Pharmacy gravy train drives up the cost of prescription drugs

There’s no requirement for pharmacies receiving taxpayers’ money to do anything more than dispense medicines. Ian Broyles

The retail pharmacy industry in Australia has successfully acquired a monopoly on supplying medicines paid for by the government or consumers. The industry describes this set-up as being the “best subsidized medicines scheme in the world,” but consumers may beg to differ.

The government has a contract with pharmacies to dispense medicines listed on the Pharmaceutical Benefits Scheme (PBS) that cost more than $36.10 at a subsidised price. Let’s call this the co-payment threshold. The consumer pays the full price of any medicine that costs less than this.

A “safety net” applies to people spending $1,390.60 on medicines a year as well as pensioners and concession cardholders who fill more than 60 prescriptions in a calendar year. Pharmacies are allocated an approval number that allows them to claim the difference in the cost of drugs above the co-payment threshold from Medicare.

There are no specifications or monitoring for the renewal of this contract, which is automatically renewed with no quality control on the services being provided by approved pharmacies, or accountability to the funder (taxpayer) for work done.

Let it be known from the outset that the following critique doesn’t apply to all retail pharmacies; there are some that do better than others. The main point here is that there’s no requirement for pharmacies receiving taxpayers’ money to do anything more than the simple task of dispensing.

Now, let’s imagine there was no system and we were asked to design one that would give maximum benefit to consumers for the money being spent. First, it would have to ensure the product was available. This would be achieved through a network of agencies paid by the government to have a range of medicines available to fill patients’ prescriptions. Medicare would own the inventory of medicines that would be subsidised.

Another requirement would be to provide patients with information about the medicine, at least the first time they buy it so they know what to expect and any side effects. A third would be to report what’s been collected by which patient back to the clinician so that at their next visit, the clinician knows that the medicine was, in fact, taken as prescribed.

And the final element is an analysis of whether the medicine worked - for instance, was blood pressure actually lowered as the medicine claimed it would be or did it stay the same? This all sounds pretty simple but it’s not how the current system works because the supply system for subsidised medicines is being driven by vested interests and not consumer demand.

Regrettably, even in this technology-driven age, many consumers are unaware of the information they need to understand why medicines are important to them. Taking medicine for a chronic disease, for instance, is a prescription for life and adherence is necessary to avoid hospitalisation.

The reason for this deficit and others like it is the powerful lobby for the retail pharmacy industry that insists the system that existed in 1950 should be maintained. And we pay considerable fees for pharmacies’ dispensing under the system.

In 2010-11, pharmacists received $6.42 each time a prescription was filled (this dispensing fee has increased to $6.52 now) – a total of $1.2 billion for filling 188.1 million prescriptions. This money represented 13.6% of the total PBS cost of $8,827 billion for the period. It doesn’t take into account the money received by way of the mark-up on the cost of the pharmaceuticals, which varied from as high as 15% for products priced up to $30, to 4% on medicines priced to $1,750. The consumer could well ask what are they’re getting for this fee.

For those buying a medicine with the total cost under the co-payment threshold of $36.10, there may also be a fee of $1.07 for the recording of safety net values and an additional discretionary charge of $4.04 that’s automatically included in pharmacy software packages. This extra charge is something that consumers should be made aware of but usually aren’t.

This can take the total amount consumers pay for a medicine to $11.63 in charges and fees alone, without adding the 15% mark up on cost by the pharmacy and the cost of the medicine itself.

Any lower cost for “generic” brands of previously patented medicines is passed on to the supplying pharmacy. This makes the generic medicine cheaper for the supplier but not necessarily to the consumer. Instead, consumers can end up facing the amazing situation of having to choose from up to 12 brands of a medicine – all at the same price!

So what do we get for this extra cost and are pharmacists accountable for adding value to the medicine? Sadly, no. A signature by the consumer to say they received the medicine is all that’s required for the Commonwealth to pick up the bill from what the consumer pays. In many cases, the consumer has to pay the full cost of the medicine and this can act as a deterrent to adherence. But there is no more accountability for the $2 billion to be paid out by the PBS.

What’s more, the agreement between pharmacists and the commonwealth is made between the Pharmacy Guild of Australia and the minister for health despite the clear conflict of interest for the former, which is registered under the Trade Practices Act as an industrial organisation to benefit its members (the owners of retail pharmacies).

The current system of dispensing medicines could be done from an ATM-type machine for all the value that pharmacists add to their supply function. It becomes a production line process as each pharmacy tries to dispense quicker than its competitor.

A better way has to be found. One that allows a Pharmacare agency to sit alongside Medicare is not beyond the realms of possibility. This may bring pharmacies’ focus back to the health consumers’ benefit, and away from the vested interests of the pharmacy marketing cartel.

This is the first article in our short series about pharmacies. Click on the link below to read the other instalments:

Part Two: Online pharmaceuticals: bricks, not clicks, keep us safe

Part Three: Note to pharmacists on how not to sell the morning-after pill

Part Four: Pharmacists should drop products that aren’t backed by evidence

Part Five: Why you have to show ID to buy cold and flu tablets