking and deliveries could claw back some of these funds.
The Funding Pool was $144 million in the first year – to be split amongst whichever wholesalers became CSO-accredited based upon their stockholdings and their shipments to community pharmacies.

These CSO requirements were intended to ensure the additional funding was available only to those wholesalers that carried the full range of PBS listed medicines and maintained the capability to deliver to all community pharmacies across Australia (or a designated part of Australia) within 24 hours.
The Government’s objective was to ensure the ongoing availability of PBS medicines to all community pharmacies wherever they were located.
The intention of the funding was to ensure that the wholesalers that incurred the incremental costs of the CSO commitment would be fairly compensated.

The 4CPA is soon to be replaced by the 5CPA that has recently been negotiated between the Pharmacy Guild and the Government.
The first CSO Deed - the contract between the Government and the CSO-accredited wholesalers - implicit in the 4CPA is soon to expire, to be replaced by a new contract.
Given the haste with which the first CSO Deed was drawn up and the limited opportunity that was provided to the pharmacy wholesalers that were considering becoming accredited, this is a welcome opportunity for review.

It is unlikely that any proposed amendment to the CSO Deed would impact adversely on the service levels currently being provided to community pharmacies. The infrastructure for warehousing and distribution have been in place and funded for many years.
The environment for pharmacy wholesaling also continues to be a competitive one.

The areas that will be the focus of attention from the perspective of the CSO wholesalers will be those that add expense but no improvement in outcome.
The reality is that the costs that are incurred by the CSO wholesalers in meeting the administrative requirements of the CSO have proved to be onerous indeed.
A significant portion of the funds clawed back by the CSO wholesalers is lost in fulfilling the administrative tasks and reporting required by the Government.
It would benefit all stakeholders if these processes could be streamlined and minimised.

The incurring of some of these costs is exacerbated by the fact that some of the Deed’s requirements are not at all achievable in the real world.
Sigma states that its order fulfillment rate is 97.6% over the last twelve months.
This is an important indicator of Sigma’s performance as it would be for all wholesalers.
Interestingly, this is not an indicator the Government has ever requested.
However, the Government does require all CSO wholesalers to be in stock of all PBS medicines at all times.
Given that the drug manufacturers can be out of stock at times, that they close for Christmas and that the demand for their products is not a constant, it is unlikely that the CSO wholesalers will never be out of stock of some lines for some of the time.

The Government, the Guild and the CSO wholesalers need to take this opportunity to review the CSO Deed.
Only good can come of it for all concerned.

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