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The first article in this series discussed aspects of a group of senior government officials (state and federal) who had been formed into a committee known as the "COAG Senior Officials Working Group".
This working group, had as its task, the development of a series of recommendations in respect of the Wilkinson Review into Australian Pharmacy.
They were the "power behind the throne" and their comments did not necessarily support pharmacist ownership of pharmacies, or other prime pharmacy issues.
There has been little publicity on their comments, and as New Zealand pharmacists have suffered an adverse finding from a similar group of government officials, I will continue to publish the working group's comments to ensure that Australian pharmacists have full and prior knowledge.

The last article also illustrated what happens to the professional aspects of pharmacy when ownership becomes a reality, and quoting from case histories from the UK and the US, it was apparent that professional standards were submerged, shareholders were paramount and that there was little investment back into professional development.
So it is important to know where a defence may need to be mounted, and I will briefly discuss all the important issues raised. There is a fair amount of detail, so I will try and give the sense of the various comments without getting lost in the maze.

The Wilkinson Review in its Recommendation 2, suggested that:

"For Residential and Local Registration Requirements

(a) Any State or Territories residential requirements for pharmacy ownership are removed; and

(b) Any State or Territory's requirements that a pharmacist be registered in that jurisdiction to own a pharmacy are retained, pending any consistent national arrangements that may be adopted."

Here, the Review was trying to free up as many restrictions as possible surrounding pharmacy ownership and found that the residency requirement to be an unnecessary restriction. However, the Review did find it reasonable for pharmacy proprietors to be registered with the various states in which a pharmacy was located.

The Working Group Commented:

"The Working Group endorses the principle of pharmacist ownership registration established by the Review. It is appropriate that as the ownership regulatory framework is managed at the State or Territory level pharmacy owners register with local authorities."

There is little controversy in this comment and there was support for the concept of one national registering authority. The only state that would be required to change its law in the above is Western Australia.

For ownership structures, the Review in its Recommendation 3, suggested that:

"(a) Pharmacy ownership structures permitted by various State and Territory Pharmacy Acts be retained as being consistent with the defined principle of pharmacist ownership and effective control of pharmacy businesses;

(b) Pharmacy Acts recognise, in addition to sole trading pharmacists and pharmacist partnerships, corporations with shareholders who are:
(i) All registered pharmacists;and
(ii) Registered pharmacists and prescribed relatives of those pharmacists; and

(c) Due to the risks of conflict of interest of shareholders, and the difficulties in determining the extent to which minority shareholdings of non-pharmacists held by non-pharmacists may compromise pharmacist control of a pharmacy, operating companies with minority shareholdings held by non-pharmacists are not considered to be appropriate ownership structures for pharmacy businesses."

There needs to be a little more flexibility introduced into the shareholding structure, particularly in regard to a group of shares reserved for non-pharmacist employees.
Shareholders are a source of capital, and share ownership creates a loyalty to the corporation. As more pharmacy employees become recognised as skilled pharmacy technicians, assistants and support staff to clinical pharmacists, why should they be not allowed to be total participants?
Employee shares usually revert back to the company when employment ceases, but perhaps a provision should be made for employees who retire. Having given a long and loyal service, this could be a reward.
Private superannuation funds may also need to be able to own shares, but only for those prescribed pharmacists and near relatives.
It is also important for pharmacy companies to be "exempt" companies i.e companies that are not allowed to have shareholding by public companies (direct or indirect).
This avoids the problem of a public company director, who may be a pharmacist, being able to participate in the management or ownership of a community pharmacy while in that capacity.
The Working Group basically endorses the first two of the Review recommendations and adds that the South Australian corporate model may be the way to go. Its actual comments were:

"* Accept recommendation 3(a);
* Accept recommendation 3(b) noting that Sub-section 18(2) of the South Australian Pharmacy Act 1991 requires a company registered as a pharmacist to have satisfied the Board that its memorandum and articles of association provide that:

--The sole object of a company must be to practise as a pharmacist;
--The directors must be persons who are registered pharmacists or, if there are only two directors, one may be a prescribed relative (parent, spouse, de facto partner, child or grandchild);
--Shares are owned by a registered pharmacist director or a prescribed relative of that pharmacist;
--Total voting rights in the company are held by registered pharmacists who are directors or employees of the company;
--The directors are not directors of any other company registered as a pharmacist without the Board's approval;
--Shares in the company cannot be transferred beyond the company and members of the company; and
__Shares held by a spouse or de facto partner must be redeemed by the company on the dissolution of the marriage or the ending of cohabitation; and

* Accept recommendation 3(c) but consider it again once other reforms are in place and in conjunction with the planned review of location rules in the Australian Community Pharmacy Authority (ACPA)."

This last recommendation is the sting in the tail, because it relates to open ownership of shares in pharmacy companies. While the review of the ACPA location rules did not subsequently eventuate in the manner that the Working Group may have envisaged, open ownership of pharmacies is nonetheless, still on the agenda.

In the matter of the number of pharmacies owned by proprietors and the pharmacist supervision of pharmacies, the Review, in its Recommendation 4 suggested that:

" (a) State and Territory restrictions on the number of pharmacies that a person may own, or in which they may have an interest, are lifted;

(b) The effects of lifting such restrictions be monitored to ensure that they do not lead to market dominance or other inappropriate market behaviour; and

(c) Legislative requirements that the operation of any pharmacy must be in charge, or under the direct personal supervision, of a registered pharmacist are retained."

The Working Group stated that the removal of restrictions on the number of pharmacies an owner can operate is one of the most far-reaching reforms contemplated by the Review, and has the capacity to significantly change the nature of community pharmacy through economies of scale and the development of more efficient pharmacy businesses.
The Working Group also made comment that if a person using modern communications and information technology can deliver a high standard of care across a large number of pharmacies, it is difficult to see why the owner needs to be a pharmacist. It used the example of the Friendly Societies as having already demonstrated this.

The Working Group also commented that it could not suggest any imposition on the number of pharmacies a pharmacist can own, stating that restrictions were difficult to enforce, and were anti-competitive. Market caps should not be introduced.
Comments in respect of market dominance centred around the ACPA and the lifting of local restrictions to allow other practitioners to easily enter the market to act as an efficient deterrent to market domination.
The Working Group noted that if isolated pockets of market domination did develop, the potential for raising prices and making large profits is very limited. It went on to state that prescription prices are controlled basically through the PBS, that pharmacists competed with many other retailers on their general merchandise, that Internet pharmacies introduce a new dimension of competition and that, on balance, there are enough mechanisms in place to safeguard the broader community against the ill effects of market dominance.

These very arguments voiced by the Working Group seem at odds with their underlying sentiment of considering open ownership. If pharmacy is already competitive, would open ownership bring further benefit in lower prices, and would it be possible to sustain a high level of clinical services?

The Working Group wants to address location restrictions in 2004.
It also endorses the concept that each pharmacy operate at all times with a registered pharmacist in attendance, but states:
"The Review's recognition that this rule ensures safe and competent pharmacy services raises the question of whether superimposing a layer of pharmacist ownership adds anything."

Given the UK and US experiences outlined in my last article, the above conclusion is ceratinly debatable.
Thus, the Working Group final recommendations in regard to the above were:

"* Accept recommendation 4(a) noting the apparent tension between this recommendation and recommendation 1;

* Accept recommendation 4(b) and monitor the impact of lifting these restrictions in 2004; and

* Accept recommendation 4(c)"

N.B. The "tension" noted above referring to recommendation 1 (which was commented on in my first article) relates to the Pharmacist only ownership of pharmacies.

In the matter of permitted exceptions to pharmacist ownership, the Review, in Recommendation 5, suggested that:

" (a) Friendly Societies may continue to operate pharmacies but that:

(i) Regulations specific to the establishment and operation of pharmacies, that do not also apply to other pharmacies and classes of proprietors, be removed; and
(ii) Any Friendly Society that did not operate pharmacies in a jurisdiction on 1 July 1999 or any other prescribed date should not own, establish or operate a pharmacy in that jurisdiction in the future, unless it is an entity resulting from an amalgamation of two or more Friendly Societies operating a pharmacy from that date;

(b) Permitted corporately-owned pharmacies continue to be restricted under grandparenting arrangements where these apply;

(c) The relative financial and corporate arrangements of pharmacist-owned pharmacies and Friendly Society pharmacies, as these may affect the competitiveness of such pharmacies with each other, could be referred for definitive advice to the Australian Competition and Consumer Commission (ACCC), or another agency or authority of comparable and appropriate standing; and

(d) The findings of any such enquiry may be taken into account as part of legislative reform process in this regard."

The Working Group commented that the Review had identified three groups of pharmacy proprietors who are not necessarily registered pharmacists (administrators of deceased estates and bankrupt or insolvent pharmacy businesses; non-pharmacist companies and individuals who were permitted to own pharmacies before existing pharmacist only restrictions came into force; and Friendly Societies of which there are currently 34 societies owning 117 pharmacies throughout Australia).
The Review concluded that Friendly Societies, as permitted players, should be treated consistently nationally and equitably with other pharmacies.

The Working Group had a number of comments in regard to Friendly Societies noting that their treatment varied across the states and that the Victorian Pharmacy Act provided the best model for dealing with Friendly Societies.
It considered arguments to contain the expansion of Friendly Societies, noting their tax advantage over pharmacist owned pharmacies, and their corporate structure, which gave them economies of scale.
Also noted was the fact that the societies had a higher rate of accreditation against the Guild's Quality Care Program than pharmacist owned pharmacies, that, in fact, a society pharmacy was the first to qualify under the Guild Quality Care Program, and Friendly Societies appear to be flourishing overall.
It further noted that they provide a safe and competent pharmacy service.

The Working Group also considered arguments that Friendly Societies could create market dominance if restrictions were eased, but noted:
"Preserving some non-pharmacist ownership in community pharmacy maintains a bridgehead to future longer-term reform, if that is a possible policy direction."

And it is the above statement that appears to be most concern to community pharmacists, because the Working Group is happy to see Friendly Societies retain their tax advantages and scale of economies, as well as allowing them to expand in numbers, stating that:
" The only issue that should determine the extent of friendly society participation in community pharmacy is whether they can run good pharmacies. On this basis the Working Group conclude that Friendly Society pharmacies, as a sector, should be permitted to expand."

The Working Group final recommendations in respect of the above, were:

" * Accept recommendation 5(a)(i) noting that the provisions of the Victorian Pharmacy Act provide a sound workable model for adoption by all jurisdictions;

* Reject recommendation 5(a)(ii);

* Accept recommendation 5(b);

* Accept recommendation 5(c) and note that the Working Group has sought advice on this issue: and

* Reject recommendation 5(d) depending on advice;

* Note that there is no change proposed to the current provisions for deceased estates and bankrupt individuals and businesses."

It is this writer's view that in light of the comments expressed so far by the Working Group, the intent by government will be to open up the Friendly Society component as an intermediate step before open ownership.
This, coupled with the fact that there is no announcement concerning legislation to enable pharmacists to incorporate, means that community pharmacists are vulnerable to the immediate challenge of Friendly Societies, given that they will probably emerge with their tax advantages intact. This seems to fly in face of the Review recommendation that Friendly Societies should be players on an equal footing with other pharmacists, but should not expand their numbers.

The New Zealand experience is a wake-up call to all pharmacists, and it is hoped that official pharmacy is drawing up a team to monitor the experiences in that country, as open ownership emerges.
2004 looks like being an interesting year for Australian pharmacists, and could be the last step before open ownership in this country. Approval numbers will disappear, Friendly Societies will compete aggressively for market share, and if pharmacists are allowed to incorporate, there should be a flurry of strategic mergers.

There is a final article to come in this series, planned for the next edition.

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