Australians missing out on cheaper medicines due to powerful lobby group, report claims

Australians are missing out on cheaper medicines due to backroom deals by one of the country's most powerful lobby groups, according to a new report.

Public policy think tank the Grattan Institute says the Pharmacy Guild of Australia, which represents most pharmacy owners, is calling the shots and bringing in massive profits at the expense of patients.

The guild has major political influence — it is the biggest donor in the health industry — and negotiates with the government every five years to secure almost $4 billion in taxpayer money annually for its services.

However, the negotiations take place behind closed doors with no external scrutiny and little transparency about the evidence used to make decisions.

"That is undue influence from a vested interest," Grattan's health director and lead author of the report, Peter Breadon, said.

Mr Breadon said "Community Pharmacy Agreements" provided "generous" terms and guarded pharmacy owners from revenue declines.

"The Pharmacy Guild's survey of its own members suggests that the profits of its members have more than doubled in the last decade," he said.

But guild vice president Simon Blacker said the funding agreements reflected the essential role pharmacies played and the broad range of services they provided, such as vaccination programs and chronic disease support.

He also refuted claims the guild was not focused on patients and affordable medicines, highlighting its campaign last year for the government to lower the Pharmaceutical Benefits Scheme (PBS) co-payment.

"The guild's advocacy resulted in the first reduction of the out-of-pocket costs of medicines in the history of the PBS," Mr Blacker said.

Patients paying 'unjustified' fees

Community pharmacies receive a range of payments for their services, with some paid by the government, some by patients, and some by both.

One of these is a "dispensing fee" to cover the cost of receiving a script, verifying it, preparing the medicine and advising the patient on how to take it. The fee is about $9 for an average medicine.

The Grattan report found dispensing fees were not actually based on the cost of dispensing, and there was no way to know the real cost.

"[This] is no accident … efforts in Australia to establish the real cost of dispensing have been blocked by the guild, forcing the government to negotiate fees in the dark," the report stated.

Mr Breadon said there was evidence taxpayers may be paying too much, but the guild said the claim failed to recognise rising operating costs and everything the fees covered.

Patients can also be slugged with the "allowable additional patient charge", which allowed pharmacies to charge an additional $2.80 on some medicines.

In addition, pharmacies are dis-incentivised from offering discounts on some medicines, and a $1 discount that has been available over the last decade will end by 2029.

While a $1 discount sounds negligible, in 2022-23 it saved patients about $48 million.

The guild said discounts were often only given in urban areas or to concession card holders, and reducing the PBS co-payment fee has provided much better value to all Australians.

Location rules stifle competition: report

The Pharmacy Guild has also achieved restrictions on where new pharmacies can be established.

Generally, a new pharmacy must be at least 10 kilometres from another one, but there are exceptions if a GP or major supermarket is nearby.

The guild said this ensured pharmacies do not just open in commercially attractive locations and leave vulnerable communities without services.

Grattan, however, said the rule shielded existing pharmacies from competition and must be scrapped.

"Other countries have scrapped these kinds of rules, and when they do, you tend to see more pharmacies, longer opening hours, and in many cases, lower prices," Mr Breadon said.

Mr Breadon said to ensure there were enough pharmacies in rural areas, the government needed to step up and provide workforce incentives and rural subsidies.

"Direct support can improve access to medicines without constraining competition across the whole sector," the report said.

The Grattan report recommended abolishing Community Pharmacy Agreements by 2029, when the current agreement expires.

If the government did not do this, it recommended pharmacists and patients be included in negotiations, and the Independent Health and Aged Care Pricing Authority set funding rates.

Health Minister Mark Butler would not be drawn on whether the government would consider the report's recommendations.

He said the current pharmacy agreement had involved engagement with stakeholder organisations.