The Impacts of 60DD on the pharmacies bottom line and the impact on customers

We at Alita wanted to understand further the impacts of 60DD dispensing from the pharmacy’s perspective and in particular rural pharmacies.

We interviewed Georgina Twomey from Alive Pharmacy Warehouse group. She has a group of nine rural pharmacies in Far North Queensland and was able to highlight some of the key financial impacts on pharmacies and how these will impact the customer.

We asked her a number of questions so that the industry, particularity suppliers can further understand the long-term major impacts of the proposed 60DD change due to come into effect on September 1st.

Here is a summary of the key points:

Could you explain how pharmacies earn their income in Australia?

There’s a common thought from people that pharmacists buy their drugs and they put a markup on them and sell them just like they do Panadol or band aids in the front of shop.

The PBS (Pharmaceutical Benefits Scheme) regulates the price of medicine in Australia so that all Australians have equal access to medicines no matter where they live or how much they earn. Therefore, pharmacy medicine renumeration is set and pharmacies can’t just increase their fees to customers to cover this.

With retail yes, they can make adjustments but the average pharmacy is mostly dispensary -about 80% dispensary turnover and 20% retail turnover.

The Government pays the pharmacy around $12 for dispensing plus a co-payment. With 60DD, the pharmacy will only get one dispensing fee instead of two fees which they would have received with 30DD but they still need to provide two months medicine and stock it.

How does this policy impact rural pharmacies in particular?

Rural pharmacies don’t have the population to support big turnover so when the forecasting says that this policy is going to cost each community pharmacy on average $160,000 in net profit (not gross profit) that’s more than a lot of these pharmacies make per year, so they automatically go into the negative.

Also in a rural area you’ve got a smaller population, less people coming in to buy retail items that the pharmacy can adjust prices on. So, there’s less area there to make that lost revenue up.

What do you say to people who say that it’s more convenient for rural customers to have 60DD scripting?

There are 324 towns in Australia that have a community pharmacy but not a doctor anymore. They’ll be the first to go because they’ll be the first to be hurt during the 60DD policy. They just won’t survive.

It could be more convenient for rural pharmacy customers to come in every 60DD instead of 30DD but how convenient will it be when your community pharmacy closes?

When your major customer is cutting your income in half and there’s not another viable source of income coming through. Then the whole model falls down.

What are some of the free services that pharmacies offer that people might not be aware of that you will have to start charging for?

The biggest free services that will be impacted are:

1. Webster packs or medication packs

They’re expensive to make, the cost of goods is really quite high, the labour that goes into medication packs is extensive and the margins are low. We get $6 per pack per week per patient and that’s capped. So, if you go over your cap in your pharmacy then you don’t get paid by the government for those.

If you look after an aged care facility like an old people’s home and you’re supplying packs to those, a margin is very, very small. They’ve based the remuneration on 30DD, so there’s going to have to be some major changes made in the aged care space in any medication packing to make sure that these services stack up or pharmacies are just going to stop doing them.

2. Deliveries

Another free service which became really important during COVID especially to protect our elderly who couldn’t leave the house. Pharmacies really came to the table and started offering this service and have made it part of their day-to-day business as well. But it’s not something that we can continue to do.

Are there any things you would like to see instead?

We would all like to see cheaper medicines and we’d all like to see a lower cost of living for the Australians that really need it. Unfortunately, this policy doesn’t quite meet that and needs to be done in conjunction with the community pharmacy industry to make sure that we still have a viable primary healthcare network and community pharmacy is the most accessible primary healthcare provider in that network. If you’re going to make it such a big change in legislation, you have to look at the bigger picture. And suddenly, the 7 CPA Pharmacy practice agreement doesn’t stack up anymore.

If we don’t see a viable community pharmacy network, then we’re going to see a ricochet of pressure throughout an already fractured healthcare sector. So, we’ll see more pressure back on GP’s and more pressure back on hospitals and we’ll see ambulance ramping and all those things that we hear about in the news, and no one likes, especially on a weekend.

You’ve got a sick child or you’re sick yourself and you’re trying to get into a health professional. Your pharmacy will be closed now, so that puts you straight back to the hospital because the GPs don’t open on the weekends anyway.

Yeah, what we really need to see to make this viable is an early negotiation of the 8th Community Pharmacy Agreement. Currently it isn’t due to be reviewed until 2025.

Keep an eye out for more updates

Over the coming weeks we will be interviewing other industry professionals to help us all stay in the loop on what the impacts of 60DD will be on our industry moving forward.

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