Harmacy: The Political Economy of Community Pharmacy in Australia

David Gadiel
10 December 2008 | PM89
Harmacy: The Political Economy of Community Pharmacy in Australia

The regulatory environment that governs community pharmacy has created one of Australia’s most protected industries. It is a beneficiary of government largesse and central regulation and control in state, territory, and commonwealth jurisdictions. Entry barriers, ownership restrictions, exclusive rights to sell certain types of medicine scheduled as ‘poisons,’ and an exclusive agency relationship in distributing pharmaceuticals listed on the Pharmaceutical Benefits Scheme, have led to community pharmacy acquiring considerable market power.

During the term of the National Competition Plan (1995–2005), Australia’s pharmacy network attracted the scrutiny of three major reviews initiated by the Council of Australian Governments. These were the Wilkinson Review on ownership, location, and entry restrictions; the Galbally Report on poison scheduling; and a cost–benefit analysis, conducted by the Pharmacy Guild, on pharmacy’s control of non-prescription ‘poisons’ sold as ‘over-the-counter’ medicines.

With skilful networking and political lobbying, however, community pharmacy has proved resilient to change. The welfare loss from restrictions on where consumers may shop, the inflated prices they consequently pay, and the inefficient use of labour and capital associated with local or quasi-monopoly profits are likely to be a considerable economic burden. By contrast, pharmacy deregulation has delivered considerable benefits to consumers in the United Kingdom and uncompetitive pharmacy arrangements in continental Europe are being reviewed.

Whilst there may be benefits in regulating pharmacy quality standards, there can be none for restricting entry and ownership. The cost of reform, however, would weigh on what is a small but well-organised industry, and gains would be diffused. One option could be to facilitate adjustment with the aid of compensation arrangements. The commonwealth will have the opportunity of reassessing the value of privileges enjoyed by community pharmacy when, in 2009, it commences negotiations on a new Community Pharmacy Agreement with the Pharmacy Guild of Australia.

David Gadiel is an independent economist who has worked in many areas to do with the economics of health.

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