Editorial
Welcome to the March edition of i2P – Information to Pharmacists.
You may have noiticed if you receive i2P by email, that we have simplified our mail out presentation.
This was because the code in our earlier version appeared to be too unstable to maintain, hence the simpler presentation.
Columns
Rollo Manning: Pharma-Goss
John Dunlop: Inside NZ
Loretta Marron BSc: Health Watch
Barry Urquhart: Marketing Focus
Harvey Mackay: Strategic Thinking
Mark Neuenschwander: I`ve been thinking about...Recent Comments
Past Editions
Volume 1 Number 1
Volume 1 Number 2
Volume 1 Number 3
Volume 1 Number 4
Volume 1 Number 5
Volume 1 Number 6
Volume 1 Number 7
Volume 2 Number 1
Volume 2 Number 2
Pharma News
Staff Writer: SIGMA Pharmaceuticals suspends share trading before release of revised earnings outlookHospital News
Health Politics
Pat Gallagher: Health Informatics - The State of the Nation
Peter Sayers: The Three-Ring Circus
Dr David More: e-Health IdentifiersEPublications
The certainty and uncertainty of the future. Is our glass half full or half empty?
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PDF version | Neil Retallick |
Neil Retallick is 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. | |
Community pharmacy enters 2010 with welcome certainty in many areas.
The announcements from the Pharmacy Guild regarding the 5th Community Pharmacy Agreement have come much earlier than many expected.
The detail in these provides community pharmacists across the country with a level of certainty about the future that allows them to plan for the F11 fiscal year with some degree of comfort.
Kos Sclavos, his team and the Government are to be congratulated on what must have been a no-nonsense approach to the negotiations.
Whilst there is a lot of detail yet to be made public, probably yet to be determined, there is enough information to allow us all to deduce the direction in which the Guild and the Government have agreed that community pharmacy in Australia has to develop into the future. Importantly, there are no real surprises in what’s been revealed. Those who recall the content of Kos’s speech to the Press Club last year and the many statements he has made since across the broad range of issues confronting community pharmacy will see the continuation of many of these themes in the 5CPA.
The Government was always going to enter these negotiations with a tough stand on funding. After all, the Government has to pay back the money it borrowed to fund its various stimulus packages. The recession has been averted, the increase in unemployment created in the first half of 2009 has been eliminated as the jobs market has normalised but still the Government faces a very considerable debt that it needs to begin reducing. And it is an election year.
The ‘election year’ card was probably in the hands of both sides at the negotiation table. The Minister needed to be tough on the funding numbers but did not want to alienate community pharmacists in an election year. Kos needed to ensure his members fiscal needs were maintained whilst understanding that there would need to be some concessions given the impact of the GFC on the Government.
And what’s that we hear? Most likely it’s a communal sigh of relief from the CSO Distributors. There was some scuttlebutt around last year that the CSO Agreement might be varied in 5CPA to further reduce the profit margins available to the pharmacy wholesalers. Whilst the new agreement reflects some tightening of the funding available to the wholesalers, the continuation of the current structure can be viewed as approbation from both the Guild and the Government for the way in which the CSO Distributors have responded to the CSO since its introduction in July 2006. Service levels have been maintained and stock availability has never been better, so the Government’s agenda has been met. And it would be disingenuous for community pharmacists to suggest there has been a diminishing of competition amongst pharmacy wholesalers, especially on price.
None of this is to suggest that community pharmacy will not bear some pain. The reality is that, once the swings and merry-go-rounds have been tallied, every community pharmacy across Australia will experience a real reduction in both revenue and profitability. It would seem however, based on some ‘back-of-the-envelope’ calculations, that the losses will be manageable and unlikely to impact the sustainability of any community pharmacy operation. Nobody should expect to be immune to the GFC and its consequences.
Looking past the short term pain, the 5CPA looks to be funded to provide many new opportunities for community pharmacy. The development of new programs intended to contribute to the improved health of the average Australian will continue to be a challenge for the Guild. In the past there has been some criticism of the Guild’s capacity to successfully implement all of the funded programs available in previous CPA’s. The Guild must ensure it is adequately resourced to meet the Government’s expectations here.
The 5CPA is a good outcome for the Government and for the Guild. It does provide some certainty as regards the monies that the Government will provide and community pharmacies receive over the next 5 years. It is what is not in this agreement that is the elephant in the room.
The PBS Reforms package introduced by the Government in 2008 would certainly have been a discussion point at the negotiation table. This package of reforms included the Weighted Average Disclosed Price mechanic. This relatively simple mathematical instrument will pull billions of dollars out of the PBS over the next several years. The will be a two stage process. In the first 18 months following the introduction of a generic drug(s) as an originator loses its patent protection, community pharmacies will experience an improved profit margin when consumers switch to a lower cost alternative medication. After this time, the WADP is actioned by the Government and, from this time, the price of this medicine begins to fall. The end point of this slippery slide will be determined by the generic drug suppliers. There will be a point at which they can no longer afford to offer discounts to community pharmacies. At the time this point is reached, the Government has minimised its PBS cost for that drug. The supply price is minimised and so is the pharmacy profit margin on that drug.
It needs to be said for completeness that the profit margin for the pharmacy wholesalers is also minimised in this process.
There have been a number of companies predict the reduction in funds flowing to pharmacies via the PBS as a consequence of the WADP. At the company I work for we too built a model going out to 2015. It included all originator drugs coming off patent during that time. This model required more than 4,000 assumptions about available discounts and substitution rates. This is without trying to anticipate the many ways in which suppliers might attempt to evergreen their originator products. At this point the accuracy of any modelling has to become suspect. The bottom line here? The bottom line will be smaller, a lot smaller - but there’s a lot of uncertainty around the likely outcomes.
The quantum of the 5CPA funding and the funding impact of the WADP are not dissimilar. So we enter 2010 and beyond knowing what we know and not knowing what we don’t. We can feel positive about what we do know and must remain concerned for that which we do not.
Glass half full or half empty? I say Cheers!
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Submitted by Josh on Wed, 03/02/2010 - 12:34.
It will be interesting to see if or how much the government will put an emphasis on developing pharmacy professional services in light of the PBS reforms and subsequent product revenue dropping within the community pharmacy.
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