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Payments to chemists for dispensing pharmaceutical benefits

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2' 19 th Ph 7C u^ y 1" id }I'a L]L ^C1 to . uhs- so' crr^riaeflt t2 a sti; vey he conducted by tn ndy,ndo t firm of taxi mi.hints to .rovide fW t; 1 or i ,tiori Wi :Yaw -oo4t' o di ors i smac uvical benefits and that this irn 'orm- -tion .o .l a become th baths; of 1?Gotiat ori5 on n9i1 g S'cos. _ The ^av€ mellt a2.-eed to c ha L pie cost oT - such a survey and it waz duly cried out Ly .. ti.c f ,r of Associated It dt at ia1 Coni ultorta (ust.) Pty. .Ltd,, u^C3. ew

the su_ erviraion of the Joint Co .. :^ittee on Phzxv Qeutical :3enefitc Pricing &r^ . wo}Zts. (The Joint Committee 13 mane u- of an oG;Q nu er of ,:d

1 . ov nn nt re rnsentat ve5 r.1 er an i:i.u 9I'id nt chr 1:L. j ' i:4 ' s MOIL

The :s: 'V( r p ?`o_t was p :esentud b y the coi ul ani in 1 :.rch

19i : . a^::.. , .as accented 'r the Joint Corni ttL'v inr`.^1 - j 9 . ian U^.iY'


1 tiv

the 'Guild re: ueoted an incrcawe in chemis .. ' fees. The Guild - _ opose tr: ,-_

he Gmoun^ W ire fnea a 2Ou.: d be b soC on the average _w« :s.c;ew3^ ' ric'.^''_-^

receiving a rc^V=. 11 in 167/S8 of w.12,939 from t l : t,hcie of hi , _^herr..:':Crr business for hi c l our an in estLi'.:.t in the buRncss. his 7'oqueau ; no refer ee. to the

j oir:t ttee and a reportt ;ao prc

cad by the Cci ttee.

Dr. Bor oo said t t, in y hc Goverment' vi , the ,^ : Vey

r ecA tz lid Li1 not rt the r.ild Gaile oir an increaue in fees ;oz i=irtior.'.. 1

health dispensing.

The h:zcy Guild, ,fte examini n the r :'eu l t o of the survey, nad

sugeuai,nd in oubeunt :;" bmia ions and negotiations that differznt p_=oce We

Mould h_a ve been nzca in the survey. Ha

-t%cvr, the Giver Ii.i nt believed t n:. t

the s u •Y c wG as based. . ['tea soundly t?GL ^u a

L. Forbes said ho 'ivi ed to point out that he principles on

:ich the 6u vey r= ased, sM she procedu r es :%.Qoyted, irci ding th e b'aceo for

nportloni. 4 costs, 3!e t ; i c'uw 3ed at lengthh between the partics co ncc: cd c::nd

:; &h e acceL'tG':. by the Joint Cio.7&ttce.

• Dr. Fo

y i;es said :iLe _ raoy Guild had alto pro p osed, in _ tc

•.•---J ^^: i^ -m-_ t . ' o it C s u ._.^ ^ J'.:il 4uJ__.i. .i1.7i^^ thai r G.s^'t .i-:i;,o Gi.-•lC^3^5i^,^ ^^^^.s . ^lX_^^ D 7 vi `„^d c.:u a

Not iru io:ial ra at hr Jam"L:n as

•a markup ofl tho cults of rli and c o in-

din -.: : plus a fee. 1'!:l. LrJt'L

=r2,LL 4 had no o ij L'^ti on to the fiat e

fie - _ p r o'no^. ^ vuv ded avo ptabl rrocc%ra for the periodic re'rievi of this

nQt"od C OLlld Uo agreed on. . ljil: ue, the Y'nra:i y ui_C i ad been

Invited to begin consultations with A' view Till- a review of Ce:iiat: 1 feet to be

based an a = vtirvey to be . corduoted. under the a ovices of the Joint Co;1ttee,

The . Got'exnzent .'as wit 1 ins for' the, no w survey to beCin as soon ,s ^z'eemant on

;rocedurwz , could -' e reached,

;9 3- .J ''-^a-'•i969


. Information on Cheuists' Remuner p pion

for Iationil iealth Lispensir

:hc a, plication b y the Pharmacy Gaill of 1ustr;diu fcr - re ie w

of the rxtas- and ;stem of re ,rerating ci er^i.: is for ...e ;,.. i r of :car! cC t-

ical benefi.ta uz^'er th y: Rational Health Act has not; been con.sljerd by the

:ovorr,,nent in the 1 L of independent factual inforrotdon on the earnir. s,

costs and profits of p'1a racy. ii. the Gorernmcnt'a vie`. v this iniepcndei:t

factual ixiormaticzi does not support the Guild's case for an .ncr rvaco in the

rates of re ranerat-^on of chemists for diopen:ing ; ;;ional health res ^ii.n; .

The ollo w:tnd cetailS in relation to th .o matter are 5 y ovi ed

for your information in cz .rificatIon o f theEnt,j st,

In 1961, teen the Government ap rove an increase of 1 in

Ir. i. . dis;erisin; fees, it also e • ercised a :i t Jn der the existing arrs.ruee-

cent with the Guild s hen it advised the 3uild that, becau e of the f r oa^;ish

resist yielded by the for+c la, it was not prepared to continue with the current

formula for automatic ad ust h ent o f dispensing fees but w1phed to negotiate a

co .pletely new a ra* emir&t for future ad uatmcnts in dispensing fees. In September 1 963 the Guild prop ooed that :s^ tional Health dispensing; fees be incrca ed and repeated the rec;ue y t in August 1064, but the p roposals were

based on be trevi us, but now naccepts ble, fo^tula. ahe Guild wiOO=

these proposals in December 1964.

In February 1965 the Guild prorosed that a survey be condis red

by an independent firm of :on. SultF.d?


s to provide factual inforriation on the

costs . oi` dispencin National Health p escriptions, The Governnient agreed to

share the cost of such a survey and it was duly carried out by the firm of

Associated Industri 1 Consultants (trust.) Pty. Ltd,, under the e er y Sion of

the Joint Committee on Ph a maceutic^ ► 1 Benefits Pricing Arrangements, which comprises .ec ua1 Guild and Government representation u n r. er In independent Chairman, Sir Walter - 3e-ott, The s'+? Ivey- report was presented b y the consultant in Urch, 1 9 68^^- nd.'; s-accepted by the Joint,. otrit:tee in si r 1955. The survey proved .


- 2 - ^ ►

he fzst Gothpreh^xisive . set of ion a- ilao.a O. the

: aot'ui costs. Of

d^ pensipg r Iea, .t . froscriptior ! ha sur vey. sttbrred ati a1-: eaith

di s e31oin to be p fi $ ar^.d' hr xi c^* tractin z f _ a 't hd1e, - to be; profit? le,

f .$eptt niber the Guild;- equestcd a, reieE of tho rates .mid

sys em of renimeratir ir s t - ior la t3ona ],. H da p ns in

the Guild requested- •an inc'ease in the rates of chem;:ists! remuneration pe;

pre scription nd that oherist: ' rei mezati.on be paid ac a flat prof ossional

fee rather thun as a markup one the • cost of urns and contain rs i,1 a

di •yenning foe, with wits the flat p^ofessicna1 fee to apply to each iteiu on

Doctor's 3;n orders in addition to escript.ions.

In ': s^ e pra: e :fin 2s-teri' ll.:a_t.'1 l.'^ ci-v4^^^^f ^-L : a:^^^ ^'J V^}^: ^.^ h ^ L^ fi is t the .. for

referred the Gui d to ti(': J_nt Cl;mmib aQ i co `1G :'.', 9. eansP r-

of r ^^


t y, rsc of ^1.t^b:7 ofsuch IL t^s^u by s.;:@ Joint l•4:^.1.^t^B isan S.^i v.^V^ i^ l of ation the ;he Guild, as p rovided for in Section 99 of t the i tionsl Health Act.

The Joint (: Gn. Littee camel` ud it.;: repo:t on L6 February 1969.

For the ;gory of C.-eric ;t, on w h


l AG iId based its c . e the

survey yielded shefollot^i n results:-

ceaty per :^ ^:.5.


1. Sales 1 2,C4

2. Coat of Goods Sold 97,36

3. T`radi=6 Profit 11.2) .08

4. La oar Cost ( 1. ludin the consultant's

owns en; of the val e of the .royx etor's

1abo• ') 4 5 *45

5. Exfe ses 14.41

6. iota! labour cost and e L ,Ues NO 59.06 5 36

. S l c (3- 6 ) 24.52

The survey showed, there o:e, a za 'gin of 24.r32 cents ]er E.H.S.

fore scri lion between t};;,' t bur;, the chemist receives per prescription on the

one hand and the suii of hi costs mid the value of his 1=.bour on the ;:er. Cf

course, the vhe ilst S4'uuid be entitled to a wcasonab e ofit on the costs

incurred in d spensix I ationa? Health proscriptions.

The Guild wanted to increase the value of the proprietors labour

eiYd. to provide a return On capital, (the I4 .tioonal Health sec tor` s shire being ec:iiv Gent 1a 17.22 certl p4r E . pros 'i t ion), but evcn if tee were to be

allo :ed'4t ere wolOtilJ have bean' a rplus of 7.6 oenth nor LH.S.. PresciAt -

ion .re r^inir. ,: It \ as- c: ].y r te: t urzferrj : the_'lo a 'on pet ing to the,

.! ,l.J


`dispeias tha "the_=Gui1 arx p rod .a t . . f ir'e

. 10 i naT.e tse fix? c} ex,aete'

rciu ticn ' r i . ion l

' heallh' tt ns ^ Th mAtt . uh.t thU ovc m nt

at , being F skis+i to aanva ier _ •y h o r sl l - posi on. -t1?o ' to i 3:- bha.. i j, whereas

its -only conce n' a of le pr[ce for

7Yat3onal HOW §rescriptions.

The Ph cy - Guild, after examining the resultss of the steer,

haa uG ested in subsequent. submissions .tad nego uiations that different proced-ures .should have been used in th =s" wve^, ►, in r-,artacuU ar in ro^.ration tr' t^:Q allocation of labour co rtz, .sees ;Ge v i ons Had been made by the Gild not-

ithst end t n that the y J-incipies on ich 11 o su-L ey was n. i.iluod, 4'ind th "oced- f' Aie5 ,dotted, uero ag r eed to by tic' Joint Col's .ttee before the nnsultaat ; vere

authorised-to proceed with he st..rve:r, { ;h-ch2 to t ete Li`dC the

cont of dispenainr Jatic ai health Psi' i t:.o is) ano that v the individualoases

for apportioning cost: wec discussed at length itween the parties concerned

and accepted by the Joint jorr;.ittee. eve, the Govcrnrne ^t believes thst the

sarvey wao soundly based,

in its s; niasior the has w ba`; isei that ch'c zii s is have had

no increase in the r ate2 cl: .silent fen Ospef at:i, Health '

.Jr scription3

since 1961. T7us does not Lean, however, that there has been no increase since

1961 in the amount of remuneration t o chTu.^.7 e. Due . cosn sJ dei4a+.)le

increase in she

-number of 1';r^ 4ional Health 7rescri± bons, pau k tints by the vonmon-

Wealth have increased and. Chen«ists' r munerat'ion voce f ro= 2 9,2 millions in

1961-.2 to $40.8 millions in 1967-8, an inure .oe of 4C over the six yoar P:eri od.

After allowing for the increased nusbe r of pharwacK3 this still rei^ resen J an

increase of 21 emist. This is over and above the payments aae to

ohe ists for the dri jo and cc::;.,mere :^_ P: i ed which in 1967-e were to the order

of SG6.7 ril2ionsc Payiren :s alaval n de for 1968-9 indicate that these amounts

arp iricr.snc still f: uher.

' 26 in It < 'port of 26 Fetr1.. ury ` `69, the joint l omaittee had reported

s ix baslo issu r?5


which 2,_ f delis nt couL not be reaN d. he foci w'O6 are

o ,meats on the Guild app oach in relation to these iscues,

iii:J ly, under the basic philoso r rope ed •J y the Guild! the

Goverrrsert is in effect ::digs a ked to ,:a oat e an income of 11,1`i; in 1964-

risiz y o 6412,939 in 1967-s, for the pruY m:tc i p r.°crrietor in the averagee modal

g roup PhaTvacy (di3pens'i m 687 NSIi ►2..: p resc riptions r c ?x' month and Lavin a `oss

tuTrover7.00f W49,236 in 1964-5) r;ithput any way of knoVing what th position of

his retail trading is in years suboequent to 1964-5. This not CgriEidered to be "tenable in i situation- where . pproxizate. ty 68 of t mcnrer is

derived ; frcn ' retailinc• and uc 1 private: diup.rns inr, and the approach. seeks to :have the Gov rnmcht .sector.. revreae Yi t .ng oni r`v 7 of izrnov r; `code "' Ile .

of the . ore of the harmaoy usz ens, ° inch ud4e , rate r a haoh the--

GLlt'C IiFtlells

d no .$€y.

On the mattir o0 ha Tigus`e . for notions l ;,alsry of proprietors

- ed:_by . the Guild in .ite case, it i s . considered t hat he method u ed b)

r • the

Dui .d to c J.gklate this figure is not valid ac in fact produces an unreal


The Guile had regttosted a, return to the pharmacist at the rate of

on funds employed (including notional goodwill), in . light of " n above

average risk associated with the 1l sole drador ty pe n ' bu. i ess,

icai 'J ^' 1 1 ;wzy t{• There are no bad debts fro= A L i e ..^.spens i an& tAe

Gove k i en t is not a wre of any significant risk f esto


; invc v 4 La f..

1 i1 S dio en

C n, on c 2: r ti5 y rt • • e ^ is C1 w.6^z':led t^'1'F,^ I ^i/^l:L^C^ Fi...^..y3,..^ .` L"iu17 a hr.t_. Siv C1 a • .:. _ a•

T wre ay be a risk factor, for phzxaacy ass a , hol' in t:_c opera-_I ; of iwv

than:acies but this could not re a only be regar cd as being the res onsibil-ity of the Co^"1 i T 1onFrealQ Government. Hor


it is undc : s t ood that Guild of { ice •s

recognise MhsrQ ; ?'e to any pharr:.aCO3 in Australia and that chc;.f of are ac v-ively car sideri ng this matter s

here was v\ factual 11f rLation availa ;e froi the su

r vey on the

value of capital actually invested in goodwill. In its case the Guile used a

nct-ionai level for good;.ill, arbitrarily selected as 5O of teal n o_it, •.hict=

is not necesoar ly a realistic estimate of funds actually invested in food ill.

Even if the Guild's notional level suggested fo goodwill were to be accepted,

the st;rvey results quoted above indicate that this would not be su ' 'icient to

justify an increase in the rtes of chemists' remuner-t ion.

Tne approach adopted by the Guild iL presenting its case cannot

be validly u p dated. Jhon the result: for 1964-5 (ks revealed by the independent

survey) for the National Iealth dispensing Sector of pharmacy are ':pdated,

howevez, by applying a valid updating method, using national indices, ;he figures

shown in the following table are the result;-Cents or NH. trescriotion 1 9

6 4/5 567/6

'• Sales 12.O4 192.65

2.• Cost of Goods Sold 97.36 105.05

3. Trading Profit (1-2) 84.6 e7.64

-q. - L ibour Cost (including the consultants'

.assessment of -the value of the

proprietor's labour) 4.45 47035

5, Experle s 14.41 1454

s POtc I LaMu Cost arc e ^ et3` ( M) 59c86 ' J1 r g

^7.. r urp.Lun,._(.3-6) ' 24_.82 .2 547 5


that t ae c e i ts''_ 4 uri '-last

pxe'scription . is Snot :less a .n; 7.9 .%7/8 On :Izi ,! 94/5 if yt: ly ;has

a.ncreaeed.; Ore: of .1:is faCtirs.,1e •d to this osat an UvUl be the h r

psyments + as . markup on the ,zicrehsed: average ,aiug cost net' pre sLript:ran: father f otcr would bf • a decrease in the avepage .dispe sing time per = .H.S. prco

y ript-

ion jue to the. fast that -the incidence of presezibing of "extemporaaneously- -px p naxed" benefits (..e, t h ose made up from injoedients by ohemiots :^ d w oh

normally take longer to dispen3e than "read--prepared" b efits) had cl .,red.

from 17.8 of W.H.S. prescr iptions' in 1i64/5 to in 1i67/c. In addition,

:c greatly increased number of N.U.S. pTescriptiei.:5 has increase d the a: 1t

of remuneration roceived by chenists, In to Gc ^ rernment' 3 view there ., Ltill

no oae fo an incrouse in the rates Ji C of iste

? remuneration on the up G 9d


The survey r esults quoted above include delivery costs n:d advert-i Ln costs which are :t regc.:d.ed a5 conies+ within the scope of th cost of

dispensing N.;i.S. r•rescriptions. On livery costs, Regulation 30 of 2

National Heal th (Ph •r maceuticul Rene fits) Regulations provldes that, when

pharmaceutical benefit is ielivered the pharmacist ray make a special charge

ejual to the ccu t of delivery. In the case of a=.vertisir costs it is oonidered

that there i3 no recess ty for a pharmacist to alive: tise 1 cc 1 1 yalth

dispensing servioes.

The Guild has been advised of the above views on its

to these issues in order that the Joint Co iittee's future co nsiderations in

relation to chemists' rer ;rzerat±on may be facilitated.

The Guild had also proposed in its sub iesion of 18 Seplernber

1968, that checists' renunev tion fu:: National Health cisp sine be paid as a

flat professional fee rather than as a i kup on the costs of di- s and contain.-es plus a dispensing fee. The Govern=ent has agreed to this change in the

system of leiuneration of ne:.lists for National alth dispensing provided

accept ble procedc us for the periodic reviev of t .ic method of payment could be

agreed on. Accordir3ly, the Mix ster for health has re q uested his Department to

arrange'oi • an early meeting of the Joint Committee to discuss a new and mutually

acceptable priei.rg formula subject to matuo safeguerds, and to advise him


In its report of 26 February 1969, the Joint Cc;s ittee recd ended,

in view of the co^cnent3 by the Go ronwealth Statistician and experience eve seas,

that i\ ether reviews be carriedout c k eep the survey information ' up to We and

as a means of ad?usti*u rer ra ion: f ors time to time. The Goverment con text


'i i a c v 1Giia: hM , Er^±f ba`r^ri :3n ^c =t.o

[atrfle o9: corlsx 2tgt .ona th a'rev i w Of ch i^?^ •S^e^msa r" 1r^T^ £o

'I Bti'ox i S fl T6 b

;fie -ba3Ed teww thv of ph r . e,'

c0et8 profi o. It h€.o bee beei roposed to the Guild that the new survey be

conducted der the auspices O af ` tt} e Joint Committee on Thazuaceutical Bermfits.

Pricing Arrang t ente and that the curvey beGin as soon as agreement on

proced u a'es can be reached by the Joint Co ittee. The Guild has been asked for an early reply on this matter Oo that axrareierits for the near review o

chemists' reu^ux e+ation can be embarked on with the m±nimuiu of delay,

.J. Forbes


23 Jane 1969