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A time of pivotal change will require new ways of thinking about community pharmacy

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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

Most of us will have seen the graph that plots the two revenue streams – dispensary and retail – for the average community pharmacy over the last twenty years. It shows that the revenue for the average pharmacy was split about 50/50 way back then. It also shows a rapid increase in revenue from the dispensary business over the last twenty years to the point where the dispensary generates around 70% of the average community pharmacy’s income. Such has been the impact of the Guild-Government Agreements over that time.
To put that in perspective, from the mid-1940’s to the mid-1980’s the typical community pharmacist sold as much front-of-shop product as he or she did prescription medicine. The shift to a reliance on dispensary income and profitability that has occurred over the last twenty years is a relatively short term phenomenon.

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The introduction of the Community Pharmacy Agreements has allowed community pharmacies to position themselves as key players in the provision of primary healthcare to the average Australian. The guaranteed revenue streams emanating from the successive CPA’s has provided a solid basis for the growth of community pharmacies over the twenty years. The Guild has argued strongly that all Australians, together with the Australian Government, have benefited greatly from this growth.

It seems then that we are a pivotal point again in the history of community pharmacy in this country. The Government has made it very clear that it intends to take costs out of the Pharmaceutical Benefits Scheme (PBS). This is almost exactly the same as saying they intend to reduce the revenue and profitability of the dispensary in the average community pharmacy. Significantly.

There are a number of consequences that flow from the Government’s decision. One key one is around community pharmacy’s ability to continue to maintain the business it has become. With less profit being generated in the dispensary, can the typical community pharmacy sustain itself? The Government obviously believes that it can. It would be irresponsible of Government to simply put on the squeeze as a fiscal measure without having modelled the impact on community pharmacy.

Does the Government expect community pharmacy to continue to make the same contribution to the primary healthcare of the average Australian? Does the Government expect this same contribution with less funding? (If you consider that the dispensing fee and product profit margin as Government funding.) Is this where the ‘fee for service’ model emerges as community pharmacy’s next new revenue stream that will replace the PBS one that is now declining? This sounds like a good plan from the Government’s perspective when you consider that from their perspective prevention is better than cure – especially if the primary care being offered by community pharmacy is keeping people out of public hospital beds. I guess we’ll find out what price the Government is willing to put on pharmacy’s contribution here as time goes by.

There may be a key player here who has been left out of the discussions to date. A significant number of Australians, around 30% today, invoke private health insurance as a part of their healthcare strategy. If community pharmacy is intending to develop a fee for service model, should it not be in dialogue with the health insurers. The alignment of objectives is strong. Pharmacy wants to be paid to reduce the incidence of serious health episodes – and be paid for it - whilst health insurers also believe – like the Government – that prevention is cheaper than cure. My simple maths says that for around 30% of all services rendered by community pharmacy, the health insurers also benefit. Should they not be contributing to the costs associated with the provision of these services?

This approach necessitates some additional complexity. There would need to be some structure that ensured all Australians are treated equally in that everybody has equal access to the same services. There may be the potential for additional services provided at higher costs.

Another important consequence of diminishing profitability in the dispensary is a renewed focus on the retail revenue streams of community pharmacy. Ironically, the need for increasing revenue and profitability in the front of shop in community pharmacy coincides with the emergence of discount chemists in Australia. These businesses are sucking the profits out of pharmacy’s retail sales. This reduction in gross profit dollars generated necessitates a reduction in the levels of healthcare advice and information that can be provided in the typical community pharmacy. This reality is counter to the objectives of both community pharmacies and the Government to the extent that the quality use of scheduled medicines supports the prevention is better than cure model.

The 5CPA has given community pharmacy some certainty for the next five years. It is important that this time be used to develop the next generation of sustainable model(s) for community pharmacy in Australia. New challenges require new ways of thinking.

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