Senator WATSON (9:15 PM) —Recently, the Pharmaceutical Benefits Pricing Authority, an independent non-statutory body, presented its annual report to the Senate. Under its terms of reference the authority is required to determine or recommend to the Minister for Health and Ageing prices of items listed as pharmaceutical benefits or recommended by the authority for listing. The pricing secretariat also conducts negotiations with suppliers, where necessary, on proposed prices.

I remind the Senate that the fourth guild-government agreement is in currently in negotiation, and hopefully the outcome will be beneficial to the government, the pharmacy community and the community at large. Pharmacy owners make a reasonable, but certainly not extravagant, living. I remind honourable senators that the government controls prescription margins. The government envisages that funding for the fourth agreement, which covers the five years to 30 June 2010, will be an estimated $11.75 billion. Regretfully, I remind the Senate that in this negotiating environment there has been a great deal of misinformation floating about in the media in relation to the pricing of drugs by pharmacists. I believe it has been circulated by those who have little understanding of the economics of running a pharmacy. Let me give you a few examples.

Access Economics health economist Roger Kilham is quoted as saying that all pharmacists do is ‘stick medicine in a box and put a sticker on it’. This shows an appalling lack of knowledge about the profession. As a matter of course, each time a medicine is dispensed the pharmacist checks the patient’s history and looks for any potentially adverse interactions with other medicines. If a new medication is dispensed, then the pharmacist counsels the patient about its use and explains its effects as well as any potential side effects. Pharmacists are the most accessible health care providers in the community and are often the patient’s first point of contact. Pharmacists refer millions of Australians to GPs every year. They offer expert advice to patients every day on a very wide range of health topics, and access is usually immediate. The services they provide are worth many millions of dollars each year, and they relieve pressure on other parts of an already heavily burdened health system. I am also concerned by the intervention of the AMA president. In fact, I counselled him publicly at a breakfast over this issue, because I do not think it does the AMA any good to be publicly attacking allied health professionals. I am also surprised at the media intervention in this debate of Philip Davies, who happens to be Deputy Secretary of the Department of Health and Ageing. I do not believe that was helpful.

There are obviously some solutions to save the government money. Let me give you an example. There are certain medical conditions—for example, stomach ulcers—where a number of pharmacists believe there may well be an overreliance on prescribed drugs such as esomeprazole. Rather than people making dietary and lifestyle changes that may help with the condition, they insist on taking their drugs. Therefore, it seems that a campaign to educate people about the cost savings and associated benefits of lifestyle change may greatly assist.

The suggestion that pharmacists enjoy a 10 per cent mark-up on drugs, implying that that this is some type of rort, is ludicrous. I am not sure how one can think that Australian pharmacists can provide what is universally accepted as world’s best service, and which is also provided at world’s lowest cost, if they are not paid for it. The reality is that pharmacists are paid a pittance for the service they provide. Ninety-five per cent of dispensed medications in Australia are supplied under the Pharmaceutical Benefits Scheme, and the price of Pharmaceutical Benefits Scheme medicines to consumers is set by the government. Pharmacists do not have any capacity to charge above the government determined patient contribution.

All PBS prescriptions attract a flat professional fee which is designed to cover the cost of a pharmacist’s time in confirming doctors’ intentions and directions, confirming the medication’s suitability and dosage for the patient, documenting and recording the prescription according to state law, complying with PBS clerical requirements necessary for reimbursement and counselling the patient in the correct use of their medication. This fee is set at $4.70, and I might add it is grossly inadequate for the work that it is supposed to cover. PBS medications then attract the mark-up on cost of 10 per cent. This 10 per cent mark-up on cost—or margin on sales of 9.09 per cent—has to cover the costs of managing inventory levels, ordering stock from suppliers, receiving and storing stock, and the opportunity cost of money invested in the stock being held. On top of this, pharmacists carry all of the risk of redundant or out-of-date stock.

In theory, the gross margin on sales in any business would normally be used to fund such other overheads as wages, rentals and electricity, but a margin of 9.09 per cent on sales is never going to contribute to those expenses. By way of comparison, Woolworths’s gross margin on sales is 26 per cent, Harvey Norman’s margin is 22 per cent, clothing mark-ups often start at 100 per cent and the mark-up on prepared foods starts at something like 300 per cent. I am not aware of any other business reselling goods which survives on a mark-up of lower than 10 per cent, as the pharmacy industry does.

Protecting public health, I believe—and I am sure most honourable senators would agree—is more important than Woolworths’ profits. Protecting public health should be the prime consideration in any government decision on whether to allow pharmacies to be operated by supermarkets. Woolworths continue to say that they can save money by allowing pharmacies within their supermarkets. But, if the margins are controlled by the government, I would like to ask Roger Corbett how he thinks he can save money. Of the small amount of non-PBS dispensing taking place in pharmacies, the final mark-up is determined by highly competitive market forces. There are effectively 4,000 pharmacies competing with each other. Compare this to the price manipulation in groceries, for example, particularly milk, where there are effectively only two businesses competing with each other.

Media stories have targeted select lines where a high mark-up of 75 per cent may be added to a very low-cost base item. They have deliberately ignored the reality that even non-PBS pharmaceuticals are usually priced at less than 20 per cent mark-up on cost, simply because that is what the market dictates. If an individual pharmacy chooses to apply a higher mark-up, which is its right, as it is for any other form of retailer, then the customers will gravitate to the lower price sellers. That is exactly what happens in the day-to-day business of running a pharmacy, and it is true competition at work.

If the mooted cuts are made from the incomes of pharmacies there will be massive closures and service reductions in the industry. It is the service reductions that really worry me. The most vulnerable pharmacies will be those in isolated and rural areas. The multitude of totally free services that pharmacies provide to the public will disappear, either by being abandoned due to reduced staffing capacity or by the introduction of charges necessary to fund the services. It is also likely that the totally free and on-demand qualified advice that every member of the Australian public can walk into a pharmacy unannounced to receive will be under threat.

Growth in the cost of the PBS is due in part to the introduction of newer, very expensive drugs. I do not believe it is due to the alleged growth in pharmacists’ incomes. In fact, the opposite is true, as pharmacists’ incomes are largely controlled by government but their costs have escalated, with no such controls in recent years. Alternative ways to reduce the costs of drugs may be to ask why more expensive drugs should not be paid for by a higher patient contribution or why doctors cannot be encouraged to use cheaper alternatives to some of the newer drugs, many of which have questionable levels of improvement over the older drugs. Pharmacy is an industry which has already been subjected to substantial cuts in real income over recent years. (Time expired)