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How The State Is Strangling Pharmacy

How The State Is Strangling Pharmacy
By Lindsay Mitchell

The state, which is the monopoly purchaser in the pharmaceutical sector, is strangling the industry. By playing hardball with the manufacturers, forcing prices down and the "rationalisation" of product lines, they have succeeded in driving nearly all manufacturing plants overseas. New Zealand used to have six or seven international drug companies making product here. They have all gone. And with them thousands of jobs. All for the sake of ostensibly "saving" money.

At the beginning of the nineties, the New Zealand division of the world's largest pharmaceutical company, then Glaxo, was based in Palmerston North. They were expanding. A new manufacturing plant to produce asthma medication for the Australasian market was being built. Asthma is a particular problem for New Zealand with higher than average rates occurring, especially amongst children. So the market for asthma drugs is substantial. The government, being the only purchaser, was able to play one manufacturer off against the other. They steadily pushed the prices down. Why would a company want to continue to operate in a "hostile" environment? Why would a company want to do a purchaser that treated them with indifference and arrogance, any favours?

In 1992, Glaxo announced it would close its manufacturing plant and retain only a marketing division based in Auckland. The impact on Palmerston North was not confined to just employees who lost their jobs. The services that were used, printers, packaging manufacturers, motels for the constant flow of overseas visitors and staff in training, all took a major hit. This was also a company that returned a lot to the community socially, with local school initiatives, the best known being the Monrad Intermediate project. It may have only been coincidence but not long after Glaxo shut shop, Air New Zealand stopped flying 737's into Palmerston North airport.

Prior to Glaxo's decision, there were others who shut down their manufacturing plants including Merck, Sharpe and Dome, Pzifer, May and Baker and Abbots. The enormous cost to New Zealand would have far outstripped whatever the government's buying agency, Pharmac, managed to "save."

Their attitude has been similar toward community pharmacists. The DHBs pay pharmacists to dispense the prescriptions and reimburse them for the cost of the medicines plus a small margin. Both of these fees have been steadily eroded to the point where many rural and suburban pharmacies are marginal operations. Pharmac's new "cost- saving" idea, to return to three monthly dispensing of some medicines, will be the final straw that breaks these pharmacies backs.

Pharmac have played on a long-standing public perception that pharmacists are wealthy (and by implication self-interested) to seek public support for this change. Once upon a time, pharmacy was a good investment but my years of dealing with pharmacists all over New Zealand have shown me that this is certainly no longer the case, especially for pharmacies relying heavily on the dispensing side of their business. Look around at recent closures of small suburban pharmacies. If they were so lucrative, how come no purchasers could be found? Numbers have fallen from over twelve hundred in the mid- nineties to 925 today.

With fewer pharmacies there are fewer opportunities for up and comers. We are training young pharmacists who can find far better opportunities in other countries where they are in strong demand. We are losing valuable talent.

So what has Pharmac achieved since its inception? Pharmacy and pharmaceutical plant closures, job losses in this and associated industries, less choice in medicines for patients and now less choice in services for patients. They continue to claim they are reducing costs when they are in fact shifting them to the public, who will have to travel further to find a pharmacy.

It is only because medicine dispensing is "nationalised" that the pharmacist and the taxpayer are forced to accept whatever arrangements the government deems best. If this includes small, conveniently situated pharmacies closing because they aren't profitable and patients, who are often elderly and frail, consequently having to travel greater distances to collect their medicine, then so be it. That is the decision Pharmac will make on the patients behalf. This is "compassionate and benevolent" government in practice.

Lindsay Mitchell is a Research Fellow for the Institute for Liberal Values ( and specialises in issues relating to welfare policy. Photo attached.

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