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1998-1999-2000
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF
REPRESENTATIVES
NATIONAL
HEALTH AMENDMENT BILL (No. 1) 2000
EXPLANATORY
MEMORANDUM
(Circulated
by authority of the Minister for Health and Aged Care,
the Hon Dr Michael
Wooldridge MP)
ISBN: 0642 437734
NATIONAL HEALTH AMENDMENT BILL (No. 1) 2000
The National Health Amendment Bill (No. 1) 2000 proposes amendments
to the National Health Act 1953 in relation to the Pharmaceutical
Benefits Scheme.
The purpose of these amendments is to implement changes
arising from the Third Community Pharmacy Agreement. The new Agreement will
operate from 1 July 2000 to 30 June 2005.
The Pharmaceutical Benefits
Remuneration Tribunal will continue to be required to give effect to any
agreement in force between the Commonwealth Government and the Pharmacy Guild of
Australia, in making a determination of the manner in which the Commonwealth
(dispensed) price of pharmaceutical benefits is to be ascertained for the
purpose of payments to approved pharmacists for supplying pharmaceutical
benefits. It will also have any other functions conferred on it under such an
agreement. The new Agreement contains a dispute resolution mechanism which
provides for a dispute to be referred to the Tribunal by either party, but only
as a last resort after attempts at direct negotiation and mediation have been
exhausted.
The Australian Community Pharmacy Authority will continue to
have responsibility for making recommendations on applications by pharmacists
for approval to supply pharmaceutical benefits where those applications relate
to the establishment of a new pharmacy or the relocation of an existing
pharmacy. The location rules themselves will, however, be considerably
streamlined and relaxed, particularly in rural areas, in accordance with the new
Agreement with the Pharmacy Guild of Australia.
The Bill removes from the
Act the provisions that govern payment of isolated and remote pharmacy
allowances and professional allowances. Until 31 December 2000 payments of
these allowances will be made administratively. The Australian Community
Pharmacy Authority will no longer have a role in approving the payment of these
allowances to pharmacists.
The new Agreement contains a set of
initiatives, totalling $76 million over five years, to improve access to
pharmacy services in rural and remote areas, and to encourage pharmacists to
work in these areas. As part of these arrangements, the Isolated Pharmacy
Allowance and the Remote Pharmacy Allowance will be replaced by a new enhanced
Rural Maintenance Allowance from 1 January 2001.
The existing
medication reviews in residential care facilities will also be replaced by new
arrangements with effect from 1 January 2001, totalling $114 million
over five years. An extended medication management program will be developed,
in conjunction with the medical profession, to assist elderly persons in
residential care and at home to properly manage the various medications they may
receive.
The new Agreement also introduces a range of measures that will
benefit the community and pharmacists, such as a new Pharmacy Development
Program which will cost $188 million over five years, to support and encourage
quality pharmacy services across Australia. Included under this program is
better information for consumers and achievement against quality accreditation
benchmarks by pharmacists or pharmacies.
Under the new Agreement, the existing Isolated Pharmacy Allowance
(expenditure $4.0 million per year), Remote Pharmacy Allowance (expenditure $0.4
million per year) and the current professional allowance (expenditure $4.5
million per year), which are being removed from the National Health Act
1953 by this Bill, will be replaced from 1 January 2001 with a new enhanced
Rural Maintenance Allowance (estimated to cost $57 million over five years)
and an enhanced medication management scheme (estimated to cost
$114 million over five years).
NATIONAL HEALTH AMENDMENT BILL (No. 1) 2000
REGULATION IMPACT STATEMENT
The Pharmaceutical Benefits Scheme (PBS)
The purpose of the
PBS is to provide reasonable (that is, timely, reliable and affordable) access
for the Australian community to necessary and cost-effective prescription
medicines. About 95 per cent of prescription medicines dispensed in Australia
by community pharmacies are covered by the PBS and the Repatriation
PBS.
One of the basic assumptions of the PBS as a health program is that
all Australians should have reasonable access to prescription medicines,
regardless of their capacity to pay for these, and of where they live. Because
of the nature of the demographic and geographic distribution of the Australian
population, some members of the community have more difficulty than others in
obtaining reasonable access to PBS services.
Through its PBS subsidies,
in conjunction with patient co-payments, the Commonwealth effectively purchases
such a volume of medicines that it has a near monopsony for the prescription
drug market (that is, the ability as a buyer to dominate the market because of
its purchasing power). Effectively, the monopsony operates through
Commonwealth’s negotiating the price to pharmacists of PBS subsidised
pharmaceuticals, and its setting out of any conditions under which these
medicines may be dispensed for subsidy, and its giving effect to the level of
remuneration paid to pharmacists to dispense each subsidised item.
As
part of ensuring that the delivery of PBS services is efficient and equitable,
the Government approves pharmacists to supply PBS benefits (ie, to dispense
subsidised items) under section 90 of the National Health Act 1953. As
part of that power of approval, it may also approve where pharmacies are located
for the purpose of supplying PBS benefits.
Immediately prior to 1990, remuneration for pharmacists was set by the
Pharmaceutical Benefits Remuneration Tribunal, and consisted of a dispensing fee
and a 25 per cent mark-up on PBS listed items.
These arrangements provided no specific incentives for improving the
efficiency in the structure and performance of community pharmacy in terms of
either the total number of pharmacies, or the distribution of pharmacies.
Indeed, pharmacy location and the national “network” of community
pharmacies supplying PBS benefits was at the time characterised by marked
inconsistency. In 1987, a Senate committee found that 25 per cent of pharmacies
had a competitor within 100 metres and 62 per cent had a competitor within 1 km.
Other areas, particularly in regional Australia, struggled to attract or retain
even one.
Over and above such evidence, it was also apparent that there
was an oversupply of pharmacies nationally. In 1985 there were just under 5,500
pharmacies, with a pharmacy: population ratio of 1:2,900. Organisation for
Economic Cooperation and Development (OECD) data suggests that the pharmacy:
population ratios for most member countries range from 3,000 to 5,000. When
local overcrowding is taken into account, many local pharmacy markets were well
below this OECD range in the late 1980s, while some underserviced localities,
such as rural and remote communities, were well above it.
In 1989-90,
almost 105 million prescriptions were dispensed. Between 1985-86 and 1989-90
related Government PBS outlays, including pharmacist remuneration, grew from
$616 million to $1,179 million. Overall, this 91 per cent spending growth
represented an average compounded growth rate for related PBS outlays during
that period of 17.6 per cent.
In the late 1980s, there was a dispute
between the Commonwealth Government and the Pharmacy Guild of Australia (the
Pharmacy Guild) around the issue of whether the price paid for dispensing PBS
drugs should be based on the average cost of dispensing across all pharmacies,
or the cost of dispensing in an “efficient pharmacy”. No agreement
on calculating the price on an efficient pharmacy basis could be reached. The
Government and the Pharmacy Guild ended this period of unrest after the 1990
election, with the negotiation of the first Community Pharmacy Agreement.
To address lack of incentive issues in a way that would minimise the
potential for conflict between them, the Government and the Pharmacy Guild
agreed to set out a new remuneration framework. This was coupled with a more
rational distribution of pharmacy services, and with industry restructuring that
would lower pharmacy numbers and encourage greater efficiency, profitability and
economies of scale in individual pharmacy businesses.
The first Agreement
contained specific measures to:
• Reduce the size of the per-item mark-up from 25 per cent and
introduce a “taper” on the mark-up dependent on the price to
pharmacists of the item
- This adopted a mark-up structure of 10 per cent on
the Government agreed price to the pharmacist of up to $180, a flat $18 for
items with an agreed price between $180 and $360, and 5 per cent for items with
an agreed price over $360. This was linked to an indexed dispensing fee of
$3.43 for ready-prepared (RP) items and $4.96 for extemporaneously-prepared (EP)
items;
• Provide financial incentives – in the form of closure and
amalgamation payments – for pharmacies to close or amalgamate in areas (eg
Central Business Districts) where closure would not affect reasonable access to
pharmacy services. From 1991-95 the program assisted 630 pharmacy closures and
64 amalgamations, at a cost to Government of $52 million;
• Restrict
where a pharmacy could relocate its existing PBS approval (in the first
instance, to a site not less than 5 km from an existing pharmacy, and
subsequently in 1 km steps from the new site at intervals of not less than two
years), and imposing strict restrictions on approving a new pharmacy unless
defined community need criteria were met; and
• Provide additional financial support to community pharmacies in rural and remote areas through an Essential Pharmacy Allowance, eligibility for which was dependent on the distance from the nearest pharmacy and dispensing volumes. By the end of the first Agreement, just over 400 pharmacies were receiving the allowance.
The number of pharmacies operating in 1995 was reduced from around 5,500 to
4,950, with a 1995 pharmacy: population ratio of 1:3,650. The overall number of
pharmacies has stayed more or less constant ever since, although the ratio has
risen to about 1: 3,800 as the population has increased.
Over the life of
the first Agreement, related PBS outlays grew at an average annual rate of 17.5
per cent (from 94 million PBS funded prescriptions in 1990-91 to 119 million in
1994-95). In terms of estimated pharmacist remuneration from dispensing fees
and mark-ups, outlays grew from about $427 million to $644 million, at an
average annual compounded rate of 14.7 per cent, from July 1992 until June
1995[1].
The second Agreement sought to consolidate the remuneration structure and
efficiency gains of the first, while wherever possible reducing related
regulatory restrictions, such as those on the location of pharmacies.
The
second Agreement:
• Retained the dispensing fee and mark-up taper
arrangements of the first Agreement, indexed annually;
• Maintained
pharmacy location restrictions, both in terms of requiring the satisfying of
definite community need criteria to establish a new pharmacy, and to satisfy
primarily distance-based criteria for relocated pharmacies. The key provisions
were:
- New pharmacies could be approved if a location satisfied eight
geographic and demographic criteria;
- Pharmacies could be relocated to a
site within 2 km of another pharmacy;
- An existing pharmacy could relocate
within 1 km of its current site;
- Pharmacies could be relocated into
designated shopping centres without reference to distance from another pharmacy
on the basis of a pharmacy: other shop ratio of 1: 30, 2: 100 and 3: 200 and
more; and
- Pharmacies could be relocated into private hospitals with more
than 150 beds.
• Discontinued the direct industry restructuring
assistance of the first Agreement; and
• Provided for a number of
consumer access-linked allowances available to eligible pharmacists, such
as:
- Remote Pharmacy Allowances (RPA), payable to any approved pharmacist whose
premises are at least 10 km from the nearest other approved premises, at a rate
of 20 per cent of the dispensing fee for RP items, to a maximum of 1,000
claimable prescriptions a month (RPA outlays to eligible pharmacists have
totalled about $18 million over the life of the second Agreement);
- Isolated
Pharmacy Allowances (IPA), payable in addition to RPA where a pharmacy has a
claimable prescription volume of less than the Australian median prescription
volume in the preceding 12 months, and having no other pharmacy within 25 km
(IPA outlays to eligible pharmacists have totalled about $2 million over the
life of the second Agreement); and
- Fees for service to accredited
pharmacists conducting limited medication reviews for nursing home
residents.
Over the life of the second Agreement related PBS outlays grew at an average annual rate of 11.1 per cent (from 125 million PBS funded prescriptions in 1995-96 to an estimated 139 million in 1990-2000). Estimated pharmacist remuneration from PBS dispensing grew in this period by an average annual rate of 7 per cent. This slower growth reflects PBS growth and demand trends generally over the second Agreement period (as prescription volume and average pricing are not Agreement-driven).
The Government and the Pharmacy Guild have now negotiated the terms of a
third Agreement, and its central measures are considered in this Statement.
Key components of the Agreement are:
• Remuneration
arrangements for Community Pharmacies dispensing PBS prescriptions. Arrangements
in the Agreement involve some restructuring of remuneration that reduces the
emphasis on prescription-based remuneration compared with continuation of
current arrangements. The Agreement includes new “risk sharing”
provisions to deal with situations where estimated prescription volumes and/or
average prescription prices and related income exceed or fall short of agreed
estimates;
• A new Pharmacy Development Program (PDP), which will
provide remuneration to pharmacists that is linked directly to achieving quality
of service and related outcomes;
• Significant modifications to the
rules governing the location of pharmacies to supply PBS benefits, including
relaxation of both new and relocated pharmacy approvals rules, particularly in
rural and remote areas;
• An enhanced program of targeted measures
designed to give pharmacists positive incentives to relocate to, continue
working in, or to set up new businesses in rural and remote Australia;
and
• An enhanced medication management service, which will extend and
improve the assistance provided for elderly persons and allow improved
management of the various medications they receive.
During the period of
the third Agreement, total overall PBS outlays are forecast to grow at an annual
compounded average rate of 5.8 per cent, and prescription volumes about 2.7 per
cent. The difference in these growth rates indicates that the expected increase
in average price per PBS item dispensed will be a key cost driver over the
Agreement period.
In terms of pharmacist remuneration outlays, however,
the principal purpose of the third Agreement is not necessarily to achieve
significant savings against present remuneration settings. The predicted annual
average growth of 5.3 per cent is comparable to the projected 5.4 per cent
average if setting do not change. It is, rather, about changing the settings
mix, better to reflect the Government’s goals and objectives for the PBS
and community pharmacy as its principal delivery mechanism.
The first two
Agreements assisted in moderating the rate of growth in estimated PBS outlays,
while promoting reasonable access to community pharmacy services. The third
Agreement is intended to retain these priorities, but add to them the objective
of promoting quality enhancement in the provision of funded pharmacy services.
The National Competition Policy Review of Pharmacy chaired by Warwick
Wilkinson AM (the Wilkinson Review) was established by the Council of Australian
Governments (COAG) in June 1999. It was a mechanism enabling the Commonwealth,
States and Territories simultaneously to meet their National Competition Policy
obligations to review their respective legislation regulating the operation of
the pharmacy industry and pharmacy professional practice.
The Wilkinson
Review’s report was submitted to COAG on 8 February 2000.
Of the three
legislative areas that the Review was directed to examine by COAG, the
Commonwealth has specific responsibility for the location of pharmacies to
supply subsidised medicines to the Australian public. The Government has taken
into account the advice of the Wilkinson Review in negotiating the third
Agreement with the Pharmacy Guild.
Regulatory arrangements are in place across the PBS medicine delivery
system to ensure that the Commonwealth subsidy on PBS drugs is passed on to
consumers in a way that best achieves the purpose of the PBS. These
arrangements produce both benefits and costs. Essentially, the general issue is
how to maximise the benefits while minimising the costs, and keeping the growth
of pharmacist remuneration within justifiable bound, and with reference to the
overall number of pharmacies.
As part of its responsibility for administering pharmaceutical benefits, the
Commonwealth has a number of other relevant issues that it needs to address by
appropriate policy and program responses. These include the following
considerations:
• Broadly, current regulatory arrangements restrict
competition between pharmacies. Restrictions on competition can reduce the
incentives for pharmacies to:
- Lower prices to consumers for non-PBS
items;
- Raise the overall quality of services provided; and
- Increase
innovation in the way that services are extended to meet consumer
needs;
• The arrangements in place over the first two Agreements are
not best placed to:
- Ensure service quality; and
- Manage PBS
remuneration outlays when there are strong increases in PBS volumes and in the
average prices of PBS prescription items; and
- Promote qualitative policy
goals, such as emphasising the quality use of medicines;
• Payments to pharmacists are, under second Agreement settings, based
on the quantity and price of the medicines that they dispense. This raises
issues around both the rate of growth of pharmacy remuneration and the fact that
current arrangements do not specifically take account of the quality and degree
of care with which prescriptions are dispensed;
• There is a need to
maintain the improved distribution of pharmacies made in the first Agreement and
consolidated in the second; and
• There are still gaps in the community
pharmacy network that are at odds with the Government’s social objective
of reasonable access to PBS medicines regardless of a person’s place of
residence.
In relation to these general problems, the Government aims, through a
formal five-year Agreement between it and the Pharmacy Guild, to ensure
reasonable access to, and quality provision of, pharmaceutical services at least
cost to Government outlays.
The remainder of this Statement is structured around options relating to
the three principal areas of PBS and community pharmacy activity that the
Agreement seeks to address, these being:
• Pharmacist
remuneration;
• The community pharmacy network;
and
• Reasonable access to community pharmacy services, quality
assurance and enhancement of community pharmacy infrastructure.
The
following sections in this Statement outline key measures, identify competing
options to address the identified problems and objectives, and draw conclusions
as to why a given option or set of options has been preferred.
1. REMUNERATION OF PHARMACISTS
What is the problem being addressed?
Pharmacists provide a service to the Government, consumers and the wider
community in dispensing PBS medicines. Pharmacists are entitled to fair
recompense for their services, as an integral part of the PBS. The second
Agreement arrangements are nevertheless based almost entirely on the volume of
prescriptions dispensed and their price, and do not include any specific
mechanism for pharmacists to deliver high quality pharmacy services.
On
the whole, high quality professional pharmacist advice and assistance are
provided to consumers through community pharmacies, but there is no direct
remuneration incentive to provide such quality services, to promote a culture of
continuous improvement in community pharmacy, or to minimise consumer concerns
and complaints through consistently good performance.
Remuneration arrangements are based on the second Community Pharmacy
Agreement, which expires on 30 June 2000. The Government needs to ensure that
these are replaced with arrangements negotiated through the third Community
Pharmacy Agreement, which is due to commence on 1 July 2000.
The Government’s objective is not only to implement a pharmacist
remuneration framework which delivers reasonable access to high quality
community pharmacy services to Australians at the least cost, while ensuring
that pharmacists receive fair recompense for their services. It is also to
introduce a direct link between the quality of the pharmacy services provided by
PBS approved pharmacies, and the PBS remuneration that pharmacists receive for
providing those services.
Within the framework of a Community Pharmacy Agreement, the Government could:
• Make no changes to existing pharmacist remuneration
measures;
• Implement the package of remuneration measures in the
third Agreement; or
• Introduce new measures based on alternative
remuneration principles.
The first and second Agreement dispensing fee and mark-up measures, which
have been operating since 1990, are outlined in Part A of this Statement.
If left in place, it is estimated that existing remuneration settings
would, on the basis of projected growth in prescription volume and average price
per prescription item, translate to an average compounded annual growth rate for
pharmacist remuneration of 5.4 per cent over the third Agreement
period.
Who would be affected?
Government:
The Government would not have any specific incentives within the Agreement to
promote quality pharmacy services. Cost outlays would continue to be determined
solely by the numbers of PBS prescriptions dispensed by pharmacists, and the
average price to pharmacists of dispensed pharmaceuticals. If both these cost
drivers continue to rise, as expected, the overall level of remuneration outlays
would continue to rise commensurately with them.
Community
pharmacy: PBS payments to pharmacists would grow commensurately with
increases in the volume of prescriptions and growth in the average mark up on
PBS pharmaceuticals. There would be no obligation on community pharmacists to
guarantee the quality of their services in return for their PBS-derived
income.
Consumers: Consumers would see no change in the cost of
services at the point of sale and would continue to experience the current
quality of service provision from community pharmacy (which can vary from very
good to inadequate) without any guarantees as to minimum
standards.
Wider community: The wider community would see no
change on current outlay and service provision trends, nor in the quality of
service obtained. Taxpayers could also perceive that pharmacist remuneration is
growing at a faster rate than wages and salaries generally, and may wish to be
better assured of the quality value of the return on the community’s
investment.
Effects on existing regulation and regulatory
authorities
Effectively, existing arrangements would not change,
with the exception of sunset clauses on specific legislative provisions being
extended for the life of the new Agreement.
Likely benefits or
likely costs
Maintaining existing Agreement-based remuneration
structures undoubtedly would create continuity and stability in terms of the
pharmacist remuneration structure, with pharmacists deriving income benefits
from any rapid growth in the number of prescriptions dispensed and/or the
average price of prescription items.
The focus of pharmacist
remuneration therefore would remain on the level of dispensing activity and the
wholesale prices of PBS medicines and there would be no specific mechanisms in
place under the Agreement to promote continuing improvements in the quality of
pharmacy services. Nor would the remuneration structure offer much direct
incentive to improve the overall efficiency and competitiveness of pharmacy
businesses.
Under the third Agreement, pharmacists will continue to receive a
dispensing fee and mark-up for each PBS prescription item dispensed.
The
mark-up formula will be modified. This will involve a tightening of the taper
applying to higher priced drugs, thus reducing the growth in pharmacist
remuneration as higher priced drugs come on to the PBS. Under the second
Agreement, the mark-up is 10 per cent to $180, $18 from $180 to $360 and 5 per
cent above $360; under the new Agreement, the mark-up is 10 per cent to $180,
$18 from $180 to $450 and 4 per cent above $450.
Additionally, a risk
sharing arrangement will reduce the exposure of the Commonwealth to unexpected
significant growth in drug prices and mark-ups, and prescription numbers, by
triggering a reduction in the flow-on effect of this high growth to pharmacist
remuneration, and share the additional costs and income from that unexpected
growth between the Commonwealth and community pharmacy.
Broadly, the
trigger will apply if average mark-up on prescription items grows by more than 4
per cent above forward estimates, and in this case part of the excess growth
will flow to the Commonwealth as saved outlays. Similar triggering arrangements
will also apply to excess prescription volume growth.
There are to be
similar arrangements for prescription volume growth that falls below forward
estimates, in order partly to ameliorate the remuneration effects for community
pharmacy of lower than expected prescription volume
outcomes[3].
Comparative outcomes between current and intended pharmacist
remuneration settings
In terms of shifting from the second to
third Agreement, the Government’s strategic focus is on changing the mix
of components comprising PBS remuneration to pharmacists. For the third
Agreement, the net annual compounded outlay growth of core pharmacist
remuneration will be around 5.3 per cent, compared to estimated annual average
compounded outlay growth on second Agreement remuneration settings of around 5.4
per cent.
Of this, the rate of growth in prescription-based remuneration
only will be around 4 per cent annually during the third Agreement period. Most
of the balance of the projected growth is accounted for by the new
quality-referenced Pharmacy Development Program (PDP). The PDP would provide
for up to $188 million over the life of the new Agreement, and would keep the
great bulk of the anticipated growth savings from changed prescription-based
settings in the pharmacist remuneration stream.
The overall net savings
in outlays against projected outcomes for present remuneration settings are
estimated to be about $27 million over five years, or an annual average net
saving of under $5.5 million. When the new rural pharmacy allowances, described
in Part B3 of this Statement, are taken into account there will be, however, a
moderate net growth in remuneration-linked outlays of $25 million over the life
of the Agreement. This represents an annual average net outlay growth of $5
million.
As indicated above, the new Agreement also incorporates the new PDP.
This will provide outcome-based grants to pharmacists, to promote identified
quality outcomes in pharmacy care and service. The introduction of the PDP
therefore is a significant step in restructuring pharmacists’ remuneration
from the Commonwealth.
This restructuring
will:
• Specifically link some community pharmacist remuneration to
quality rather than quantity and price-driven criteria. This will be in the
form of grants, for example, to reward quality accreditation, and to achieve
defined quality related outcomes (such as pharmacists providing consumers with
detailed information about their medicines); and
• Reduce the
proportion of pharmacists’ remuneration that, unlike dispensing fees and
mark-ups, is directly linked to growth in prescription volumes and average drug
prices. Total remuneration under the PDP is for an agreed level over the period
of the Agreement.
The operation of the PDP is considered in greater
detail in part B4 of this Statement.
Who would be affected?
Government: The base from which the Government pays pharmacists for
PBS related services will be altered. It will also need to adjust its machinery
for managing both the PBS generally, and pharmacist remuneration in particular.
The measures would also give the Government a direct interest in the community
pharmacy industry’s quality assurance and standard-setting processes. In
general, the Government will be better placed to manage longer-term growth in
pharmacist remuneration outlays.
Community pharmacy: The new remuneration framework will alter the
composition of pharmacists’ PBS income base, which Wilkinson estimates is
about two-thirds of an average pharmacy’s turnover. It would also
reconfigure business and professional processes to conform with quality
assurance and accreditation requirements to be eligible for the quality-linked
components of the remuneration package.
If a pharmacy proprietor wants to
maximise his or her pharmacy’s return from PBS-derived turnover they will
need, however, to be an active participant in the Pharmacy Development Program.
Consumers: The modified PBS remuneration framework should not
affect out of pocket PBS costs to consumers, as they will not affect patient
co-payments or the safety net. On the other hand, the new remunerative emphasis
on quality enhancement and improved consumer services should, over time, be
enjoyed by consumers, and ideally flow through to increased consumer confidence
in pharmacists, and more general satisfaction with their services.
Wider community: Measures of this sort should better ensure that
pharmacist remuneration conforms to community expectations of high quality
professional service at least cost. On a broader level, the community would
have an element of pharmacist remuneration linked to pharmacies giving quality
health care to consumers. As a direct incentive to pharmacists, such an
approach should encourage pharmacists to offer good value for the
community’s overall investment in the PBS structure.
Limited amendments to the National Health Act 1953 would be
required to give effect to these measures.
In net terms, the remuneration package set out in the third Agreement
will mean modest savings on prescription-based remuneration payments to
pharmacists.
The third Agreement arrangements will:
• Reduce the extent that quantitative volume and cost measures will
flow through to pharmacist remuneration;
• Incorporate a risk sharing
arrangement whereby the community pharmacy industry will give up a portion of
additional income that would accrue if prescription volume and average mark-up
estimates are exceeded; and
• Through the PDP, introduce a
quality-driven remuneration pool that will not increase if the script volumes
and drug prices exceed those predicted in the agreed forward
estimates.
On the cost side, the measures themselves will apply for five
years, restricting further structural change during that period, except by
agreement between the parties. The components of the PDP can be adjusted over
time as circumstances dictate.
Whether the risk sharing mechanism is triggered depends on the accuracy of the forward estimates of prescription volumes and the prices of dispensed medicines.
As an alternative to the package of remuneration measures, remuneration
structures provided for in the third Agreement could be based on different
foundations to achieve the desired objectives of PBS cost management, promoting
efficiency and enhancing service quality.
While commenting primarily on
regulating pharmacy location, the National Competition Policy Review of Pharmacy
suggested the option of moving the cost calculation basis for dispensing fees
and payments from an industry average cost formula to marginal or best practice
cost basis. This would reward good practice, and discourage the continuation of
relatively inefficient pharmacy businesses.
Government: Pharmacist remuneration structures would be more
complex to design and administer. They would involve redeveloping cost and
statistical models to calculate pharmacist remuneration, and to predict outlay
trends. On the other hand, the mechanism would promote the Government’s
service quality objectives, as less efficient and less well-managed pharmacies
would find it difficult to keep pace with their competitors unless they strive
for continuous professional and commercial improvement.
Community
pharmacy: Such a cost calculation basis would reward more efficient
pharmacies over less efficient competitors. It would make less efficient
pharmacy businesses harder to sustain without significant improvements in their
internal efficiency and commercial performance, and thus may provide direct
incentives to such pharmacies to improve in order to survive. On the other
hand, lower rates of remuneration may put pressure on some pharmacists'
operation to the extent that some affected pharmacy proprietors may reduce the
range of pharmacy and related health care services that they provided to
consumers.
Consumers: Consumers should see no difference to existing
arrangements at the point of sale. More efficient businesses should be able to
provide a better quality and wider range of professional and allied services to
their customers, at little or no extra cost. The main issue would be reasonable
access to pharmacy services. Consumers may, however, find some gaps in the
overall community pharmacy network as some less competitive pharmacies
fail.
Wider community: An efficiency-based cost formulation may
encourage pharmacies generally to maximise their commercial performance by
improving their internal efficiency. The taxpayer could effectively gain more
value for the community’s investment in community pharmacy through the
PBS.
Effects on existing regulation and regulatory
authorities
As for Option 2.
Different cost and remuneration calculation bases, appropriately designed
and targeted, may achieve the Government’s pharmacist remuneration
objectives. Moving remuneration structures to a cost calculation basis that
rewards efficiency and good professional practice as well as volume and average
price would be direct incentives for less efficient and marginally viable
pharmacies to consider their operating futures, either by improving their
performance, relocating to a more commercially viable location (taking into
account what other location incentives may be available), amalgamating with
other pharmacy businesses, or by closing.
On the cost side, however,
there is a major question of whether such changes to pharmacist remuneration,
and thus to the PBS generally, could be achieved without major disruptions in
the PBS, the distribution of the community pharmacy network (and hence
reasonable access to services) and the overall ability of Government to work
constructively and cooperatively with the community pharmacy industry. In
practice, it is unlikely that consensus could be reached on workable cost
formulation or dispensing fee structures of the nature raised by the Wilkinson
Review.
The location implications of the Wilkinson report’s
relevant recommendations are considered in part B2 of this Statement.
Any setting of pharmacist remuneration by a formalised structure is a de
facto restriction on competition. Effectively, the Community Pharmacy
Agreements have set out pharmacists’ contractual relationship with the
Commonwealth for PBS purposes. Through them, pharmacists receive remuneration
on agreed terms and conditions for the provision of PBS medicines to the
community.
On balance, there is a net public benefit in regulating
pharmacist remuneration to safeguard a substantial taxpayer investment. The PBS
is a major spending program for the Government, currently involving total
Government outlays of more than $3,000 million a year and increasing steadily
year to year, as well as $600 million in direct patient contributions through
PBS co-payments. Pharmacist remuneration – dispensing fees and related
mark-ups – currently accounts for about 28 per cent of this expenditure.
There are also other expenditures, such as allowances for specific services or
operating in given locations, which also flow to many pharmacists.
On consideration of its overall pharmacist remuneration objectives, and the options available to pursue the objectives, the Government favours Option 2 as the basis of pharmacist remuneration in the next Community Pharmacy Agreement. The new payment arrangements in the Agreement reconfigure the remuneration structure in a way that reflects not just the volume of dispensing activity and the price of medicines, but also how well pharmacists perform their dispensing and related professional roles. At the same time, a lower rate of prescription based remuneration growth over the Agreement would be achieved.
The negotiated package of measures therefore has the ability to meet the
Government’s objectives of delivering high quality community pharmacy
services to the Australian community at a sustainable cost. Over the life of
the new Agreement, overall pharmacist remuneration growth rates will be
comparable to outcomes based on current settings, but there may be some
divergence in subsequent years as demographic changes to the Australian
population flow through to demand trends for pharmaceuticals and pharmacy
services.
In terms of the background environment, what constitutes a
sustainable cost refers not just to financial outlays under pharmacist
remuneration structures. It also refers to the ability of Government and
community pharmacy to implement new arrangements efficiently, and with a minimum
disruption of services to the community pharmacy network.
Compared to the third Agreement package, measures as contained in Option 3
may in theory achieve lower pharmacist remuneration growth rates. It is
unlikely, however, that a most efficient cost base could be progressed without
strong opposition, with the likelihood that pharmacy services to the community
would suffer significantly in the process. It would also not provide the focus
on the quality of service that is included in the third
Agreement.
2. THE COMMUNITY PHARMACY NETWORK
Under section 90 of the National Health Act 1953, the Government
has the power to approve pharmacists to “supply pharmaceutical benefits on
demand from particular premises”. Further to this power, the
Commonwealth regulates the approval of new pharmacies to supply pharmaceutical
benefits, and the relocation of existing pharmacies from one site to another.
This means that the Government can:
• Determine how many pharmacies
may provide PBS subsidised products and services; and
• Determine where
pharmacies may be located for this purpose.
Since 1991, the Commonwealth
has exercised these powers though a set of regulations authorised by a
ministerial determination under section 99L of the Act. These regulations have
reflected consensus reached between the Government and the community pharmacy
industry through the two Community Pharmacy Agreements.
The Wilkinson
Review was asked, as part of its Terms of Reference, to examine this regulation
and the effects of its operation. It made several related conclusions,
including:
• Some retention of limits on the overall number of
pharmacies are justifiable; but that
• Existing regulation on pharmacy
new approvals and relocations is operating to place significant restrictions on
competition between pharmacies; and
• Existing regulations should be
replaced by other measures and, for any transitional period, be reformed to make
them more efficient and equitable.
In terms of the location of pharmacies, and taking into account the
Wilkinson report’s findings, there are essentially two general problems
influencing the environment:
• Not all Australians have reasonable
access to health services, including pharmacy and pharmaceutical services
through the PBS, because they live in areas with inadequate services, including
rural and remote localities and developing new suburban areas;
and
• The pharmacy market is already very regulated – not just by
the Commonwealth in terms of the PBS, but also by the States and Territories in
terms of pharmacy ownership, professional practice and acceptable commercial
relationships between pharmacies and outside interests.
While the
National Competition Policy Review of Pharmacy suggested that the overall number
of pharmacies (4,950) is about right in terms of meeting community needs, it
highlighted some specific matters arising from the existing restrictions. These
include:
• In the life of the first two Community Pharmacy
Agreements, there have been few new pharmacies approved to supply PBS benefits
(only 98 until late 1999, from 640 applications). Evidence to the Review from
country pharmacists, rural health groups and pharmacists in or wanting to serve
rural, remote and new suburban growth areas highlighted the difficulty of
satisfying local needs for an adequate pharmacy service.
• The
existing eight preconditions to show a “definite community need” for
a new pharmacy have served to make new pharmacy approvals extremely difficult
for applicants to justify. These criteria include the proportion of aged
persons and other social security beneficiaries being more than 10 per cent of
an area’s population; inadequate services by other approved pharmacists,
isolation from or poor access to general shopping facilities, and a relatively
immobile population; and
• The location restrictions, particularly the
second Agreement’s 2 km distance radius protecting pharmacies from
relocated competitors for at least two years, have created market
distortions of their own. This includes the dampening of competition in local
pharmacy markets.
The Government has a responsibility to ensure that the Australian health
care system that it funds, which includes pharmaceutical services, is reasonably
accessible.
The community pharmacy network is, broadly, the distribution
system for the PBS.
If the pharmacy market, left unaided, cannot deliver
reasonable access, then some regulatory intervention in the market is needed to
ensure that necessary medicines are available to all Australians efficiently and
equitably through the PBS.
If greater competition in the community
pharmacy industry is to be encouraged, however, the Wilkinson report makes it
clear that the Government’s existing pharmacy location measures need to be
relaxed to at least some extent. Indeed, it suggests that alternative
approaches to existing location approvals may be preferable.
The
Government accepts the Wilkinson Review’s overall conclusion that the
existing body of pharmacy location regulation cannot be left unchanged. It
therefore needed to consider the alternatives available to it, and has
negotiated changes in the context of the third Community Pharmacy
Agreement.
Objective
While not wanting to return to the
much less regulated situation existing before 1991, the Government is seeking to
ensure that any regulatory intervention in the size and distribution of the
community pharmacy network is consistent with both:
• The need to
ensure reasonable access to pharmacy services for all Australians; and
• Only restricting competition between pharmacies to the extent
justified by this need.
Specifically, the Government wishes to ensure
that the prime focuses of relevant regulation are that:
• All areas
have reasonable access to pharmacy services, including rural and remote areas,
and outer and new suburban areas; and
• The existing spread of services
is not reduced in a way that compromises reasonable access.
The Wilkinson report, in commenting on its reference to examine the
Commonwealth’s regulation of pharmacy location, proposed three alternative
approaches to improving the current situation and promoting greater competition
between pharmacies:
• Modifying new pharmacy and relocated pharmacy approval rules to relax
these location restrictions as far as practicable;
• Using PBS
remuneration-based incentives and disincentives to rationalise the overall
number and distribution of community pharmacies, to reward more efficient
pharmacy businesses, and to encourage the closure or amalgamation of inefficient
pharmacy businesses; and
• Competitive tendering for PBS services by
community pharmacies.
Under this option, the existing close restrictions on where new
pharmacies may be established, and on where existing pharmacies may be
relocated, to supply PBS benefits would be relaxed, and exemptions from
distance-based restrictions widened, with a view to regulation eventually being
reduced as far as is consistent with the Government’s objective of
promoting reasonable access.
Briefly, the measures that are included in the third Agreement
include:
• Reduced and reformed definite community need criteria for
approvals to open new pharmacies for PBS purposes from the current eight
to three, coupled with the site being more than 1.5 km from an existing
pharmacy. These revised criteria will be:
- The catchment area proposed to
be serviced by a pharmacy has a population of more than 3,000 for most of the
year;
- The catchment has the equivalent of a full-time medical practitioner;
and
- The catchment has general shopping facilities;
• An existing
pharmacy may relocate to a site up to 1.5 km from its present site
(“short” relocation) in any direction except where a relocation is a
distance greater than 1 km and less than 1.5 km, the pharmacy could not be
closer than 0.5 km from that other pharmacy. This 0.5 km requirement will
be reviewed in 2004 as part of a review of all location requirements. As in the
second Agreement, the pharmacy will need to be in place at least two years
before it could make a short relocation to a new site;
• An existing
pharmacy may relocate from any other location (“long”
relocation) to within 1.5 km of another existing pharmacy, replacing the current
2 km limit;
• Simplifying the distance measure for both short and long
relocations, and new pharmacy approvals to a straight line door to
door;
• Without reference to distance criteria, a pharmacy may
relocate to:
- A private hospital with more than 150 beds (about 10
per cent of all private hospitals); and
- Large shopping centres according to
a pharmacy: commercial establishment ratio of 1: 30; 2: 100 and 3: 300 and over,
with simplified definitions of what constitutes a large shopping centre and what
other businesses constitute a commercial establishment in such a shopping
centre.
• A commencement date for the new approval and relocation
distance measures of 1 July 2002 (giving pharmacy business fair notice
of the changed arrangements), with the remaining measures commencing on 1 July
2000. This is coupled with a Government-Pharmacy Guild commitment to review the
operation of elements of the new location rules in 2004 (ahead of the
Agreement’s expiry in June 2005); and
• The introduction of a
category of new pharmacy approvals for rural and remote areas by removing
the need for applicants to satisfy definite community need criteria if the
proposed site is more than 10 km from an existing approved pharmacy. The
approval will be linked directly to the locality, and will not be able to be
relocated elsewhere; and
• The introduction of “exceptional
circumstances” approvals, where a defined catchment area may have an
existing pharmacy yet that area may, because that pharmacy prevents the entry of
a new or relocated pharmacy within the defined radius, be disadvantaged in terms
of reasonable access to adequate pharmacy services by the strict application of
the distance-based location rules. These areas are:
- Urban areas
(usually new suburbs or residential developments) where the population of the
local area exceeds 8,000 residents and has an average rate of growth over the
previous two years of 7 per cent; and
- Rural locations with one
pharmacy, where it can be demonstrated that the pharmacy’s provision of
PBS services is substantially inadequate to meet local need.
Government: The Government, with the advice of the Australian
Community Pharmacy Authority (ACPA), will continue to administer pharmacy
location rules for PBS purposes. It will therefore retain the ACPA, and related
machinery in the Department of Health and Aged Care and the Health Insurance
Commission. It will also thus continue to intervene in the distributional side
of the community pharmacy market to meet its objectives.
The changes to
the new approval and relocation rules, including the special approval
categories, may increase the overall number of pharmacies. It is unlikely,
however, that this number will be significantly greater than the present 4,950,
and certainly would fall far short of the pre-1991 number of
5,500.
Community pharmacy: Restrictions will continue to be
imposed on where new and relocated pharmacies may be established for PBS
purposes, but will be less restrictive than under the second Agreement.
On the other hand, existing community pharmacies will continue to
benefit from being able to plan and grow their businesses with some certainty of
the size of their local catchment area, and of the relative stability of
competition between pharmacies in that area.
The approach will also help to
sustain the value and turnover of pharmacy businesses, although average PBS
business per pharmacy falls with each new extra pharmacy approved.
If
the overall number of pharmacies increased significantly through the new
approval rule relaxation, and given that it is unlikely that PBS dispensing
volume would be affected as it is prescriber rather than pharmacy driven, the
growth in average PBS incomes per pharmacy would be lower as the PBS
“cake” was cut marginally more thinly.
Consumers in most metropolitan areas: Given that these
areas are where local pharmacy markets are more likely to be crowded, it is more
likely that these consumers will benefit from service competition between
pharmacies, and price competition on items beyond the PBS (given that PBS items
have fixed prices to consumers).
Consumers in outer and new urban
areas with rapid population growth: Under present rules, a pharmacy
that can establish itself in that area can also establish a degree of protection
from competition, by way of a minimum distance requirement separating a new or
relocated pharmacy from an established pharmacy from moving within that radius
unless by 1 km hops at minimum intervals of at least two years. The
exceptional circumstances rule for urban growth areas will broaden the potential
choice of pharmacy services for residents in eligible localities, and the
prospect of better service competition between pharmacies to the benefit of
local consumers in those areas.
Consumers in rural and remote
areas: The simplification of new pharmacy approval criteria will make
it considerably easier to make a case to establish a new pharmacy, compared to
the rigorous demographic criteria of current requirements.
Linking
special approvals to a designated locality will ensure that if a pharmacist
moves from a town, or retires, the town would be able to use the existing
approval to attract a new pharmacist. This could be in association with other
Commonwealth incentives, as well as any locally devised incentives. The new
exceptional circumstances provision for specific rural locations with one
existing pharmacy also has the potential to improve the adequacy of local
services by enabling access to additional pharmacies, in eligible areas,
notwithstanding the general distance-based restrictions on pharmacy location.
As a whole, these regulatory will complement the targeted assistance for
pharmacists operating in rural and remote areas considered later in this
Statement.
Wider community: The wider community will be affected
by any measures influencing the level of competition in the community, as
well as the distribution of services.
The community at large will benefit
if relaxing the new approval and relocation rules offers greater incentive to
pharmacies to move to those areas of need, particularly when coupled with
appropriate material incentives to encourage pharmacists to establish and
maintain pharmacies in areas of need.
Existing pharmacy location regulations will be modified and simplified
wherever possible, rather than replaced. The existing ministerial determination
under section 99L of the National Health Act 1953 (which promulgates the
location rules) will need to be amended to reflect the terms of the third
Agreement.
The ACPA will be retained to consider applications to
establish new and relocated community pharmacies.
Recommendation 9(c) of the Wilkinson report supported the reform of
existing and new pharmacy restrictions, if remuneration-based measures to
encourage more efficient and better-distributed pharmacies “are not
practical”.
The simplified new pharmacy approval criteria, the
special measures for underserviced rural localities, and for potentially
underserviced outer suburban and rural areas that may be disadvantaged by a
strict application of the regulations in general, are significant improvements
in second Agreement arrangements.
By progressing incrementally to less
regulation of pharmacy numbers and location, community pharmacy as a sector
also can more readily adjust to change as it is phased in. Actual and
potential pharmacy proprietors may also make longer-term planning and investment
decisions with reasonable certainty. The industry has indicated that business
development, and building up professional linkages with allied professionals,
pharmaceutical wholesalers and other support services, needs sufficient
lead-time to adjust to a changed regulatory environment.
Nevertheless, there are also costs to this approach.
Primarily, any
ongoing regulation of community pharmacy location places significant
restrictions on competition, and involves the Government in setting the
parameters of the community pharmacy market. Given, however, the symbiotic
relationship between the PBS monopsony and the community pharmacy industry, at
least some measure of government involvement in the market cannot be
avoided.
Maintaining any such regulations also imposes a cost for Government in
servicing the relevant regulatory structures, and for community pharmacy in
dealing with them. The location approvals process, overseen by the ACPA,
involves costs for applicants and Government. Simplifying regulatory
requirements will lessen that burden.
Additionally, there are costs to
Government, industry and consumers in maintaining a regulatory framework that is
formalised, relatively static for the life of the Agreement, and that may lag
behind relevant developments in health care trends and evolution in consumer
demand for community pharmacy services. These costs would be trade-offs for the
benefits that settled medium-term measures can provide.
In considering the distribution of community pharmacies for PBS purposes,
the Wilkinson Review recommended that restriction of the number of pharmacies
could be realised by considering, “...in the interests of greater
competition in community pharmacy, a remuneration system for PBS services that
restricts the overall number of pharmacies by rewarding more efficient pharmacy
businesses and practices, and providing incentives for less efficient pharmacy
businesses to merge or close” (Recommendation 9(b)).
Wilkinson
suggested two remuneration-based approaches that could achieve the recommended
result. These are differential dispensing fees for pharmacy services, and
calculating pharmacist remuneration on industry better practice rather than
industry average costs.
As both positive and negative incentives to pharmacists in siting their
businesses, Wilkinson suggested that the per item dispensing fee could have a
loading, or carry a penalty, depending on where the pharmacy is located. If a
pharmacy is in an area overserviced by pharmacies (ie the pharmacy: population
ratio for the locality is too low against an agreed measure), the
pharmacist’s dispensing fees would be discounted. If the area were
underserviced or otherwise disadvantaged, the dispensing fee would carry a
loading. Pharmacies in areas of equilibrium in terms of their pharmacy:
population ratio would carry neither a loading nor a penalty.
Differential dispensing fees could apply generally (ie to all pharmacies
in the defined area), or selectively (eg to pharmacies establishing themselves
in the defined area after a commencement date). There are issues, however, as
to whether selectively applied fees and related determining criteria could be
seen as a consistent treatment of all PBS approved pharmacies receiving
Government remuneration.
Government: A differential dispensing fee regime could meet the
Government’s reasonable access objectives for pharmacy services. There
would be savings from discounted dispensing fees to pharmacies in overserviced
areas, but higher outlays on dispensing fees for pharmacies in designated
underserviced areas. This income differential would influence
pharmacists’ location decisions. It is difficult to assess the net
effect required, however, to maintain current distributional patterns. It is
also difficult to determine the net effect of such an approach on overall
pharmacist remuneration outlays.
Community pharmacy: Differential remuneration could also influence pharmacy business planning and purchasing decisions, by making the incentive or disincentive of dispensing income a factor in the pharmacy’s turnover calculations. If the pharmacy is in, or moves to an area where its PBS derived income will be increased or penalised because of its location, then that financial incentive or disincentive could affect a proprietor’s decision to remain at, or move to, a given pharmacy site.
Consumers: If a differential fee model were introduced, and operated
as suggested by Wilkinson, people using pharmacies in relatively crowded local
pharmacy markets should see little or no difference in terms of their reasonable
access to services, although clearly their choice of service providers could be
reduced. In less well-serviced areas, local consumers may see more pharmacies
appearing to meet local needs as pharmacists move their businesses to take
advantage of remuneration incentives and any other available
assistance.
Wider community: The wider community could benefit
from a more widely distributed community pharmacy network, as pharmacy
proprietors adjust to the system.
Direct remuneration incentives,
coupled with targeted aid to pharmacists wishing to open or sustain pharmacies
in rural, remote and other designated areas of need, could be more successful
than previous strategies to attract pharmacies to those areas, where commercial
considerations alone may not be sufficient to attract and retain pharmacy
businesses.
The other mechanism suggested by Wilkinson relates to the method by which
pharmacist remuneration is calculated.
This would involve moving the
cost calculation base for community pharmacy dispensing remuneration from an
average industry cost of dispensing PBS medicines to benchmarks based on
industry good practice, however defined. Such a shift, Wilkinson argues, would
reward more efficiently operating pharmacy businesses, and place much greater
pressure on smaller and less efficient pharmacies to improve their performance,
relocate to a more commercially viable site, or else close up or amalgamate with
other pharmacies.
How benchmarks would be defined and measured would be a matter that would
have to be settled before a new cost calculation system could be implemented.
The system could apply for instance, to all pharmacies, or it could be confined
only to newly established or relocated pharmacies. It may also benchmark
against a range of criteria besides those that may relate to the provision of
PBS products and services, insofar as the sale of non-PBS goods and services
affects the business profile and profitability of pharmacies.
Similarly, a broad range of criteria could compensate for local biases
that may influence efficient performance, such as the relative affluence of the
catchment, the age and health and disposable income profiles of pharmacy
catchments as these may affect prescription and related business
volumes.
Government: A “most efficient pharmacy” cost
calculation would reduce the Government’s need for direct regulatory
intervention in the size and national distribution of community pharmacies.
Instead, the dispensing remuneration flowing from the PBS, and how it may be
affected by a pharmacy’s location, size or relative efficiency, would
become the indirect policy lever for influencing the community pharmacy market.
As Wilkinson notes, this approach may also need some compensatory adjustments to
ensure that services are not lost in some rural and other relatively
disadvantaged localities.
The Government would also need to undertake the
research, analysis and modelling to ensure that the necessary and appropriate
cost calculation criteria, benchmarks and performance indicators are identified,
tested and set. It would also need to keep these under continuous review to
ensure that they remain fair, accurate and relevant.
Community
pharmacy: Efficiency-based cost remunerative arrangements would have a
particular effect on smaller, lower prescription volume pharmacies. Unless
concessions were built into the new system to allow for some specific
circumstances (eg a pharmacy’s location in an area of pharmacy need), such
pharmacies may find it relatively difficult to survive.
Consumers: Implementing measures of this type could benefit consumers
by providing more direct encouragement for pharmacy businesses to operate
efficiently and effectively. This could relate both to greater competition and
greater choice between pharmacies in areas where such choices are available.
They may, however, affect reasonable access in relatively underserviced
communities if a smaller, notionally less efficient pharmacy has to close or
rationalise services to the public as a consequence of the remuneration
structure.
Wider community: As for the differential dispensing
fee option, the wider community could have the potential benefit of a
remuneration-based mechanism promoting greater pharmacy efficiency, and better
and more diverse pharmacy services.
For either of these alternatives, legislation and statutory instruments
enabling the regulating of pharmacy location for PBS approval purposes would
lapse or be repealed. The ACPA, as the body whose main responsibility is
applying those regulations, could be abolished, as the market would essentially
be left to adjust without Government intervention.
If calculated appropriately, PBS pharmacist remuneration arrangements can
meet two objectives: promoting reasonable access to community pharmacy services,
and giving direct incentives to pharmacies to maintain and enhance their overall
efficiency and effectiveness as both professional service providers and as
commercial businesses.
(a) Differential dispensing fees
Differential dispensing fees, if incentives are set at an appropriate
level, could be genuine factors in persuading all pharmacy proprietors to think
about the location of their pharmacies as a part of maximising the return on
their investments. If any pharmacy wishes to trade in an overserviced area,
under this approach it would have to take the consequences of that decision for
its PBS income, which for most pharmacies is their single largest source of
turnover.
It would be consistent with the Government’s desire to
ensure reasonable access to pharmacy services and an effective national PBS
distribution network. It could be expected that at least some pharmacies would
close in overserviced areas, and move to locations where they could maximise
their income. Coupled with other incentives, such as those considered later in
this Statement, rural and remote areas could become more attractive for pharmacy
proprietors.
On the costs side, there would be a high degree of
administrative complexity to overcome. Areas and other relevant criteria would
have to be defined (eg an area with a high proportion of elderly residents may
need more than an average number of pharmacies to service its needs), and
pharmacy distribution monitored and reviewed. Adjustments would have to be made
periodically to the service status of designated areas, with other criteria
ensuring that the differential fee system operates fairly and in the best
interests of the community at large. This would require a considerable ongoing
administrative effort.
Also on the costs side, it is very difficult to
estimate in advance the level of fees required to achieve given distributional
results. There would be risks, and relative uncertainty, both for Government
and the pharmacy sector.
Beyond this, there would be many pharmacists
(those in areas considered to be overserviced) who would potentially experience
reductions in their income, and this could occur for both efficient and
inefficient operators. In practice an attempt to introduce a system of this kind
would be difficult and controversial, and is likely to result in considerable
dispute with community pharmacy.
(b) Efficiency-based
remuneration
PBS remuneration, as underpinned by the second
Agreement and pharmacy location regulations, does not acknowledge relative
efficiencies between pharmacies. If remuneration more directly rewarded better
performers, and encouraged less efficient pharmacies to consider their operating
future, the community pharmacy industry may become more responsive to
pursuing and adopting best practice in pharmacy service provision. This could
flow through to cost savings for Government and consumers. It could also lead
to more consumer responsive and professionally innovative pharmacy services in
areas where there is a more competitive community pharmacy market.
There are, however, significant costs in moving towards an efficiency-based
model of community pharmacy distribution. Many of the smaller, lower
prescription volume pharmacies are found in rural, remote, and suburban
locations. Without appropriate adjustments, such pharmacies may close and leave
an unfilled gap in local services, to the detriment of the Government’s
reasonable access goal.
Similar to a differential fee model, moving from
an average to better practice cost calculation for remuneration would also have
implementation costs in terms of determining what constitutes better practice,
how it should be measured, and what remunerative value should be ascribed to it.
Given the sensitivity of the issue, it is also likely that either of the
two Wilkinson approaches would require a strong and effective mechanism for
consultation, arbitration and dispute resolution between Government and
community pharmacy. While this may be achieved, whether such a mechanism could
achieve a satisfactory and implementable accommodation between the Government
and the community pharmacy industry is problematic.
The Community Pharmacy Agreement is effectively a contract between the
Commonwealth and the Pharmacy Guild, on behalf of its members and community
pharmacy generally. It lays down common terms and conditions for the
remuneration of pharmacists that are to apply to all pharmacies, whether or not
they are owned and operated by Guild members.
A third option considered
by the Wilkinson Review, however, is to abandon this collective negotiating
approach in favour of contracting out the provision of PBS medicines directly to
individual pharmacies. Under such an option, the Commonwealth would call for
tenders for approvals for PBS services to be provided for a given locality or
geographical area. Pharmacies would tender competitively for the contract, and
the Commonwealth would select the successful providers against the tender
criteria.
The Wilkinson report appears to envisage that community
pharmacies would tender for a service in a given area, with contract
remuneration determined either on a flat fee for the total service or a fee per
dispensed item. Tendering processes could also be general (all providers
tendering for the PBS service) or partial (tendering for new entrants only or
for specialised services – such as medication reviews for aged care
facility residents - or for designated localities). Questions of the fair
application of rules and processes for all players in the market would need to
be considered in this regard.
Government: Tendering would allow the Government to take fuller
advantage of its market position, as a monopsony purchaser of PBS services, to
encourage community pharmacies to provide efficient service at reasonable cost.
It would also allow the Government to maintain a direct interest in the
distribution of PBS services, by determining the areas or localities for which
contracts are to be let, the number of contracts within those areas and, if
desired, the terms and conditions of service delivery specific to either a
locality or a pharmaceutical consumer group.
Community pharmacy:
A major issue for community pharmacy of a move to a tender basis is the impact
it would have on the value of existing pharmacies. Many existing businesses
could be expected to suffer losses in value. If applied generally, the basis of
the industry as a whole would change, as the present insulation against
commercial and professional competition for PBS services would disappear, and
successful tenders would only provide a degree of certainty for the period of
the tender. To make realistic tenders, pharmacists would need to ensure that
their businesses are viable, efficient and able to offer services of a standard
expected in the Government’s tender criteria.
If applied partially
to specific localities or services, it may be that tendering would appeal only
to those pharmacies and pharmacists interested in delivering them. This may
promote the greater specialisation or sub-specialisation of pharmacists in
specific areas of activity (eg pharmacy services for geriatric or post-acute
patients).
Consumers: Consumers may see relatively little change
in their ability to obtain reasonable access to PBS services in local
catchments. It may be, however, that some consumers would find the community
pharmacy with which they may have developed a professional relationship
disappear, depending on the results of a tender process.
Wider
community: The wider community could benefit from a more aggressively cost
and service competitive community pharmacy industry, with flow-ons for the level
of public outlays on pharmacy services, and potentially also for the quality of
those services.
Effects on existing regulation and regulatory
authorities
Second Agreement-linked regulations and machinery
applying to the location of PBS approved pharmacies would be removed. These
may, however, need to be replaced with new principal or delegated legislation to
oversee the operation of the competitive tender process, the tender criteria,
and the supporting administrative arrangements that would be required to
implement the new system.
Putting PBS-funded community pharmacy services to competitive tender
would be a major change both to PBS pharmacists remuneration, and to the
relationship between the Government as the principal purchaser of PBS services
from pharmacists on the one hand, and community pharmacists as the providers of
those services on the other. It could be expected to be difficult and
controversial to implement, with community pharmacy stakeholders and some
individual pharmacists having indicated strong opposition to proposals of this
kind.
Tendering would allow the community pharmacy market to determine
the level of remuneration on a pharmacy-by-pharmacy basis. Successfully
tendering pharmacies could offer both greater value for money, and a guaranteed
quality of professional service.
On a day-to-day level, such an approach
may foster heightened competition between pharmacies in local pharmacy markets.
The results of such competition could thus have a positive effect on the cost
and quality of related service delivery.
Notwithstanding the potential benefits, the Wilkinson report notes that there
are some significant risks in a competitive tendering approach. Indeed, the
Review was reserved on the workability of a tender option. It commented that a
successful tender may not in itself ensure that quality of service is
guaranteed, notwithstanding safeguards being built into either the tender
process or the monitoring of successful tenderers’ performance.
The
Government administrative machinery required to develop, implement and oversee a
tender-based system would also need to be relatively comprehensive. Tendering
processes would need to be devised, tender criteria developed and implemented,
transparency of decision-making ensured, successful tenderers selected and
performance against tender requirements monitored and, if necessary, enforced.
Provision would also need to be made for dealing with disputes arising of both
tendering processes and the performance of successful tenderers, and payment
systems would also need to be able to handle remuneration levels that may vary
from pharmacy to pharmacy.
Community pharmacy proprietors would also
incur significant costs in developing their tenders, and in adopting and using
business and professional systems geared to assist them in meeting their
contractual obligations. These costs may be passed on both to Government in
terms of the bottom line tender price for the PBS-related services, and to
consumers in the form of prices paid for goods and services in a pharmacy, if
these costs have a significant effect on operating margins.
There is also
an inherent cost, also noted by the Review, of the risk of contracted providers
not being able to meet the obligations of their tender, and having to cease
operating services to the detriment of the affected local catchment. This is a
matter of risk and contract management, and could require contingency
arrangements for localities that may have no alternative service provider in the
event of an unexpected pharmacy closure.
The Government prefers Option 1, the strategic reform of existing
regulation through the third Community Pharmacy Agreement structure.
In
terms of regulating the location of pharmacies for PBS purposes, the Wilkinson
Review strongly recommends that the Government and the community pharmacy
industry progress towards maximum deregulation and commensurately greater levels
of competition. The medium-term reforms of existing location regulations in the
new Agreement may not be, in some respects, as far-reaching as this
recommendation, or the alternative mechanisms suggested by the Review that are
considered as Options 2 and 3.
The Wilkinson report itself, however, also acknowledged that any reform of
pharmacy location regulation needs to be practical if it is to be successful,
and recommended to this effect. The Government broadly supports this view, and
sees its preferred option as consistent with it.
The Government has a
critical need to ensure that Government-funded pharmaceutical services are
delivered efficiently and affordably to all Australians. It also needs to
ensure that wider Commonwealth, State and Territory funded services, including
general medical practice, home and community care, and acute care services, are
not made less efficient and less effective because of significant holes in the
national coverage of community pharmacies as the PBS distribution network.
There is also an obligation on the Government to ensure that any
restrictions on competition between pharmacies are as justifiable in terms of
balancing the benefits and costs of those restrictions to the community as a
whole. The agreed modified regulatory improvements are a progression to better
achieving both health care and pharmacy competition objectives.
While they are incremental and a targeted easing of existing regulations,
the new simplified and more relaxed pharmacy location measures
would:
• Address clear shortcomings in current regulation that have
worked to the detriment of the underserviced rural, remote, and outer
metropolitan communities that they are intended to assist;
• Provide a
better platform for the targeted measures to nurture the overall enhancing of
services quality, and the adequacy of pharmacy services in rural and remote
areas, in the third Agreement;
• Reduce the barriers to effective
competition between pharmacies in the industry generally, and in better-serviced
local markets in particular; and
• Provide a base for longer-term
deregulation.
While they will be simplified and relaxed, some restrictions on the location of new pharmacies for PBS purposes will remain necessary under the third Agreement. The overall number of pharmacies affects average per pharmacy income. Restricting the overall number of pharmacies influences the overall sustainability of many pharmacy businesses, particularly in less well serviced areas. Beyond this, however, relaxing eligibility criteria for new approvals should improve the chances of underserviced communities attracting and retaining adequate levels of pharmacy service, with greater prospects of bringing in some fresh competition for existing pharmacies. It should therefore improve local access to pharmacy services in these areas.
In terms of the agreed changes to pharmacy relocation rules, shortening the distance radius around existing pharmacies should increase competition, particularly in terms of the quality of services to consumers as relocated pharmacies can move closer to competitors.
The preference to proceed on a more incremental basis also relates to the
need to promote a well-distributed community pharmacy network providing high
quality pharmacy services. This objective could be compromised if rapid and
substantial deregulation was implemented in the short term. If the present
pharmacy location restrictions are relaxed too broadly, or too quickly, there is
a distinct possibility that the more rapidly deregulated environment would skew
already imbalanced community pharmacy services, as pharmacists could be expected
to favour more lucrative locations. Such a situation could also jeopardise the
distributional improvements achieved through the first and second Agreements.
In particular, such rapid change may affect the viability of at least
some suburban and regional pharmacies providing reasonable access to older and
less mobile pharmacy consumers. These pharmacies may be relatively small and
localised, and less able than some of their competitors effectively to realise
economies of scale and scope.
Changes of this nature could only be
progressed against the resistance of community pharmacy, and
possibly the wider community. The costs of introducing such arrangements, in
terms of both PBS outlays, and the likely effects of such changes on reasonable
access to pharmacy services, outweigh the benefits of radical change to the
community pharmacy market, and reduce the value of the integrated range of
measures in the Agreement as a whole.
This reduced package of
regulation integrates with other third Agreement measures, particularly the
quality-linked package and associated Pharmacy Development Program, and specific
assistance for pharmacies in areas of relative disadvantage. Modified
regulation of pharmacy location is an integral part of a third Agreement
approach to achieving a potentially more strategic, efficient and effective
community pharmacy network.
As discussed in this section,
efficiency-based remuneration and remuneration incentives to encourage better
pharmacy distribution, and tendering by pharmacies for PBS and/or related
services, may well offer real alternatives to the above approach.
The Government needs, however, to balance the aspiration for greater efficiency in the community pharmacy sector with the need to ensure reasonable access to quality community pharmacy services. The preferred option is more likely to achieve an appropriate balance than the other alternatives canvassed.
3. RURAL ACCESS AND SPECIALISED SERVICE MEASURES
Many people in rural and remote Australia have difficulty in obtaining
reasonable local access to pharmacy services.
Problems in attracting pharmacists away from metropolitan areas are common.
Many pharmacists are concerned about the prospects of running a successful
business, about lifestyle factors and about the welfare of their families in
rural and remote locations. Business costs in country areas can be higher, even
allowing for the cross-subsidisation of supply lines by pharmaceutical
wholesalers keeping the cost of PBS item stocks comparable across Australia. On
the other hand, the cost of bringing in non-pharmaceutical stock, and of
infrastructure such as telecommunications and, increasingly, going on-line, can
be relatively more costly for rural businesses generally, including
pharmacies.
Even relatively financially lucrative areas near capital
cities – for example, towns on the Mornington Peninsula near Melbourne, an
affluent resort area with both established and passing trade – have found
it difficult to attract pharmacists. More remote localities have far greater
challenges in this regard. In many localities, the sale of going pharmacy
concerns is also difficult, as buyers are not coming forward, even if purchase
prices are much lower than for pharmacies in prime urban and suburban locations.
Evidence of this phenomenon came to the Wilkinson Review from rural
pharmacists and rural health organisations.
Existing location restrictions, such as those preventing pharmacists moving
elsewhere if they leave behind an area of need, have not worked effectively. As
the Wilkinson Review noted, a pharmacist wishing to leave can close down his or
her business in a difficult locality, and purchase a new one elsewhere or simply
retire. Additionally, the restrictive nature of new approval rules for
pharmacies, with very specific community need criteria, have tended to compound
the difficulties for rural communities in attracting a pharmacy. The proposals
in the new Agreement for the relaxation of rural new pharmacy approval criteria,
and the definition of special circumstances categories for rural and outer
suburban localities with only one pharmacy will, however, assist in easing this
pressure.
As Wilkinson noted, existing rural-focused incentives such as
the Isolated (IPA) and Remote (RPA) Pharmacy Allowances of the second Agreement
appear to have limited effect. This may simply be that their scope (an average
1998-99 payment per eligible pharmacy of $9,000 for IPA pharmacies and $11,000
for pharmacies receiving both IPA and RPA) is not in itself sufficient to
persuade a pharmacist to keep trading, or to relocate to an eligible area. It
may also be that existing measures do not take into account lifestyle, distance,
professional interaction and other challenges that rural and remote pharmacists
may face, compared to their metropolitan and provincial
colleagues.
Additionally, some particularly vulnerable Australians
– including the frail aged – have difficulties in gaining reasonable
access to the full range of professional pharmacy services because they are
residents of an aged care facility, or housebound and dependent on domiciliary
care. Previous measures, including the medication review provisions of the
second Agreement, have been relatively minor, and have not fully addressed the
special needs of this high-use patient group.
The problem therefore is
to find measures that, collectively, can offer real incentives and practical
assistance to pharmacists willing to serve relatively disadvantaged rural and
remote localities, and particular special need consumers, at a reasonable cost
to the taxpayer.
As with the regulation of pharmacy location, the Government’s
limited intervention to offer incentives to operate pharmacies in regional areas
is justifiable if it assists in addressing the problems identified above, so as
to ensure that the PBS distribution network is, as far as possible, capable of
delivering reasonable access to pharmacy services to all Australians.
The Government’s objective is to achieve an enhanced coverage of
face-to-face pharmacy services in areas where there are access
difficulties for residents. This relates particularly to rural and remote
areas.
A related objective is to ensure that, as far as is practicable,
strategic policies and programs are implemented to both foster the growth of new
pharmacy services in areas of need, and that existing pharmacists are in time
succeeded by others, to the ongoing benefit of the local and regional
communities that they service.
The Government has two broad options in this area:
• To
implement appropriate targeted measures to assist reasonable access for
relatively disadvantaged population groups to community pharmacy services;
and
• Not to introduce such measures, and instead let the market and
the industry respond to community needs for pharmacy services without government
intervention.
The option is intended to work in combination with the relaxation in
location controls considered earlier (simplified definite community need
criteria for new pharmacies, special approval categories for designated rural
towns and exceptional circumstances approvals for some one-pharmacy towns).
The targeted measures include:
• A Rural Pharmacy
Maintenance Allowance, paid to pharmacies within agreed categories of the
Australian Remote and Isolated Area (ARIA) index, and varying with the
remoteness and dispensed prescription output of eligible pharmacies.
Essentially, the allowance will replace the existing RPA and IPA, but will be
paid at higher levels and on a wider basis. The new allowance will offer a
significantly improved financial incentive for pharmacy proprietors to remain in
a rural or remote locality;
• A Start-up Allowance for
establishing new pharmacies establishing in eligible rural and remote areas. To
be eligible, the pharmacy will have to be sited in a locality covered by the new
Special Rural Approval location rules considered earlier;
• A
Succession Allowance to assist, within criteria to be specified, a
pharmacist wishing to purchase an existing pharmacy in a designated rural or
remote area. Eligibility criteria would include degree of remoteness, and a
history of an inability to attract a purchaser for an existing
pharmacy;
• A Rural Pharmacy Workforce Development Program
offering assistance in areas including emergency locum support, pharmacy
infrastructure, scholarships to pharmacy students from rural and remote areas,
improving access to continuing pharmacy education for rural and remote
pharmacists, and promoting the recruitment of pharmacists with an Aboriginal or
Torres Strait background; and
• An allowance for support given by eligible pharmacists undertaking
quality use of medicines activities with Aboriginal Health Services.
The
gross estimated cost of this package is $76 million for the life of the
Agreement. This includes an estimated $24 million that would have paid
under the existing rural support programs, giving a net cost of $52 million.
The third Agreement also contains measures to promote the delivery of
some specialised services to specific consumers. These include an expanded
program of medication management assistance for frail aged Australians in
residential and domiciliary settings. The medication management initiative is
to be funded separately to the rural access package, and is estimated as having
a gross cost of $114 million over the life of the third Agreement.
Who would be affected?
Government: The
Government will be committing a significant level of resources to meet its
reasonable access objective for particular areas and classes of pharmacy users,
and to improve the overall quality of health infrastructure in regional
Australia. It will also be providing forms of assistance to community
pharmacists to operate in rural and remote areas that are not generally
available to most small businesses.
Community pharmacy: Targeted
assistance may make a financially or personally marginal decision to establish
or retain a pharmacy in a rural or remote area a more viable proposition for a
community pharmacist. Eligible pharmacists will be able to obtain assistance
that may make life in these localities a more attractive proposition to them as
health care professionals.
Consumers: If pharmacists and pharmacy
services are attracted to, or retained in rural and remote localities, consumers
in those areas can have improved access to local and personal pharmacy advice
and care, based on face-to-face contact with professional pharmacists and their
staff. Older people with multiple medication needs will also be provided with
improved medication-related services.
Wider community: If
pharmacists and pharmacy services are attracted to, or retained, in rural and
remote localities, many gaps in the distribution of pharmacy services outside
rural and regional centres will be closed. The quality of health care services
generally received by people in those areas would at the same time be enhanced.
The new arrangements provide
for closer working relationships between
pharmacists, general practitioners and other health care professionals as part
of a wider health care team in terms of the overall quality of resident care in
a nursing home or in community care.
Effects on existing regulation
and regulatory authorities
Under the arrangements, the ACPA will
not have any power of determination over the new rural practice allowances.
This contrasts with its administrative responsibility for determining
pharmacists’ eligibility for the present Remote and Isolated Pharmacy
Allowances.
Likely benefits and likely
costs
(a) Rural measures
These
measures, when implemented, should reduce existing distribution gaps that exist
in the overall PBS network, especially in rural and remote areas.
The
measures were developed with the benefit of considerable research and analysis
from both the Government and the Pharmacy Guild. This included extensive
consultation with rural pharmacists, and with representatives of potentially
affected communities.
The proposals also have benefited from the
experience of useful precedents, notably the successful General Practice Rural
Incentives Program. This program has analogous components to the rural pharmacy
package.
The anticipated result is an improved community pharmacy
presence in regional Australia. By taking positive measures to attract
pharmacists, as well as to retain them in country areas, the outcome will be
that younger and more recently trained pharmacists may be more likely to try
their hand at running a pharmacy in a rural or remote location. This may be
either by succeeding pharmacists who are approaching retirement, or by moving
into localities presently not served by a pharmacy at all, or served
inadequately by an existing pharmacy where location rules permit. The Agreement
includes a provision that the progress of these initiatives will be reviewed.
(b) Specialised services
Under the second
Agreement, medication management reviews for the frail aged have also played a
constructive role in giving increasing numbers of older persons better access to
personalised reviews of their medication needs. The follow-on measures in the
third Agreement will build on acquired program experience and on
pharmacists’ resulting exposure to what was, until recently, a new method
of professional service delivery. The new arrangements include much greater
integration with other health care providers than the earlier model,
particularly with general practitioners.
Option 2 No targeted
measures for rural or specialised services
The other option
for the Government is to leave these matters to the commercial pharmacy market,
on the assumption that community pharmacists will operate pharmacy businesses
wherever they can find a community or niche need that may sustain a commercially
viable pharmacy. This would apply to all areas, whether urban or
rural.
This assumes that the Government would maintain the regulation of
pharmacy location, as outlined in the new package of measures considered
earlier. It also assumes that the already comprehensive pharmacist remuneration
structure, whether or not it includes a separate quality-linked component in
future, is capable of providing sufficient incentive to establish and operate a
profitable pharmacy business, anywhere in Australia.
Who would be
affected?
Government: If rural-specific measures as
outlined were not implemented, the Government notionally would save on gross
pharmacy-related outlays in rural and remote areas of $76 million over five
years. There would be minimal savings from not undertaking the expanded program
of medication reviews, as these would be offset against other savings in
PBS outlays. It would, however, have to rely on the community pharmacy
market to address distribution gaps in the network for PBS-funded community
pharmacy services.
Community pharmacy: Pharmacists would have to
make their own cost judgments about moving to, or staying in, a rural or remote
area, or taking on medication management services. These judgments, as things
stand, may be made in conjunction with pharmacy location rules. If the
viability of a location or a pharmacy service is marginal without external
assistance, the proprietor may decide to close or sell it.
Consumers: If a pharmacy in an underserviced rural or remote
area closes down, consumers may have to travel some distance for face-to-face
service, or otherwise rely on remote dispensing (ie prescriptions sent to a
pharmacy at which the customer is known, that are filled and delivered to the
customer without direct personal contact) or mail-order pharmacy (ie
prescriptions lodged by post or Internet with a distant supplier, and dispatched
by post by that supplier) for their pharmaceuticals. A number of the current
difficulties in managing medication for the elderly who are confined to their
homes or an aged care facility would continue. This is contrary to the goal of
ensuring reasonable access to pharmacy services.
Wider community:
If gaps in rural and remote area pharmacy services are at least partly due to
these localities being commercially unattractive to pharmacists, the social goal
of reasonable access to pharmacy services for those Australians living in more
sparsely populated areas would not be met fully.
Similarly, not providing
a medication review service for frail aged persons, particularly nursing home
residents, would not improve the quality of access to personalised pharmacy
services for a class of high-use consumer who generally finds the physical act
of going to a pharmacy for advice to be difficult or
impossible.
Effects on existing regulation and regulatory
authorities
Legislative authority for the existing Remote and
Isolated Pharmacy Allowances, and for medication reviews, would lapse on 1
January 2001 if they were not renewed.
Likely
benefits and likely costs
Non-intervention would clearly have the
benefit reducing the Government’s financial commitments. It would also
put a heavy onus on community pharmacy to be seen as taking some responsibility
in meeting community concerns about both the relative lack of community pharmacy
services in some areas, and the overall ability of community pharmacists to
provide consistently high-quality professional and business
environments.
On the other hand, pharmacists as individuals are free to
make their own decisions as to where they live or set up businesses. They need
to make a reasonable return on their commercial investments. They cannot be
forced to work in a location that is unattractive to them, nor can they be
expected to undertake a difficult task – providing services in what are
often commercially challenging localities – merely for the well-being of
others.
Given these factors, there would be no likelihood that shortages
of pharmacists in rural and remote Australia would be addressed effectively
simply by unaided professional and market activity.
Overall, it is desirable to proceed with the package of measures outlined
in Option 1, on the grounds of net public benefit.
As argued throughout
this Statement, the Government has a policy objective of ensuring that all
Australians have reasonable access to PBS services. This also applies to access
to basic health care generally. This set of measures, particularly those
relating to services in rural and remote areas, represents a justifiable
intervention in the public interest.
While mail order pharmacy and remote
dispensing have a role to play, and can and do operate to ameliorate the lack of
a close pharmacy presence in significant parts of rural Australia, they are not
a fully effective substitute for direct client interaction with a professional
pharmacist capable of giving customers advice and counselling about their
medicinal needs.
In making this judgment, it is noted that Recommendation 12(a) of the
National Competition Policy Review of Pharmacy states that “Legislation
to support specific programs and services to assist the retaining and enhancing
of pharmacy services in rural and remote areas is considered to be of a net
public benefit”. The package of rural measures outlined in the
negotiated approach is consistent with the Wilkinson report’s
position.
The measures are limited, strategic and targeted interventions
in areas of the community pharmacy market where consumer demand is otherwise
failing to be met adequately. They will provide incentives to assist community
pharmacists to consider country practice, but they would not compel them to
relocate. That is ultimately a matter for pharmacists’ personal and
commercial judgment.
Similarly, the measures relating to medication
reviews for the frail aged provide targeted assistance to some of the most
vulnerable health consumers in our society. They could enhance the general
quality of funded care that these people are able to receive, and they support
the efforts of those pharmacists accredited to provide such specialised care, in
collaboration with general practitioners.
4. QUALITY ASSURANCE AND
INFRASTRUCTURE MEASURES
Problem
An effectively
distributed community pharmacy network needs to be linked to an effective
delivery infrastructure, and services of consistently high quality.
As
health care, including pharmacy and pharmaceutical services, is becoming more
and more complex and sophisticated, the public is seeking more assurances that
it is receiving the best possible service at all times at the best price.
Pharmacy is no exception, and concerns expressed by consumers suggest that there
is room for improvement in at least some pharmacies.
As considered
earlier, current pharmacist remuneration arrangements do not in themselves
promote quality pharmacy outcomes and related quality assurance (QA) mechanisms,
as they pay on the basis of number and cost of prescriptions dispensed by an
approved pharmacist, and not on the quality of the services
provided.
While States and Territories themselves regulate pharmacist
registration and professional practice, this regulation is concerned only with
meeting minimum standards for competent practice. It does not address quality
of service against appropriate standards, nor does it seek to assure the public
about the quality of a pharmacist’s performance beyond the point of basic
competence.
While the good management of a pharmacy business is basically a matter
for the proprietor, the Government has, as the major purchaser of PBS subsidised
services, an interest in the overall quality of pharmacy services and advice to
consumers, and in supporting reliable QA mechanisms in the community pharmacy
industry. This is especially so, given that other regulatory interventions mean
that pharmacies do not operate in a fully competitive market, and that service
quality needs to be safeguarded in these circumstances.
On behalf of the wider community, the Government is entitled to expect value
for its taxpayer-funded outlays in terms of high quality services being obtained
in return for PBS dispensing and associated remuneration.
The
Government is also expected, by the community, to act to ensure that the
Australian health care system, including pharmacy and pharmaceuticals, is not
only administered effectively, but is calibrated to ensure the good health of
all Australians through the sensible use of drugs, medicines and other health
consumables. The PBS, as the delivery mechanism for most prescription
pharmaceuticals, is integral to this broad health system objective, as well to
the Government’s National Medicines Policy that encourages the quality use
of medicines through the sensible prescribing, dispensing and use of
prescription and non-prescription drugs and
medicines.
Objective
The Government’s objective is to
promote access to and the delivery of high quality pharmacy services across the
national community pharmacy network. It also is seeking to address particular
quality issues, for example, the provision by pharmacists to consumers of
appropriate information about the proper use of dispensed
medicines.
Options
The Government essentially has two broad
options:
• Providing some support and encouragement to the
community pharmacy industry to improve the overall quality of its performance
and related infrastructure; and
• Not intervening with specific program
measures, and leave QA and good performance concerns to the industry and the
market to resolve.
Option 1 Agreement-based measures to enhance
professional quality
and professional service
delivery
Related measures in the third Agreement include:
• Moderate information technology assistance to the community
pharmacy industry to enhance its ability to contribute to improving pharmacy
records and professional management systems, and through these enhance the
quality and safety of prescribing, dispensing and medication management. This
measure is estimated to cost $10 million over the life of the Agreement;
and
• A Pharmacy Development Program (PDP) that can:
- Promote the
involvement of community pharmacy in pursuing quality service
delivery;
- Build on previous initiatives between the Government and the
pharmacy industry and profession to promote quality and best practice in
community pharmacy;
- Provide a mechanism to enhance the overall quality of
the provision of information on drugs and medicines to consumers, such as
Consumer Medicine Information provided to patients when medicines are
dispensed;
- Provide a funding pool for specific quality initiatives,
evaluation and research;
- Provide periodic grants to community pharmacists
for their participation in identified quality activities, or the achievement of
particular quality outcomes;
- Help fund the ongoing development of quality
assurance and professional practice standards for community pharmacy;
and
- Promote community pharmacies’ accreditation against benchmarked
standards.
The PDP as a whole will be funded to $188 million over the
life of the Agreement, with allocations of resources within the program still to
be quantified, and likely to shift over the period of the Agreement as relative
priorities continue to evolve.
How would the Pharmacy Development Program work?
The
objective of the PDP would be to promote the enhanced involvement of community
pharmacy in the pursuit of quality and cost effective service
delivery.
The Government and the Pharmacy Guild have agreed that the
Pharmacy Guild’s Quality Care Pharmacy Program (QCPP), which embodies
Professional Practice Standards, and Standards for the Provision of Pharmacist
Only and Pharmacy Medicines as developed by the Pharmaceutical Society of
Australia (the Pharmaceutical Society), is the appropriate accreditation
mechanism. It will therefore be incorporated into the PDP as the Program is
phased in from 2000-01 onwards.
The details of the grants element of the
PDP, and related eligibility criteria, are still being discussed between the
parties to the Agreement. It is likely, however, that pharmacies would be
eligible for grants linked specifically to their attainment of specific QCPP
milestones.
The PDP is to be available to all PBS-approved pharmacies,
whether or not they are owned and operated by Pharmacy Guild members.
Administration of the PDP
The Pharmacy Guild would partner
the Government in setting priorities within, and administering, the PDP. The
Pharmaceutical Society’s role of developing appropriate professional
practice standards, would also be relevant to the administration of the PDP.
The PDP itself would be overseen by a joint Government-Guild Agreement
Management Committee. This committee would also be a source of advice to the
Minister on Agreement matters generally.
Within the PDP funding
envelope, the Guild will receive funding of $7.5 million over five years to
administer the program. A fund to support research, development and analysis
relating to the objectives of the PDP, would also be created to the value of $15
million over five years. The purpose of these activities would be to explore
innovative ideas in improving the provision of pharmacy services that could lead
to cost savings and greater efficiency, and to share any savings realised from
implemented innovations between the Commonwealth and community
pharmacy.
Who would be affected?
The remuneration
implications of the PDP measures are considered in section B1 of this Statement.
In quality-related terms, these measures would
affect:
Government: The Government, as the custodian of the PBS,
would better be able to respond to the community’s undoubted interest in
ensuring that its pharmacy services are delivered by skilled and fully competent
pharmacists, while relying on the expertise of pharmacists for advice on
professional matters. The Government would therefore be supporting QA and
infrastructure development that, in other sectors, would be the province of
individual businesses and the competitive market.
The PDP would also
send a clear message to pharmacists, nor currently sent by remuneration
structures prior to the third Agreement, that both Government and consumers
expect them to provide consistently high pharmacy services to the community as
all times. It would also be indicating to pharmacists that the Government seeks
to pursue and implement improvements in quality and service outcomes in
cooperation and partnership with the profession and industry, by entrusting to
the Pharmacy Guild and the Pharmaceutical Society significant roles and
responsibilities in the PDP’s implementation.
Community
pharmacy: The community pharmacy industry would have a specific funding
mechanism to continue developing its quality and professional standards, over
and above prior Government-supported professional standards and practice
development initiatives. Through the PDP, direct assistance would also be
provided to pharmacists and pharmacies to improve their quality of overall
performance.
Consumers: Consumers should see benefits flow
through to the overall quality of the care and advice that they receive when
they visit a pharmacy, as more pharmacists become involved in QA and quality
accreditation.
It is expected that as PDP-supported quality assurance and
compliance processes are adopted by more and more pharmacies, the general
quality of service to consumers will both improve and be more
transparent.
Wider community: The wider community stands to
benefit if pharmacists are encouraged actively to commit themselves to improving
the quality of the care they provide, and improve the overall professional
effectiveness of their businesses.
Pharmacy Guild and Pharmaceutical
Society: The Pharmacy Guild and Pharmaceutical Society would have a close
relationship with the PDP as the relevant industry and professional
associations. The adoption of the Pharmacy Guild’s Quality Care Pharmacy
Program as a preferred benchmark mechanism clearly gives that program an
advantage against any competing QA arrangements. As it is an industry-devised
and managed mechanism, however, supporting the QCPP is consistent with the
principle of encouraging professional self-management and self-regulation
wherever possible.
The Pharmacy Guild and Pharmaceutical Society would be
entrusted by the Government with contributing to the management of the PDP as a
whole, and to developing and enhancing their wholly owned QA and
standard-setting mechanisms. The Pharmacy Guild would also be fully accountable
for the administrative and research funds that it manages.
Likely
benefits and likely costs
By linking quality assurance directly
to pharmacist remuneration, and by providing direct incentives for participating
in QA accreditation and continuous performance assessment, the PDP will provide
financial benefit to participating pharmacists. By creating a direct link
between quality outcomes and pharmacist remuneration, the PDP will act as a
specific incentive to pharmacists to be more responsive to consumer needs, and
providing a potential quality reference point for consumers themselves.
A
targeted investment in quality and infrastructure support, through
related Agreement measures, should also help to ensure that pharmacists develop
and retain the capability to develop professional practice systems that keep up
with professional and information technology best practice.
Such
commitments would, however, not take away from community pharmacists the
responsibility for ensuring that they are equipped to operate professionally and
commercially in a contemporary environment. This includes pharmacists having
the obligation to ensure that they are aware of, and make appropriate use of,
available professional and technological support services.
The quality
measures involve considerable financial outlay for the Government. The return
for that commitment is relatively difficult to quantify or to predict with
accuracy. Nevertheless they can be expected to improve the focus on quality
pharmacy outcomes during the third Agreement, and to provide a springboard for
further innovation in the future.
Option 2 Not intervene
directly
On the other hand, the Government could also decide
to leave infrastructure maintenance and improvement entirely to community
pharmacy. It could be argued that, as going into business is a voluntary act,
it is up to proprietors to ensure that they are sufficiently equipped to provide
the professional support services they need to remain competitive with other
pharmacies, and to meet their obligations to the Government and the community as
approved PBS suppliers.
This obligation relates to any possible
remuneration model. It would also not preclude Commonwealth, State and
Territory governments from relaxing the regulation of the operating environment
of community pharmacy further, in the interests of promoting service competition
between pharmacies.
Who would be
affected?
Government: The Government would not need to
provide funds for measures that could be seen as going beyond the “core
business” of remunerating pharmacists for their professional services. On
the other hand, it would lose the opportunity to link quality and benchmarking
of performance and pharmacists’ commitment to performance to remuneration
structures.
Not making these commitments could add to savings from the third
Agreement from reductions in prescription-based remuneration. On the other
hand, it is unlikely that such reductions would be available without some
trade-off and flow back to pharmacists under arrangements such as those under
the PDP.
Community pharmacy: Pharmacists may continue to take an
ad hoc approach to improving the quality of their performance and their QA
mechanisms. The quality of service provision then would largely depend on the
degree of commitment shown by individual proprietors and staff pharmacists. In
business terms, quality might suffer to improve
margins.
Consumers: Consumers would have to be prepared to take
the quality of a given pharmacy business as they find it. In less crowded and
underserviced pharmacy markets, it may be difficult for a consumer to take their
business to a competing pharmacy better able to meet their quality and service
expectations.
Wider community: The wider community would have to
rely solely on individual pharmacists, and self-regulation by professional
associations, to assure them of the quality of the professional services that
pharmacists receive.
Likely benefits and likely
costs
There would be a potential outlay saving of $188 million
over the five years of the new Agreement if the quality and related measures in
the PDP were not taken up. On the other hand, there would be a reduced
incentive for community pharmacy to foster a greater profession-wide commitment
to quality and infrastructure development. It is also unlikely that the
anticipated reductions in prescription-based remuneration would have been
achievable without the establishment of the PDP.
It may well also be that the
community pharmacy industry would be less likely to work cooperatively with
Government and other health providers to deliver a broader range of professional
services, if it does not have an active incentive to equip itself to do
so.
Conclusion and preferred option
The Government
considers that the package of the PDP and related measures as being justifiable
regulatory intervention in community pharmacy to the net benefit of the
public.
Recommendation 8 of the Wilkinson report proposed
that:
Commonwealth, State and Territory governments ensure that
legislation and agreements for the delivery of professional pharmacy and health
care services negotiated with pharmacy proprietors and their representatives
require:
(a) An acceptable range of services to be provided;
and
(b) Appropriate quality assurance and professional practice
standards to be adopted by community pharmacies covered by the
agreements.
The quality-related measures of the PDP conform to
Wilkinson’s recommendation.
While quality and infrastructure
improvement must and will remain the province of individual pharmacy businesses,
the Government has a justifiable interest in making some investment in promoting
a greater industry propensity to pursue quality assurance and improvement. This
is particularly so given that the Government, and not individual consumers,
bears most of the end user cost of prescription pharmaceuticals, through PBS
outlays.
Ultimately, however, the Government also relies on community
pharmacy to provide PBS subsidised prescription and other medicines to consumers
competently, safely, and effectively. This includes ensuring that the consuming
public receives adequate point of sale advice and counselling when appropriate.
The quality improvement and infrastructure measures complement the
overall outlook of the Agreement package as being a partnership between the
Government and community pharmacy. In return for substantial remuneration, and
a demonstrated willingness to work in partnership, the Commonwealth is
signalling to community pharmacy that it expects qualitative as well as
quantitative returns on the taxpayer’s considerable investment.
Beyond the issue of value for money for services received, the quality
use of medicines is also an important social objective for the Government and
the wider community. It is therefore to the public benefit to invest in
appropriate and accountable structures and programs that may better assure the
community that its pharmacists, pharmacies and pharmacy services are of high
quality. It is similarly appropriate to encourage professional pharmacists and
pharmacy providers to be committed to these goals, and that they have adequate
resources to deliver results against these social
goals.
5. CONSULTATION
Besides the Government, the main affected parties are the Pharmacy Guild
of Australia and its member pharmacists operating pharmacy business providing
PBS pharmaceuticals and related services to the public. The Guild represents
over 90 per cent of current pharmacy proprietors.
The Pharmacy Guild has been the party with which the Government has
negotiated the third Community Pharmacy Agreement, and its members’ views
were taken into account by the Guild in those negotiations. In the public
interest, both Agreement parties have expressed a commitment, through the
negotiating process, to respond positively to the outcomes of the National
Competition Policy Review of Pharmacy by relaxing as far as possible regulations
restricting competition in the community pharmacy industry.
As a party
to the overall Agreement, the Pharmacy Guild supports the preferred measures,
and is committed to their implementation.
The Agreement is primarily a matter between the two parties (the
Commonwealth and the Pharmacy Guild). The Pharmaceutical Society of Australia,
as the professional association of pharmacists was, however, represented in the
negotiations to advise on professional matters as appropriate.
Reference
to submissions and other publicly available evidence to the Wilkinson Review
from the pharmacy industry and profession, pharmacy proprietors and individual
pharmacists, consumers and other stakeholders also assisted the
Government’s consideration of related issues.
6. IMPLEMENTATION AND REVIEW
The measures to be adopted in the
Agreement mainly will commence on 1 July 2000. The major exceptions to
this commencement date will apply to changes to the distance criteria for new
and relocated pharmacies supplying pharmaceutical benefits. These would
commence on 1 July 2002, in order to give potentially affected pharmacists
reasonable notice of impending changes, and to make provision accordingly. Some
of the new allowance measures would commence on 1 January
2001.
Effectively, all measures in the third Agreement will be reviewed
as part of preparations for a fourth Agreement, or for any other arrangements
that will be put in place from July 2005 onwards. There will also be a specific
review of the location arrangements, by the Government and the Pharmacy Guild,
twelve months prior to the expiry of the Agreement.
Some related legislative
measures, such as those relating to the continued operation of the Australian
Community Pharmacy Authority, will contain sunset clauses that will lapse on the
conclusion of the third Agreement. Specific amendment of the National Health
Act 1953 therefore would be required to continue their operation past 30
June 2005.
7. CONCLUSION
The new Agreement achieves real and deliverable
improvements in the way that pharmacists are remunerated for their dispensing
services, in how pharmacies are sited to provide pharmaceutical benefits, and in
how qualitative and quantitative gaps in pharmacy service delivery are
identified and addressed.
Within the framework of the new Agreement,
there is significant scope for lessening the degree of regulation of the
community pharmacy industry, and for reducing government intervention in the
size and distribution of the community pharmacy market.
The pace of medium-term deregulation needs to be tempered, however, by the
need to maintain reasonable access to community pharmacies, and to ensure a
reliable and stable community pharmacy industry capable of supplying those
services to all Australians at a sustainable cost.
The third Agreement
also includes innovation in the composition of pharmacy remuneration. In
particular, it introduces a new risk-sharing arrangement around growth
estimates, and a new payment system of grants to pharmacists to replace some of
their prescription-based remuneration in a way that links their PBS remuneration
to the quality of their performance as service providers.
The package of integrated measures in the third Community Pharmacy Agreement
is a positive step forward from current arrangements. It offers benefits to the
Australian community in terms of maximising the value of the very large public
investment in pharmaceuticals and related professional pharmacy services,
meeting community expectations that these are delivered to consumers in a
timely, efficient and cost-effective manner, and promoting a more competitive
operating environment in the community pharmacy industry while addressing gaps
in pharmacy distribution that disadvantage rural, remote and other underserviced
areas.
NOTES ON CLAUSES
Clause 1 provides that the amending Act may be cited as the National
Health Amendment Act (No. 1) 2000.
Subclause (1) provides that, subject to subclauses (2) and (3), the
amending Act will commence on the day on which it receives Royal Assent.
Subclauses (2) and (3) provide that the amendments made by Schedule 1 will
commence on 1 July 2000, except that items 2 and 10 of that Schedule will
commence immediately before the end of 30 June 2000.
Clause 3 provides that the National Health Act 1953 is amended as
set out in Schedule 1.
Clause 4 – Regulations
Clause
4 enables regulations to be made before 1 January 2001, should they be required,
to deal with matters of a transitional or saving nature that might arise from
the amendments made by this Bill. However, this provision will not prevent the
repeal of any such regulations after 1 January 2001.
SCHEDULE 1
– AMENDMENT OF THE NATIONAL HEALTH ACT 1953
Item 1 repeals the definition of professional allowance in
subsection 84(1) as a consequence of the repeal of section 99ZDA by item
11.
Item 2 amends subsection 90(3C) to provide that subsections 90(3A),
90(3AA), 90(3AB) and 90(3B) will continue in force until 30 June 2005 unless
sooner repealed. These provisions require an application by a pharmacist for
approval to supply pharmaceutical benefits to be referred to the Australian
Community Pharmacy Authority (unless the application arises from a change of
ownership of a pharmacy business that is to continue to operate from the same
premises), and permits the Secretary to grant approval of such an application
only if the Australian Community Pharmacy Authority has so recommended.
Paragraph 98B(1)(b) provides that it is a function of the Pharmaceutical
Benefits Remuneration Tribunal to determine the rate of professional allowance
if the Minister and the Pharmacy Guild cannot reach agreement. Item 3 repeals
this provision as a consequence of the repeal of section 99ZDA by item
11.
Item 4
Item 4 amends paragraph 98B(1)(c) to provide that
the functions of the Pharmaceutical Benefits Remuneration Tribunal will include
any functions provided for in an agreement under section 98BAA between the
Minister (acting on the Commonwealth’s behalf) and the Pharmacy Guild of
Australia (or another organisation that represents a majority of approved
pharmacists), in relation to the manner in which the Commonwealth price for the
supply of pharmaceutical benefits is to be ascertained.
Paragraph 99AAB(2)(d) provides that an approved pharmacist who is
receiving a remote pharmacy allowance is not required to use the Claims
Transmission System to submit claims for payment for the supply of
pharmaceutical benefits. Item 5 repeals this provision as a consequence of the
repeal of section 99ZAA by item 11. The determination of guidelines under
subsection 99AAC(2) will be amended to continue that exemption for those
approved pharmacists who are currently receiving a remote pharmacy allowance and
who are not using the Claims Transmission System.
Items 6 and 7 amend the functions of the Australian Community Pharmacy
Authority set out in subsection 99K(1) by limiting its role to considering, and
making recommendations in respect of, applications by pharmacists under section
90 for approval to supply pharmaceutical benefits. Its functions in relation to
applications for isolated pharmacy allowance, remote pharmacy allowance and
professional allowance have been removed as a consequence of the repeal of
Division 4C of Part VII by item 11.
Item 8 amends subsection 99L(1) under which the Minister must determine
rules subject to which the Australian Community Pharmacy Authority is to make
its recommendations, by removing references to isolated pharmacy allowance,
remote pharmacy allowance and professional allowance as a consequence of the
repeal of Division 4C of Part VII by item 11. It is intended that a new
determination of rules under subsection 99L(1) will be made with effect from 1
July 2000, in which the rules governing applications under section 90 for
approval of pharmacists will be relaxed in accordance with the terms of the
agreement with the Pharmacy Guild of Australia, and the rules relating to
applications for isolated pharmacy allowance, remote pharmacy allowance and
professional allowance will be repealed.
Item 9 is a consequential
savings clause, necessitated by the redrafting of subsection 99L(1), under which
the rules made under paragraph 99L(1)(a) that are in force immediately before
the commencement of item 8 are taken to be rules made under the amended
subsection 99L(1).
Item 10 amends section 99Y to provide that Division 4B of Part VII will
continue in force until 30 June 2005 unless sooner repealed. Division 4B
contains the provisions that relate to the
establishment, membership and
functions of the Australian Community Pharmacy Authority and the requirement for
the Minister to determine the rules subject to which the Authority is to make
its recommendations.
Item 11 repeals Division 4C, which contains provisions relating to
isolated pharmacy allowance, remote pharmacy allowance and professional
allowance. Financial assistance to the pharmacy industry, other than payments
to approved pharmacists for the supply of pharmaceutical benefits, is to be
transferred to an administrative structure.
Item 12 makes it clear that,
with the repeal of Division 4C effected by item 11, there will be no statutory
entitlement for approved pharmacists to receive isolated and/or remote pharmacy
allowance/s in respect of periods commencing on or after 1 July 2000 or for
pharmacists to receive professional allowances for services provided on or after
1 July 2000. However, these allowances will continue to be paid
administratively until 31 December 2000, after which they will be replaced by
the enhanced arrangements provide for in the Agreement with the Pharmacy Guild
of Australia.
Should any difficulties arise in the transition from
statutory to administrative payment of these allowances, regulations of a
transitional or savings nature may be made before 1 January 2001 as provided for
in clause 4.
Items 13, 14 and 15 amend sections 105AB and 105AD concerning
applications for review of decisions by the Administrative Appeals Tribunal, by
removing references to the provisions relating to isolated pharmacy allowance,
remote pharmacy allowance and professional allowance as a consequence of the
repeal of Division 4C of Part VII by item 11.
[1] Prior to 1991-92, pharmacist
remuneration was not estimated separately as a PBS outlay
component.
[2] The Agreement is a
public document, obtainable at
www.health.gov.au/haf/docs/pharmagreement.htm
[3]
The risk sharing mechanism and formulas are set out in detail in Clause 13 of
the third Community Pharmacy Agreement document.