The future for pharmacies in the Seventh Community Pharmacy Agreement

The Community Pharmacy Agreement (CPA) is an agreement between the Pharmacy Guild of Australia and the Commonwealth Government which outlines the level of remuneration that a pharmacy will receive for dispensing medicines covered by the Pharmaceutical Benefits Scheme (PBS).

While details of 7CPA remain under lock and key, a major concern for pharmacists is the proposed increased maximum dispensing quantities and the impact this will have on the profitability and potential viability of many community pharmacies across Australia. Under the current remuneration model, pharmacies are paid a dispensing fee of $7.39 for ready prepared prescriptions together with an Administration, Handling and Infrastructure fee (AHI) of $4.09 for a listed brand with a list price of up to $180.

According to the Pharmacy Guild of Australia’s Health Economics Group Report, it is estimated that the introduction of double dispensing will reduce the gross profit of the average pharmacy by $85,000 should the proposed changes come into play.

Under the proposed changes it would allow customers to receive double the quantity of their prescribed medications in one transaction, therefore, reducing the overall cost of the medication in the hands of the customer. Conversely from the pharmacist perspective, it means increased work for a single dispensing and AHI fee.

Considering the way your business responds to these types of events is key in ensuring the outcome achieved is one of ongoing success and longevity.

Event + Response = Outcome

In short, the outcome from any situation will be dictated by the way you respond.

Experience shows that most businesses will not do anything meaning their gross profit is eroded while overheads remain the same, therefore resulting in less profit or in many cases actual losses for the pharmacy owner. The more astute operators will look for ways to minimise the lost margin and continue to grow and evolve their businesses under the new market conditions. For example, a pharmacy may implement a strategy to increase basket size and average transaction value by offering bundle packages of complementary products.

In the words of Charles Darwin, “It is not the strongest that survive, nor the most intelligent, but the one most responsive to change”.

The PKF team are specialists in the area of retail and community pharmacy and have been advising pharmacy owners for over 20 years. Regardless of the size of your business, whether you operate a single pharmacy or multiple pharmacies, you should have the following three things in place to ensure your pharmacy is prepared and ready to adapt:

1. A well-defined strategy that clearly articulates the direction of the business for the next one, three and five years. This is particularly important for businesses with multiple owners as it ensures all parties are on the same page and each is pulling in the same direction.
2. A robust reporting framework to ensure business performance is being tracked and reviewed on a consistent and timely basis. The saying, “what doesn’t get measured can’t be managed” could not be truer.
3. Finally, surround yourself with the right team of advisers who have the necessary skills and experience to support your business to evolve.

Now consider your situation and ask yourself, how will you respond?