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Just what
are we envisioning when we talk about corporate pharmacy?
Are we talking about the proposed Australian model, or are we
thinking about the Boots the Chemist or other global models that
are public companies?
Or are we thinking about the successful community model established
for indigenous people in the Tiwi islands?
Certainly, a corporate style cooperative owned by an isolated/rural
community may be another method of securing pharmacy services
in the bush, and could also represent a venture economical enough
for a young pharmacist to give it a go. Community banking has
proved successful, so why not a community owned pharmacy in a
town where pharmacists may not wish to risk their capital?
The Australian
model, which was recommended in the Wilkinson Review, is simply
a private company comprised of a pharmacist and his "near
relatives", or a partnership of pharmacists conducted from
a private company structure, or perhaps the odd Friendly Society
corporate structure.
John Bronger describes this as "the spectre of corporatisation
that naturally does not sit comfortably with most community pharmacists".
Is this such a spectre when most pharmacists are already halfway
there with service companies?
One would have to challenge this assumption simply on the basis
of commonsense.
It is only the prospect of open ownership that creates a "spectre",
unless it is confined to special purpose pharmacies, such as the
Tiwi Island pharmacy or rural/isolated community owned pharmacies.
Firstly, it would not be mandatory for all pharmacists to adopt
corporate structure.
Only those that saw benefit.
Secondly, pharmacists might just be able to operate a company
and derive benefit through their tax planning and management efficiency.
Thirdly, some pharmacists may see financial benefit by being able
to merge their businesses on an exchange of shares and develop
a single larger unit, or a chain group, that may bring a scale
of economy.
Naturally, if benefits were not seen to exist, then individuals
would not merge.
John Bronger and the PGA would rather oppose enabling legislation
for pharmacists to even consider such a proposal.
One has to query "Why?" when corporatisation only adds
to the range of choices that a pharmacist can embrace.
We are certainly not talking about a public company/global conglomerate,
which is the only "spectre" I can imagine.
One has to also ask what is the real agenda here?
Could it be that the spectre of corporatisation might work to
rapidly reduce (by merger) the total number of pharmacies, and
thus a reduction in Guild membership?
Could it be that the eventual development of large viable chains
or groups might be so strong as to be able to stand alone and
not need the services of the PGA?
Could it also be that each of these stronger groups would lobby
individually with a federal government to negotiate their own
separate benefits for the provision of services?
I guess it
could be all of the above, but the reality is that if we do not
have strong Australian owned pharmacies with resources to stand
up to global competitors, we will simply be picked off, pharmacy
by pharmacy, as the deregulators advance their own agenda.
John Bronger
quotes from KPMG reports, evidently developed in 1999, from data
contained in the 1981-82 Bureau of Industry Economics survey of
community pharmacies.
He states a range of negatives as to why economies of scale will
not materialise with incorporation and develops these as arguments
against incorporation.
Well John,
I say again, pharmacists are not stupid.
They will take the choices that suit them (and as a logical follow-on,
choices that will suit their own customers/patients), so just
get on with it and let them have the choice to incorporate or
not incorporate.
The incorporation decision is up to the individual!
John also
goes on to say that we do not need incorporation, because we have
a range of programs that will negate this need.
One program he quotes is the QCPP and the fact that 50 percent
of Australian pharmacists are now accredited. I would suggest
with respect, John, that you read the debate on QCPP that has
occurred in this publication in this issue, and the previous (March)
issue.
All is not well with QCPP and you need to check this out, because
although you may have 50 percent enrolled, 69 percent of that
50 percent perceive little or no benefit from the process.
And this data is taken from your own sponsored Auspharmlist poll
on the subject!
As one of our writers has previously pointed out, a larger corporate
structure properly resourced could undertake accreditation with
an economy of scale, particularly if this corporate structure
was the result of say, the merger of six or more smaller structures.
More, it would be in a position to ensure that accreditation procedures
became truly embedded in the culture of the business, not just
for cosmetic reasons, as appears to be the case for some of the
existing accreditations.
Just think, one accreditation compared to six or more.
That would reduce costs indeed!
John also
quotes the area of IT where he claims Australia's pharmacies are
ahead of their counterparts in other health professions. This
may have been true up to two years ago, but a trip to your local
Division of General Practice will certainly change your mind.
Not only do individual group practices of GP's employ their own
practice managers and IT specialists, but they are backed at the
local level with similar well resourced specialists located in
their local Divisions of General Practice.
And these are local GP's incorporating for their own benefit and
doing very well thank you!
John also
quotes a third argument against incorporation, using cigarette
sales as the illustration.
He states that the Canadian government had difficulty removing
cigarettes from corporate pharmacies because they refused to stop
selling them.
Well currently, this cannot be the case in Australia because of
previous successful campaigns by the PGA and the PSA.
So why is this an argument against Australian pharmacists incorporating?
It beats me!
Going back
to the arguments of lack of economies of scale, John represents
them as being:
"
* Economies of scale are primarily in retailing and almost 60
percent of pharmacy non-dispensing trade faces supermarkets and
other retail competition."
So what is
new?
Are you telling me that a properly resourced corporate pharmacy
with a retail manager to head up a retail division would not generate
sales increases and increases in market share?
Retail business is being bogged down right now because pharmacists
are trying to cope with the paperwork associated with dispensing
in a highly regulated atmosphere, plus develop cognitive services.
Pharmacists have traditionally been good retail managers, if they
have the time.
They cannot afford the expense of a separate manager in one pharmacy.
A merged unit of six pharmacies?
Now that would be a different (and cheaper) experience.
Priceline have already proven that by managing the retail section
of a pharmacy systematically and by building up internal market
research, you can very quickly gain market share.
And what about venturing into e-commerce?
A properly resourced website with a shopping cart is another extension
that can be considered, which may just provide that little extra
in revenue and service, provided it is capable of being managed
and marketed effectively.
Incorporation, I believe, would revive pharmacist entrepreneurial
spirit, which has been deflated through not being able to manage
sharply increased workloads for a lower return.
John, your negative argument is actually an argument for incorporation
and economy of scale!
"
* Economies of scale in dispensing are exhausted at volumes of
25,000 annually. Already 70 percent of pharmacies operate at this
level or above."
Well John,
if you were keeping up to date with IT developments you would
know that there are automated dispensing machines coming on to
the market, and that the more successful versions have been trialled
in British hospitals and German community pharmacies.
By no stretch of imagination could a sole trader pharmacy consider
this scale of operation, but a merged corporate structure could.
Not only would this system release pharmacists for cognitive services,
it would allow for local recruitment of dispensary technicians.
It would also allow pharmacists to diversify their dispensing
into say, the "compounding chemist" variety, or herbal
dispensing, all market extensions that could only be achieved
through the economies of scale created by corporate mergers.
Further, with the development of remote dispensing processes,
it may be possible to create more economies of scale.
Is this the sprectre of corporatisation that worries you?
I see it as a way of retaining control of the dispensing process
while simultaneously releasing pharmacists for cognitive services
development.
I see it as a way of retaining all pharmacy processes in the hands
of Australian pharmacists.
But this will not happen if you continue to oppose corporatisation!
Think again, is this what you really want?
"
* Economies of scale are derived through the use of bulk purchasing,
marketing groups, buying groups and brands-practices already used
by many pharmacies."
Are you saying
that there are not more savings available from larger corporate
structures, with the type of supply procedures utilised by organisations
such as Woolworths?
If so, you would be wrong.
Certainly, larger pharmacy corporates would tend to deal directly
with manufacturers, or perhaps those wholesalers that could demonstrate
that they could manage the supply chain cheaper than the retailer.
Again, I find this type of argument very strange.
Pharmacists are using structures to gain economies in buying price,
but they could obtain greater economies of scale in their purchasing
costs. Savings in this area could be turned back into lower retail
prices, which is exactly how global retailers work.
Have you ever looked at the "Every Day Lower Prices"
strategy of Woolworths and wondered how it works.
Well, no surprises.
Margins are manipulated by planned cost savings, and until Woolworths
gets genuine competition in this area, the strategy will serve
them well for some years into the future.
Pharmacies operating on their current scale and structure will
never be able to compete, and yet you continue to say that economies
of scale are not available to incorporated pharmacies.
There are dozens of new innovations that when combined, create
considerable savings on overheads. This is where the new competition
lies.
Woolworths will really like your style of thinking!
This is another argument for incorporation by pharmacists-not
the reverse.
"
* Nearly 25 percent of pharmacies have dispensing volumes of 50,000
or more prescriptions a year- a level much larger than the average
of pharmacies in the UK or US, which are frequently used as models
for reforming economists. This shows legislative regulation does
not prevent pharmacies from operating at a large scale, and, indeed,
average pharmacy sales rose 13.4 percent in 2000-01."
But what was
the cost John!
Most independent pharmacists lost their weekends and have gradually
sacrificed quality of life.
This has further translated into many pharmacists leaving the
profession because they did not want to become "dispensing
machines".
Any attempts at amalgamation indicated that if a pharmacist was
near retiring age, he took his money and left the profession.
Why wouldn't he?
But if he was able to merge into an enterprising and interesting
corporate structure, not only would his services be retained,
so would his capital.
Your argument again supports the need to incorporate!
Why are you
attempting to divert pharmacists away from incorporation?
As president of the PGA you must represent all members, including
those that wish to incorporate.
Why don't you poll PGA members who control the largest market
share components and see how they feel about your thinking.
I am sure they will not be shy in their response, and while they
may represent the larger type of pharmacy, both in physical size
and in turnover, you cannot forever shackle them with the restrictions
that smaller community pharmacists would wish.
If you do, this will be a house of cards for the future (not too
far away).
There has to be a strong, well organised cadre of community pharmacists
that can stand up to pressures of deregulation.
PGA thinking should be more directed as to how it is going to
be relevant for the future, and what constructive alliances/amalgamations
will help it retain its viability.
Remember, John, it was you that announced the potential for a
PGA merger with PSA.
The winds of change must have been whistling to provoke that unusual
comment!
Don't hold your individual members back if they want to merge
into their own chosen structure.
You are simply trying to turn back the clock--and it won't work!
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NEIL
JOHNSTON