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Fourth Community Pharmacy Agreement Questions and Answers

Questions and Answers regarding the Fourth Community Pharmacy Agreement.

• Fourth Community Pharmacy Agreement Questions and Answers (PDF 319 KB)

Remuneration

1. What does the government currently pay pharmacists?

Currently, the Commonwealth Government makes payments direct to pharmacists for supplying medicines listed on the Pharmaceutical Benefits Scheme (PBS). These payments cover:

• the cost of the medicine
• the cost to have the medicine delivered to the pharmacy by a wholesaler
• a retail mark-up to cover pharmacists’ costs in storing and handling medicines
• a fee for the pharmacist’s professional advice and services in dispensing the medicine to the patient.

A separate payment is also made by the government where a pharmacist is required to supply a PBS medicine that is classed as a dangerous drug (for example, morphine injections) or where the pharmacist is required to mix the ingredients for a PBS medicine before it can be given to the patient (for example, antibiotic mixtures for children).

Under the Third Community Pharmacy Agreement, the government also allocated $400 million for various pharmacy programs (for example, support payments for pharmacists in rural and remote areas, and payments for pharmacists to review the medicines being taken by elderly patients in nursing homes to make sure they are taking their medicines correctly).

2. Will pharmacists be better off under the fourth agreement?

Under the Fourth Community Pharmacy Agreement, a total of $11.1 billion in payments will be made for the dispensing and supply of PBS medicines. This compares with $7.9 billion under the third agreement.

The new arrangements retain the payment structure provided for in the third agreement, as outlined above.

The main features of the fourth agreement are:

• a reduction in the allocation set aside for wholesaler costs (the wholesale mark-up) from 11.1 per cent of the manufacturer’s price for the medicine to 7.5 per cent ¹of this price
• an increase in the pharmacist’s dispensing fee from $4.75 per prescription to $5.15 per prescription.

While the value of the wholesale mark-up paid to pharmacists will be reduced, a new Community Service Obligation (CSO) Pool will be established. This pool will provide additional payments to wholesalers, over and above the 7.5 per cent ¹ wholesale mark-up, that agree to supply the full range of PBS medicines to pharmacies across Australia. This will support access to PBS medicines in rural and remote areas.

The fourth agreement will also provide $500 million to continue and expand professional pharmacy programs and services that were funded under the third agreement.

3. How will pharmaceutical wholesalers be affected by the revised arrangements?

At present, all payments by the government for the supply of PBS medicines are made directly to pharmacists. Pharmacists, wholesalers and manufacturers determine terms of trade between themselves. These arrangements will not change under the fourth agreement.

Not all pharmaceutical wholesalers carry the full range of PBS medicines, as many of these medicines are required in low volumes (that is, supplied to a pharmacy less than once, per pharmacy, per month). Accordingly, some wholesalers may choose to carry only more ‘profitable’ PBS medicines, such as those medicines that are ordered frequently, or that are cheaper to distribute.

Under the fourth agreement, a separate fund of $150 million per year will be established, called the Community Service Obligation (CSO) Pool. The aim of the pool is to ensure there are arrangements in place for all Australians to have access to the full range of PBS medicines, via their community pharmacy, regardless of where they live and usually within 24 hours.

The pool will provide payments directly to wholesalers who supply the full range of PBS medicines to any pharmacy, usually within 24 hours, and who meet certain service standards. These payments are over and above those made directly to pharmacists to cover the costs of supply from the wholesaler.

It will also ensure that it is commercially viable for pharmaceutical wholesalers to supply the full range of PBS medicines to pharmacies across Australia, regardless of pharmacy location and the relative cost of supply.

4. Who will be able to receive payments under the CSO Funding Pool?

Pharmaceutical wholesalers will be eligible to receive payments under the CSO Funding Pool if they can demonstrate:

• Infrastructure capacity to meet required service standards
• Purchase of 100% of the PBS range of products supplied through pharmacy, directly from the manufacturer
• At least 12 months of distribution sales records showing that at least 30% of sales are to rural and remote pharmacies and at least 30% of sales are for low-volume PBS medicines

New entrants without 12 months of sales records, as described above, will be able to access payments from the pool provided they can provide evidence that they have the capacity to meet the service standards.

5. What will the service standards cover?

The service standards will require eligible wholesalers to:

• Supply all medicines listed on the PBS and supplied through community pharmacy that are available from PBS manufacturers and suppliers
• Supply at least one product for each PBS item that does not attract a brand price premium
• Deliver the full range to any pharmacy in Australia (national wholesalers) or to any pharmacy in the State or Territory (state or territory wholesalers)
• Deliver the full range within 24 hours of a pharmacy’s regular order cut-off time
• Deliver low volume medicines and single units of a medicine, where requested by a pharmacy
• Supply to pharmacy at or below the published Approved Price to Pharmacist.

6. Will medicines be cheaper under the new arrangements?

The co-payment amount that patients pay towards PBS medicines is set by legislation.

Most medicines available on prescription are subsidised under the PBS. Many cost the Government much more than the price you pay - some cost hundreds of dollars, but the Government provides a subsidy so that you pay much less. Maximum patient co-payments will not be affected. General patients will pay a maximum of $28.60 and concession card holders will pay only $4.60. These arrangements will not change under the fourth agreement.

Approximately 20 per cent of all prescription medicines dispensed to general patients cost less than $28.60. Pharmacists are currently able to discount the price of these medicines that cost less than the co-payment. This will not change under the fourth agreement.

7. How will people living in rural and remote areas of Australia be affected?

For the first time, the government will make payments to pharmaceutical wholesalers to make sure they deliver the full range of PBS medicines to all pharmacies, regardless of location and usually within 24 hours. This will ensure continued access to PBS medicines in rural and remote Australia.

The government is committed to ensuring that people living in rural and regional Australia have access to pharmacy services. It has increased its funding support for rural pharmacy programs from $71 million under the current agreement to $111 million under the new agreement.

It has also increased its support for programs that support and improve access to pharmacy services by Indigenous people, by providing increased funding of $27 million under the fourth agreement, an increase from $3 million.

Pharmacy Location Rules

8. What are the pharmacy location rules?

The pharmacy location rules are set out in a Ministerial Determination under the National Health Act 1953. The rules establish location-based criteria for a pharmacy to be approved to supply medicines under the Pharmaceutical Benefits Scheme (PBS). If a pharmacy does not meet the criteria under the location rules they cannot receive government payments for the supply of PBS medicines.

The pharmacy location rules have been agreed between the Australian Government and the Pharmacy Guild as part of negotiations for the Community Pharmacy Agreements.

9. How will the new location arrangements differ from the existing arrangements?

The new rules will be more flexible to allow pharmacies to compete amongst themselves and to improve community access to pharmacy services.

While the new location rules will include many of the existing provisions (such as the requirement that pharmacies must generally be at least 1.5 km from each other), they will introduce several new provisions that will allow pharmacies to relocate to:

• large medical centres (eight or more doctors) that operate extended hours
• small shopping centres (with 15 shops and a large supermarket)
• large single pharmacy rural towns (8000 or more people) and urban areas with high population growth.

The new arrangements will also give the Minister discretion to approve pharmacies in circumstances where the location rules have resulted in an unmet community need for pharmacy services.

The membership of the Australian Community Pharmacy Authority, the body which considers pharmacy applications, will also be expanded to include a consumer representative.

10. Will the location arrangements allow pharmacies to operate in supermarkets?

The government will retain the existing rules that prevent pharmacies from locating within, or that have public access from, a supermarket.

11. When will the new location arrangements take effect?

The new arrangements will have effect from 1 July 2006. This will allow the pharmacy sector to prepare for the changes. The existing arrangements will continue until that time.

¹This equates to a 7.0% wholesale margin on the approved price to pharmacist