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Feb 24, 2024 | Articles

The Pharmacy sector has had a year of mixed fortunes. The good news included the removal of the $5 prescription fee and the trial of...

And now there is a risk that the business valuation after years of toil may be low or non-existent. More than ever before we are seeing pharmacies closing down when it becomes impossible to sell them as a going concern.

When there are industry players prepared to “do-it-for-less” the funders are inclined to look past the “quality” positioning that owner-operated pharmacies occupy.

Once upon a time owning a community pharmacy was seen as a sure-fire path to excellent financial returns each year as well as a healthy lump sum for goodwill when selling the business. Pharmacists with ownership aspirations who could secure the necessary capital were seen to be buying a license to print money.

Protection

For many years pharmacy ownership was protected by legislation which ensured that only a registered pharmacist could own the majority of shares in a pharmacy and that each owner could only own one pharmacy. By prohibiting corporate ownership the community pharmacy market was effectively shielded from competition.

In 2003 a law change allowed each pharmacist-owner to own up to five pharmacies. Before long some “creative” legal structures were established where a daisy-chain of companies, each with a nominated pharmacist owning five pharmacies, were in fact controlled by a single parent company.

Corporatisation

The resulting big-pharmacy model has been touted as being “good for consumers” because it introduced greater efficiencies through centralised buying, management, marketing and decision-making. It has also removed the personal care and attention provided by a highly motivated pharmacist owner within each business.

Economists would argue that the arrival of corporate-owned pharmacies has been good because it has lowered prices and broadened access to pharmacy services. However it is also true that the corporate-owned pharmacy model has undermined the economics of the sector by introducing inter-pharmacy competition for dispensing contracts. A move which has been welcomed by the government health funding agencies.

Positioning

Capitalism favours those with the most capital. Now that the NZ pharmacy landscape has several large corporates owning around one third of the 1100 registered pharmacies, the value and viability of the remaining two thirds has been reduced. The fact that corporate pharmacies choose to operate with a lower-profit model has weakened the Pharmacy Guild’s argument for fair and sustainable nationwide dispensing contracts.

When there are industry players prepared to “do-it-for-less” the funders are inclined to look past the “quality” positioning that owner-operated pharmacies occupy.

Click here for the ICPG Position Paper on Pharmacy Ownership

Even the independent reviews of pharmacy showing that sector wages have fallen as much as 30% behind equivalent professionals have failed to elicit any sympathy – because once again, the corporate pharmacy sector is prepared to operate on a lower cost and lower care model.

Consequences

The unintended consequence of the backdoor corporatisation of pharmacy is that it has reduced the viability of the sector by lowering the financial rewards for both employees and owners. The real cost of this to New Zealanders’ healthcare will be seen when remote or high-needs communities no longer have access to the care of their locally-owned pharmacy practitioners.

It is clear that a strong pharmacy network is desperately needed to play an important role in the country’s primary healthcare by filling the gaps being left by a GP sector that is struggling. The undermining of community pharmacy’s financial returns is removing the incentive for pharmacists to take on the significant challenges of business ownership.

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