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Changes to pharmacy ownership rules imminent

Pharmacies continue to be the thorn in the side of New Zealand retail’s deregulated market policies, with rules to ensure pharmacies are majority owned by a pharmacist. Denise Piper investigates the changes that are coming to the pharmacy sector, with the ownership model set to be changed either by the Government or by smart businesspeople flexing the rules.

By Denise Piper | February 14, 2019 | News

Northland pharmacist Viv Bath admits she’s quite concerned about potential changes coming to the pharmacy ownership model. Based in the small Far North village of Kaeo, she doesn’t envisage any chain store pharmacies setting up next door any time soon. But if ownership rules are loosened to let more corporates set up stores nearby – such as Australian-owned Chemist Warehouse – it could potentially close all of the pharmacies in the area.

“If Chemist Warehouse came to Kerikeri it would impact all of us, if our customers go there because they have no script fees. I think we’re going to end up with a Chemist Warehouse monopoly… It’s owned by a corporate structure which has a massive amount of budget to throw at it – its advertising budget is in the millions,” Bath says.

Viv Bath

Chemist Warehouse has already shaken up the Auckland pharmacy market with its cut-price offerings and zero script fees. It has driven its competitors to follow suit, with a number of Auckland pharmacies now also offering $0 prescriptions. You could argue that such cut-and-thrust competition is part of everyday life in the world of retail, and customers – the patients – are the ones who benefit by not having to pay script fees.

But Bath argues that relaxed rules will see the rise of corporate pharmacies and the end of small rural pharmacies, like hers. In the end, this will mean less competition, not more, and worse health inequalities for the likes of low socio-economic and Maori communities – like Kaeo.

Kaeo Chemist gives an important first health assessment, as well as providing a civil defence function when patients in the flood-prone town cannot get to the doctors’ surgery, she says. The pharmacy is so important to the town, it is supported by Northland District Health Board.

Bath says having sole ownership of the pharmacy allows her to support her patients in a way that corporates are unlikely to, with patients able to pay off script fees over time. “We’re probably the only chemist to do it but they’re mostly beneficiaries and they don’t have $100 up-front.”

She also has plenty of time to deal with patients and ensure the medicines they are taking are safe. “In one-man-band practices, you know everybody by name. Don’t underestimate how safe that makes them.”

One pharmacist owning one pharmacy, like Bath, are becoming increasingly rare in New Zealand since the rules were “liberalised” in 2004. Even so, the rules are still strict. Each pharmacy must be majority owned by a pharmacist or pharmacists, who have effective control of the company at all times. Each person or pharmacist cannot have majority ownership in more than five pharmacies – although there are ways to get around this rule (see sidebar Pharmacists find ways to get around ownership rules). Prescribers are also banned from owning pharmacies unless they get special consent.

In 2015, then-health minister Dr Jonathan Coleman called for pharmacy ownership restrictions to be relaxed, saying pharmacy was the only sector where ownership was restricted to the profession. The aim was to improve access, increase efficiency and promote innovation without compromising patient safety.

Pharmacy licensing criteria is now being considered as part of the new Therapeutic Products Bill, which will replace and repeal the Medicines Act 1981.

New minister brings new ideas

 New health minister Dr David Clark says the previous government agreed to allow unqualified ownership of pharmacies, but he is more reserved about opening the gates. “Since coming into office, I have heard a number of concerns from the sector about this approach and share some of these concerns, particularly around the potential for increased corporatisation within the sector.”

 However, Clark concedes there are challenges with the existing rules and how they work in practice. “Key terms such as ‘effective control’ are not defined in the Medicines Act and there is a lack of clarity about the concept of majority ownership and the five-pharmacy limit when there is joint ownership,” he says.

 “Complex ownership structures have raised questions on whether the current provisions have achieved the expectation that the pharmacist owner has effective control of the pharmacy.”

 

David Clark

Two ownership options to be consulted on

 Clark says the Ministry of Health will soon consult on a draft of the Therapeutic Products Bill, including two options for pharmacy ownership. Key stakeholders will be asked for feedback on the previous Government’s proposal to allow open ownership and an alternative option of which retains the majority pharmacist ownership rule while “addressing weaknesses in the current arrangements”.

 This opportunity for feedback will be additional to the usual consultation when a bill is going through Parliament, Clark says. “Given [the] breadth and complexity of this bill, I think it is important that stakeholders have an opportunity to work though the complex and detailed provisions in the bill. This will allow the bill to be refined before it is introduced into Parliament.”

 The draft release was imminent at the time of this article’s publication. By deadline, Clark said he hoped to make an announcement before Christmas. Following consultation, he will consider whether any policy changes are needed in the bill, including whether a change to pharmacy ownership is required.

Society backs an end to ‘quasi-corporate ownership’

Pharmaceutical Society president Graeme Smith, who owns a pharmacy in Rangiora, says the society wants the rules strengthened. “We would be in favour of the status quo but with some of the rules being tightened so it’s not quasi-corporate ownership,” he says.

The society has produced a damning paper on pharmacy deregulation, based on overseas examples where ownership rules have been relaxed. One of the greatest concerns is the conflict between commercial imperative and a pharmacist’s ethics, Smith says.

Graeme Smith

“The man concerns that the society has are around ethical issues and the fact that overseas we’ve got strong anecdotal evidence, and a couple of direct examples, where corporate directors have influenced behaviour.” He gives an example of managers at the UK’s largest pharmacy chain, Boots, putting pressure on pharmacists to carry out reviews on patients who did not need them, because the reviews received state funding. In the US, pharmacists were gagged from telling patients about cheaper options (see sidebar Corporatisation impacts patients overseas).

“Not all corporates do this but some have got a track record of putting profit before professionalism,” Smith says.

Rules should be for pharmacists, not owners

Greg Harford, Retail NZ’s general manager of public affairs, doesn’t disagree that there needs to be clear rules about correct dispensing and care of patient safety. He just doesn’t agree the current pharmacy ownership rules are the best way to ensure that.

“The rules around pharmacy ownership are quite complex and quite dated,” Harford says. “They are focused on trying to regulate the activities of a pharmacist, rather than necessarily ensuring safety.”

Even with pharmacist ownership, a duty pharmacist needs to be rostered on at all times the pharmacy is open. Harford says a pharmacist would have difficulty directly supervising all of the pharmacists in five pharmacies – some of which are quite sizeable in their own right. “The focus should be on licencing people who are working in the pharmacy and making sure what they’re doing is the best for the consumers,” he says.

“I think the key point is that patient safety is not dependent on who owns a business. It’s the most important thing in the dispensing of medicines, absolutely, but we should not be using ownership of pharmacies as some kind of proxy.”

Harford would like to see the rules relaxed so anyone can own a pharmacy, allowing greater efficiencies through economies of scale. While the current rules have allowed corporates like Countdown and Chemist Warehouse to enter the market, there are still other ownership models to be explored for pharmacies, he says. “We’ve seen pharmacists trying to work within the rules now, with buying groups and so forth, but that’s not necessarily the only way that it could work.”

Like other retailers, many pharmacies are expanding their offerings to stay in business, Harford says, with some offering giftware, homeware, magazines and Lotto. “That’s just around converting the pharmacy into a hub for the community and making sure there’s enough business coming through the doors to remain 

NZ pharmacy model to be applauded

But Hamilton pharmacist Ian McMichael believes pharmacies should not be considered as retail stores – they are healthcare providers. In the health sector, pharmacists are unique because they give out a product rather than a service, but that should not undermine their ability as a healthcare professional, he says.

McMichael is a member of the International Pharmaceutical Federation. Compared to his overseas colleagues, he is proud of the services Kiwi pharmacies provide, such as vaccinations, medicine management, methadone dispensing and smoking cessation services. Many of these services are not offered in countries with more liberal ownership rules.

“I have to always come back to what is in the best interest of the public, specifically around health inequities. I don’t believe a more expanded ownership structure would be in the best interests of patients.

“About 40-50 percent of people have some degree of health illiteracy. My feeling is the best way of addressing that illiteracy would be to have a good relationship with your health provider. Expanded corporate ownership of pharmacies would probably impact that,” McMichael says.

He would like to see pharmacists become more specialised – like lawyers in a law firm. McMichael doesn’t see any improvements coming if there are more liberal ownership rules. “We have to be very careful and tread very carefully.”

Viv Bath agrees with the need for caution around the ownership rules. She would like to see the rules tightened so one pharmacist owns only two or three pharmacies. “I think it’s very dangerous to take ownership off from pharmacists,” Bath says. “The most troublesome thing about ownership changing is the ethics. Pharmacists are punishable through the Code of Ethics and pharmaceutical requirements – owners aren’t.”

Change is coming – ready or not

Whether or not pharmacy ownership rules change under the current government, it is clear that more change is on the horizon for the pharmacy sector.

Countdown is unique in Australasia in offering pharmacies within a supermarket. There are now 26 Countdown pharmacies around the country, with new pharmacies planned for Porirua and Bayfair by the end of the year, says Countdown’s merchandise manager – pharmacy Jeremy Armes.

“Customers enjoy the convenience and value we offer through our in-store pharmacies with extended opening hours and discounted prescription fees,” he says. “Our plan is to continue to roll out Countdown pharmacies across our store network where suitable – often as part of store renewals or extensions.”

Australian-owned Chemist Warehouse now has four pharmacies in Auckland, with one in Albany set to open soon. Director Azman Haroon did not respond to queries but future expansion could occur, just as more companies could find ways to get around the current rules.

While weighing up the disparate views of the pharmacy profession and retail companies, David Clark is clear that he will be keeping the safe and quality supply of medicines front-of-mind.

“The regulation of pharmacy… needs to ensure standards are enforced, and that new and innovative pharmacist services are supported. These are the factors that I will be considering, when I review the feedback from the consultation and decide what pharmacy licensing requirements I consider the Therapeutic Products Bill should contain."

Pharmacists find ways to get around ownership rules

New Zealand’s pharmacy ownership rules state each pharmacy must be majority owned by a pharmacist or pharmacists. Each pharmacist cannot have majority ownership in more than five pharmacies, but there is no limit to the number of pharmacies that a pharmacist can have a minority ownership stake in.

This opening in the rules provides a loophole which means, in theory, two pharmacists could get together and own all of the pharmacies in the country, without breaking the five pharmacies per pharmacist rule.

According to Companies Office records, pharmacists Kerry Oxenham and Neeten Bhikha each have a 25.1 percent stake in 20 pharmacies in Auckland and Northland. Oxenham is also the majority owner of five Auckland pharmacies and part-owner of a further four pharmacies.

Countdown has also used the same loophole in the rules to set up its 26 in-store pharmacies across the country. Three pharmacists – Lindsay Smith, Paula van den Heuvel and Anita Bailey – own various shares in the companies operating Countdown’s pharmacies.

All of this is allowed within the current rules.

About a third of New Zealand pharmacies, a total of 357, come under the corporate banner of Green Cross Health, with 64 Life Pharmacies and 293 Unichem pharmacies. The majority operate under a franchise model. Green Cross has equity stakes in 90 pharmacies, but these are at least 50.1 percent owned by a pharmacist.

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