In this instalment, I am giving my view, as a non-pharmacist professional specialising in the industry, on the effect discounters are having on the industry, and what the underlying issues are. I have no stake in pharmacy. I do not stir as a rule. And if I do it is NEVER for stirring’s sake. But sometimes I’ll say something if I see a glaring problem that either no one is prepared to speak out about, or feels free to speak out about.

What I’ll say in this video is, I believe, the truth but it will not be popular with some officials in the health sector. If you are from the Ministry of Health or a DHB, thank you for tuning in. Whether what I say is palatable or not should not be the issue. If it’s the truth or mostly the truth, health officials should listen to it, and do something about it.

My research has included consulting with many community pharmacists. I venture to say that had the ministry done more of that themselves over the years, this would not be necessary.

Profile of the pharmacy sector 

Let me start by trying to profile the community pharmacy sector. There are about 670 owner-operated community pharmacies in New Zealand (I’m excluding Green Cross Health partnership stores). The local owner-operated model appears to have served the country well. Owner-operators are financially invested in their communities, remain in that community most of their working life, and in that time become one of the most trusted and well-respected professionals in their community.

Pharmacy funding has been for the most part frozen for years, while costs have continued to rise.

Script volumes have increased over time, but with the margin on filling those scripts getting progressively squeezed, pharmacies have tried to do more with less, with the result that pharmacy by all accounts has become one of the most stressful professional environments in the country.

Attracting and retaining professional staff in this stressful environment is taking its toll. The various unpaid services pharmacists have always provided have now become a pressure point. Things like time spent resolving script errors made by doctors, making up formulas, pill deliveries, or free health advice to customers are adding pressure.

Add to that the huge reduction in the last decade of OTC sales due to competition from on-line and supermarkets. Retail sales carry a higher margin and provide a good source of cash. So more squeeze there.

Poor consultation 

Then to add to those specific downward effects on profit, there is pressure created by being poorly consulted by the body that pays them, the ministry, on measures affecting them. This was starkly evident in 2020 with the poorly thought-through switch to email scripts and its repercussions, poor support and communications on how to trade under COVID-19, monthly dispensing being extended with no apparent regard for the pressure it was putting on already stressed dispensaries, and an $18 million promise of funding that was so poorly researched almost none of it found a home.

And finally, the pressure created by the fact that through all of the above, pharmacies do not feel they have a united voice to speak to the ministry and DHBs, so are left to take the fight individually. But if they do, they are quickly overcome.

Sectors reps MIA 

Are we heading for losing our local community pharmacies, eventually, except in more remote suburbs or towns?

Most, knowing the task is too daunting, don’t even try. Divided, pharmacies are easily conquered. Without exception, pharmacies I talk to say the two organisations with a responsibility for advocacy to the Government, the Pharmacy Guild and the Pharmaceutical Society of New Zealand, appear to be too often missing in action and ineffectual on the things that really matter to pharmacies.

Despite all of this, owner-operated pharmacies press on, doing their level best to keep the quality of their services high. They are proud local professionals, and a valuable community-based resource in our healthcare system.

Enter the discounters 

So. Into this picture we have the arrival in earnest of the discounter.  Looking at the big two – Countdown opened their first in-store pharmacy in 2012 in Newtown, Wellington. It now has 34 pharmacies nationwide. The Chemist Warehouse opened its first store in 2017, at St Luke’s in Auckland.  It now has 14 nationwide. Both have plans for plenty more. They both charge zero prescription fees (except for Countdown Invercargill).

Now, nothing in what I say makes discounters out to be rotten. They are not. Or if they are, I can’t find anything to indicate that. They employ technicians and pharmacists just like you – who are good, professional people.  And discounters are subject to all the same licensing and ethical standards and contract and other legal trading regulations as are all other New Zealand pharmacies.

Neither is the “warehouse” retail model wrong. Large retailers always made sense, didn’t they? They bring advantages of convenience, bulk buying and lower prices, a wider range of stock, regular sales promotions, and longer trading hours.

Small retailers unable to cope 

We long ago adjusted to losing our local stationer once Warehouse Stationery arrived, and our local hardware store once Mitre-10 Mega arrived, and our local butcher when butcheries were incorporated into supermarkets. It’s sad, but in all sectors where a large retailer has arrived on the scene in NZ, small retailers have been unable to compete and have all closed, in all but the more remote centres.

So the question is, are we heading for losing our local community pharmacies, eventually, except in more remote suburbs or towns?

And is it the same? We are not talking about stationery, we are not talking about power tools, and we are not talking about pork chops. We are talking about the dispensing of medicines, and medical advice, to the New Zealand public – we are talking about our precious healthcare system, where quality absolutely matters.

How do discounters do it? 

If any pharmacy removes its copayment from what it charges the customer, it loses a fair chunk of money. Enough that most pharmacy owners would look at the financial result, for all the work they put in, and say, “Why do I bother?”

The answer is the same for discounters. They wouldn’t make enough on their dispensing operations to make it worth their while, on its own.

For them, dispensing is a loss leader. And if there is rot in the system, that’s Rot #1.

Don’t get me wrong, there’s nothing wrong on the part of the discounters themselves. They are taking advantage of a legitimate business opportunity. The rot is that the ministry and DHBs have allowed the dispensing of medicines as a loss leader, to become a prominent feature in the pharmacy sector, and particularly in Auckland.

Loss leaders 

Let’s look closer at loss leaders. Let’s take a non-pharmacy example.

Pak’nSave’s petrol stations are a loss leader. Pak’nSave is using petrol sales to drive grocery sales. Totally legit.

Supplying petrol is a dangerous business. Pak’nSave is diligent in fulfilling all the regulations surrounding the supply of petrol to the public. They pass all their site and safety audits as they are required to by law. But they sell petrol at a loss. So the motivation behind their petrol business is not petrol sales. Their motivation is to use their petrol business to maximise the sale of groceries.

For a loss leader to be effective it needs to do two things very well: It needs to generate sufficient extra amount of foot traffic and sales of other goods; and it needs to cost the business as little as possible, without breaching any regulatory requirements or ethics. To do that a tight rein is needed on costs eg, wages, rent.  That tight rein creates a conflict with quality.

Quality versus quantity 

So here are two highly contrasting models of pharmacy. One is local, owner-operated, community-based, and focused on quality of service.  And it is increasingly under threat, except in the small centres. The other is a discounter model, where multinational corporates using their huge buying scale, can dispense medicines as a free giveaway with your next trolley of groceries.

If you make low price the focus instead of quality, you put quality at risk. Always. I have had a number of pharmacists tell me how a discounter has not filled all the items on a script, because the remainder takes longer or they don’t hold stock; or they carry minimum staffing levels, so there is no capacity to cover staff absences, then their wait times blow out; or don’t have time to offer advice, so those questions go to local pharmacies who aren’t getting any fee.

If you want proof about how vital a high-quality dispensing service is, look no further than the COVID lockdowns in 2020, and monthly dispensing. Dedicated owner-operated local pharmacies did not hesitate to step up, and worked extraordinary hours in trying conditions.

So which of the two models, or what mix of the two models, do the ministry and DHBs favour? And why? I could not find a published ministry document that answered this, or a pharmacist who had read one. Meaning there almost certainly isn’t one.

Benefits of discounters 

Let’s look at a key question – what do discounters bring to medicines delivery that community pharmacies do not bring, to justify the granting of so many licences and contracts to them?

I have not been able to find a single pharmacist or official who believed there were not enough pharmacies in the community already to service the population’s medicine needs. I have not been able to find a pharmacist to acknowledge that discounters deliver any health service that community pharmacies are not already delivering, and delivering usually with better quality or timeliness.

I have been able to find only one possible unique healthcare benefit that discounters offer… their scripts are free. And therefore, they meet a need in the lower socio-economic communities regarding the affordability of medicines.  But that can’t be the justification, because in Auckland, licences and contracts have been issued widely to Chemist Warehouse across the Auckland region, not just in poorer areas.

So we’re back to one simple reason. The scripts are free. Full stop.

The Pharmacy Action Plan

I read the 2016 Pharmacy Action Plan outlining the minister’s vision for what he had in mind in getting to where we are today. It speaks often about using pharmacists’ skills and technology in smarter ways to achieve better medicine outcomes. Its over-riding emphasis is on improving quality of outcomes. Quality of outcomes. There is reference to increasing equity and better access for Māori and Pacific populations, but this is centred on culturally competent service delivery, not cheaper medicines.

The only other reference I could find in the document was the need for the Government to achieve good value for money from its healthcare services, given the country’s ageing population. But this was an isolated reference and was in no way linked to a goal of making medicines generally cheaper to the public, or to a section of the public even. The entire document was underpinned by how we can use smart solutions to improve the quality of and access to medicine delivery going forward. Quality. Quality. Quality.

The point of me outlining the above is that nowhere in the minister’s strategy was making medicines cheaper to the public, a strategy or goal.

So why?…. 

This begs the question, that given that granting discounters licences and contracts on such a broad scale had no justification in terms of access to better medicine delivery in the community, and is not mentioned in the Pharmacy Action Plan, why were any, or more than a few, licences and contracts granted to discounters at all?

So that’s Rot #2. Of all the decisions made by the ministry, through Medsafe and DHBs regarding the pharmacy sector in the past five years, the most impactful was the broad opening up of the sector to discounters. Yet nowhere in its action plan was cheaper medicine listed as a goal, even a minor one.

But allowing discounters such prominent entry, particularly in Auckland, has skewed the playing field on price. And it has made the charging, or not charging of the copayment, a prominent factor now in people’s choices about where they buy their medicine – when they have a local discounter option.

Copayment resentment 

A pharmacist in an affluent area of Auckland told me that she now gets well-to-do retirees complaining about her charging the $5 copayment, because a discounter doesn’t charge it.  The public doesn’t understand what is going on. Where nearby discounters are charging no copayment, customers perceive that pharmacists are profiteering by charging it. They don’t understand that pharmacies pay that back to the Government. Customers, rich and poor, make most buying decisions partly on price and they vote with their feet.

To add salt to the wounds, I have had numerous pharmacists from around the country tell me that they see scripts from hospitals where the doctor has written on the script to go to a discounter because it is free. It appears to be a widespread practice but pharmacists usually don’t complain because they don’t think anything will change.

So, and this is Rot #3, the ministry is not only welcoming discounters into the market, for no apparent healthcare benefits, they are actually promoting the discounters through some or many of their DHBs. Whether that is done deliberately or negligently makes no difference. The skewed market now will always drive business towards those dispensing for free, away from those charging the copayment.

A word about Auckland 

I spent some time there this year talking with pharmacies.  I have pharmacy clients in Auckland.

One very experienced and respected pharmacy professional told me there are as many as three times too many pharmacies in Auckland.  It was into that heavily saturated and subdued pharmacy market, that beginning in 2017, Medsafe granted 10 licences to Chemist Warehouse stores. This person went on to tell me that within a 5km radius of Manukau City there are now 41 pharmacies!

Forty-one! What on earth can be the public health justification for this? Pharmacy owners I spoke with were stoic but disheartened. To me it was hard not to see it as gross mismanagement of the sector in that region.

There are pharmacies in Auckland making less than $40,000 per year. That is total – ie, profit plus their wage. The catchment was never big enough to support them and they should never have been granted a licence and a contract.

Earnings before interest and taxes (EBITs) of established Auckland pharmacies have dropped. Multipliers have dropped. So the value of Auckland pharmacies has dropped, in some cases heavily, in some cases completely – because they have closed. Banks now are cautious of lending into the pharmacy industry, particularly in Auckland.

Ministry and DHBs ‘not bothered’ 

The ministry and DHBs in Auckland know this is happening, they see the struggle and closures near to discounters.  But it seems clear enough that the ministry and DHBs, particularly in Auckland, know that some established pharmacies will lose some or all of their lifetime’s hard work and retirement fund, and aren’t bothered by it.

That’s Rot #4 – MedSafe and DHBs acting to produce heavy over-crowding of the pharmacy sector in Auckland, with huge effect, yet still allowing broad entry to discounters.

So, I’m coming towards the end of what I have to say.

I used the word “rot” quite a bit, and thought about what the best word would be. I use it to describe a condition and not directly an institution. The thing with “rot”, is that it takes time for rot to set in. And if you find rot anywhere, it means you’ve had a problem for a long time, not a short time. In this context I believe “rot” is an accurate word to use.

There appears to be an alarming disconnect between the ministry and its community pharmacy stakeholders. I know this may implicate the guild and society, so it’s probably fair to say they are not as connected as they should be either.

Survey of pharmacists? 

In its 2016 action plan, the ministry said it values its “highly skilled and dedicated pharmacy workforce”, and aims to provide a world-class, high-quality healthcare service.

A free hint to any brave soul at the ministry: send out a survey to community pharmacies and ask them what they think of how that’s going, from their point of view.  Then take a big, deep breath, read the responses honestly, and not defensively.

So, to sum up, by allowing large discounters to gain a dominant position in the New Zealand pharmacy market, or in parts of it, the Government has done, and is doing these things:

1. they are heavily promoting a model for dispensing of medicines which is a loss leader, is low cost, and lower service

1. they are forcing nearby pharmacists to implement a similar model to compete, which they can’t, so they ultimately close

1. they are communicating to nearby community pharmacies that they don’t value them, and aren’t bothered if they are driven out of business, losing hundreds of thousands of dollars.

1. they risk communicating to the New Zealand public that the value it places on the dispensing of medicines in NZ … is … zero

1. by not appearing to discriminate, they have allowed discounters to decide whether a locality enjoys an overall high-service model of pharmacy, or an overall lower-service model of pharmacy

1. they are allowing discounters to become the new driver in the future shape and direction of pharmacy services into urban communities, despite this never being in the Pharmacy Action Plan.

If large discounters have a legitimate place in the New Zealand pharmacy environment, it must be a deliberate policy decision, and the ministry must be up front with community pharmacy about that, and present to community pharmacy as to where they fit in to this plan. Because right now, community pharmacy wouldn’t have a clue what the plan regarding discounters is. They suspect, and I concur, that there really isn’t one.

I have been blunt, but my aim is to be constructive. I ran the text by many pharmacy owners, who gave it a unanimous thumbs up, and some were grateful I was going to say all this, as they feel like they have no voice. Some who said that are guild members. Just saying.