The average Australian visits a community pharmacy 18 times a year - more than any other health service.
Pharmacies will only get more important as Australia's population gets older and sicker, and more scripts are dispensed.
But policy failures are holding the sector back. Vested interests control decision-making. Prices and services aren't based on evidence. And regulations block competition, innovation and discounting.
A new Grattan Institute report shows how to set the pharmacy sector up for the future.
Secret backroom deals
Australian pharmacy policy is a case study in bad governance.
Pharmacies are funded and regulated through Community Pharmacy Agreements negotiated between the federal government and the Pharmacy Guild of Australia.
The Guild represents most Australian pharmacy owners. It's also one of the most powerful political lobby groups in the country. In the past five years, it has donated A$2.5 million to political parties, making it the largest donor from the health-care sector.
No other Australian health industry group gets to negotiate its own funding behind closed doors, with no public evidence to justify the decisions. These opaque negotiations should be replaced with independent, transparent, policy decisions that are based on evidence.
It looks like we're paying too much
When a pharmacy dispenses a Pharmaceutical Benefits Scheme (PBS) medicine, it gets fees to cover labour, administration and handling. The patient pays up to the maximum co-payment, and the government pays the rest.
Like so much in pharmacy policy, the dispensing fees are set through negotiation with the guild, with no public data to justify the numbers. As result, we can't know if the price is right - but there are signs it's too high.
Funding for each script has increased even as e-prescriptions and automation have slashed the labour involved in dispensing. The guild's own data suggest member profits have more than doubled in real terms over the past decade.
The fix is clear. Government funding shouldn't be negotiated at all. Like for public hospitals and aged care, it should be determined by the Independent Health and Aged Care Pricing Authority, based on real cost data.
For patients, discounts on PBS medicines are restricted by complex rules. Those rules depend on how much a medicine costs in total, counting funding from both patients and the government.
For the cheapest medicines, discounting is allowed. For the most expensive, it's banned outright. For those in the middle, pharmacies can offer discounts, but only if they give up all their government funding for that script.
In 2015, an optional $1 discount on the maximum patient out-of-pocket was introduced, but it's being phased out. It should be reinstated and increased over time.
Some claim it's unfair if some patients get a discount when others don't. People in areas with little competition between pharmacies are more likely to miss out. But these aren't surcharges - total fees are capped - and discounts in one pharmacy don't come at the expense of patients in another.
Even if dispensing should be restricted, the rules we have, which block discounting for some medicines and not others, make little sense.
Services need to be good value
Proposals to expand the services that pharmacies can offer - to include things such as prescribing medicines and chronic disease management - have generated heated debate.
The guild and pharmacist workforce groups say more pharmacy services is a commonsense solution to growing demand for primary health care. But medical bodies warn it would fragment care and risk patient safety.
The evidence shows it's not so black and white.
International studies show pharmacists can safely provide a range of services, including prescribing, and that these services are popular with patients.
But with rapidly growing health-care demand and spending, services must also offer good value for money. Here the evidence is much weaker. That's because pharmacies pose unique risks to value.
Walk-in appointments mean some conditions are treated that would have resolved on their own. There is a risk of duplicating GP care. And a retail setting creates commercial incentives to promote unnecessary care.
Only one new service has enough cost-effectiveness evidence for a national roll-out: prescribing for uncomplicated urinary tract infections.
International evidence for some other services is promising. But dozens of government-funded trials have failed to show their cost-effectiveness here.
The federal government should coordinate stronger national trials that focus on the most promising services, such as treating shingles and prescribing contraception.
Get pharmacists to work alongside GPs
It's time to scale up a new type of " integrated pharmacist ". Instead of dispensing, they work in general practice alongside GPs to provide medicine reviews and patient education.
The United Kingdom and Canada already fund these positions at scale. Australia should too, with government funding for pharmacists in general practice and Aboriginal Community Controlled Health Organisations.
Unleash competition
Pharmacies are private businesses that receive billions of dollars in government funding. In return, they should face competition that promotes improved efficiency, quality and convenience - like other businesses.
But location rules dictate how close a new pharmacy can open to an existing one, and how far an existing one can move.
Several European countries lifted similar restrictions in the late 1990s and early 2000s. The result was more pharmacies, longer opening hours, and, in several cases, lower prices.
Ownership rules ban anyone but pharmacists from owning a pharmacy. This is supposedly to ensure pharmacies prioritise patient care. But we don't apply this rule anywhere else. Standards of care are upheld by clinician training, registration and accountability, regardless of who owns the business. Pharmacists already carry those obligations.
Together, location and ownership rules protect a small group of incumbents from having to compete on prices or quality.
The government should scrap these rules, and ask the competition watchdog to design competition safeguards, alongside independent reporting on quality and outcomes.
Future pharmacy
The current Community Pharmacy Agreement expires in mid 2029. Three years is enough time to collect cost data, start trials, legislate competition reforms, and set up quality monitoring.
If the federal government acts now, the current agreement - the eighth - should be the last.
Grattan Institute has been supported in its work by government, corporates, and philanthropic gifts. A full list of supporting organisations is published at www.grattan.edu.au .
