John Watson (Tasmania, Liberal Party) Share this | Hansard source

Tonight I wish to raise some concerns about aspects of the cost savings proposals for the Pharmaceutical Benefits Scheme—often known as the PBS—and the impact that these savings are having on community pharmacies. Honourable senators would be aware that I have some interest in this matter, as my wife is a director and chief pharmacist of the Launceston Friendly Pharmacy—a pharmacy that distributes its profits to its members, supports the health needs of the wider northern Tasmanian community and provides scholarships for nurses going to the University of Tasmania.

Earlier this year, the Australian Journal of Pharmacy said:

Growth in spending on the PBS—

the Pharmaceutical Benefits Scheme—

has slowed to the point where Treasury now forecasts growth of only 2.2 percent for the 2005-2006 financial, adjusted by Treasury from the original 7.4 percent forecast in last year’s Budget.

Proposals for further PBS savings through changes to generic pricing were being considered by government for possible announcement in the May 2006 budget. The federal government—fortunately and wisely—has now decided to defer this decision until a later date. It was a wise decision to defer, because PBS growth is at its lowest level for at least two decades. It also follows closely on the recent signing of the fourth agreement between the Pharmacy Guild of Australia and the government. I report to the Senate that now is not the time to be considering further cuts to the Pharmaceutical Benefits Scheme. You, Mr Acting Deputy President Lightfoot, would be aware of the concerns of local community pharmacies in Perth and in Western Australia generally.

The slowing growth rate of the PBS was acknowledged in Treasury’s Mid-Year Economic and Fiscal Outlook published in December 2005. Treasury took $283 million off the budget forecast for Pharmaceutical Benefits Scheme expenditure for 2005-06. In the 12 months to December 2005, PBS prescriptions were one per cent lower than in the same period in 2004. Also, in the 12 months to December 2005, government spending on the PBS grew by only one per cent—the lowest level of annual growth for at least two decades.

Recent government initiatives to rein in the PBS are having more than the desired effect. I submit to the Senate that they are having a deleterious effect in terms of the community pharmacy and their ability to discharge their responsibilities to the wider community. These government initiatives include the copayment increases of January 2002—$888 million in PBS savings; the 12.5 per cent generic measures—more than $1 billion in savings; and the changes to the safety net. These are all more than what the industry can really absorb and afford.

We had the much heralded fourth agreement between the Commonwealth and the guild, which has only recently been concluded after much protracted debate. The pharmacy sector were prepared to work to provide further savings of $350 million over the next four years. But the other measures that I have referred to pale into insignificance when compared with that general arrangement. Have they been conned? Pharmacists expect that they should be able to plan with certainty for the remainder of the five-year agreement. But these continual changes are impacting adversely on that ability to plan or even to make profits.

The slowdown in the Pharmaceutical Benefits Scheme growth not only results in the government savings compared with forward projections but also means lower community pharmacy revenue. With little or no growth in the PBS—which makes up the majority of a pharmacy’s sales—increases in expenses will reduce the viability of many pharmacies. Salaries, for example, have risen by an average of 8.9 per cent for the last seven years, while pharmacy rents have been increasing on average by 8.2 per cent a year over the same period.

Any of the generic savings proposals, if adopted by government, would completely undermine the goodwill of pharmacists established by the signing of the fourth agreement. Worthwhile initiatives, such as PBS online, which could result in billions of dollars in savings to government revenue over time, could struggle to receive any support from pharmacists if this bombardment of cost cutting continues.

The community pharmacy is at the end of the medicine supply chain, and charges to patients for PBS prescriptions are fixed. The proposed changes, as they have been publicised, could result in a minimum $50,000 cost to each pharmacy each year from lost PBS income. This is a significant sum to remove from pharmacy income and could jeopardise the viability of 50 per cent of pharmacies.

The pharmaceutical industry last year turned over some $15 billion and employed around 36,000 people. The proposed changes, if adopted, could drive drug companies offshore—as occurred disastrously in New Zealand—and force substantial cuts to the large body of research and development activity that brand pharma undertakes in Australia.

The community pharmacy has been recording declining gross margins for many years. An ever-decreasing share of PBS prescriptions has been the main source of this decline. Let me quote some figures. In 1984-85 pharmacy remuneration accounted for 46.5 per cent of PBS costs. By 1993-95 this had reduced to 27.8 per cent. For the last financial year, 2004-05, pharmacy remuneration accounted for just 20.1 per cent of PBS costs. This figure has declined every year since 1985-86 and is now at the point where pharmacy PBS remuneration does not cover all the pharmacy expenses, which are approximately 21.4 per cent of revenue on average. This is before including the salary of a pharmacy proprietor, who would have to work at least 45 hours per week. If this is included, an average pharmacy requires a remuneration percentage of about 27.5 per cent just to break even. Clearly, the present trend is just not sustainable.

Earlier tonight the Senate passed the Therapeutic Goods Amendment Bill 2005a bill which allows the Commonwealth to continue to deliver safe, high-quality therapeutic goods to the Australian people. But I would ask: what is going to be the role for community pharmacies in the future if they are just not there to deliver the sorts of services that the Australian community expects of their pharmacies? We see that the government has been quite successful in its goal to minimise PBS spending, but at what cost? I point out to the Senate that we must be aware of the needs of the community pharmacies. If we drive more and more pharmacies out of the market—as all of these measures will inevitably do—the government will have to take up the shortfall in the provisions of medicines to Australia, perhaps by a more costly avenue or through a vehicle which provides a lot less service and a lot less certainty to the people of Australia—through perhaps a Woolworths type chain. I regret the trends and I ask the Senate for its support.