Pharmacy: 60-day dispensing – how we can help

Over 6,000 community pharmacies are set to be significantly affected financially, as the proposed changes announced in the 2023-2024 Federal Budget will see an increase in the maximum dispensing quantity for more than 320 PBS-listed medicines from 30 days to 60 days.

This change in policy, according to the Pharmacy Guild, represents a $3.5 billion funding cut for the pharmacy industry with the average pharmacy expected to see a $170,000 reduction in net profit.

Note my perspective is not from that of a pharmacy owner, but rather that from an accountant who works with pharmacy owners day in and day out advising them on their businesses. I have also valued more than 500 pharmacies in recent years and therefore have an in-depth understanding as to how the proposed measures will impact community pharmacies across Australia.

Understanding the impact requires you to break down how a pharmacy is remunerated at present and what the changes will mean for this.

Current remuneration structure

Under the proposed changes, increasing the maximum dispensing quantity, means that a patient can now receive a two-month supply of medicine as opposed to a one-month supply, significantly reducing the number of times per year they need to visit their local community pharmacy.

General patients will save a maximum of $180 per year (six x $30 co-payment) and concessional patients will save a maximum of $43.80 per year (six x $7.30 co-payment).

With no changes proposed to either the current dispensing fee or the AHI fee, the estimated $2.6 billion in saving over four years from this policy will be directly absorbed by community pharmacies.

The real impact on the pharmacy

For every ready-prepared script dispensed by a pharmacy, they receive a total dispensing payment from the Government of $12.14 which is made up of a dispensing fee of $7.82 and an AHI fee of $4.32.

Assuming the current eligible script volume is 100,000 scripts this equates to $1,214,000 (100,000 x $12.14) total dispensing payments to a pharmacy. Under 60-day dispensing, assuming a 25% lost script volume impact (a likely outcome for most pharmacies) – the dispensing payment would total $910,500 (75,000 x $12.14).

The total reduced gross profit to the pharmacy under this example would be $303,500. This represents funds (cash) that the pharmacy will no longer have in order to pay business operating expenses such as rent, wages, and general business overheads.

Note that the above impacts do not consider additional lost sales that patients would otherwise purchase while in collecting their scripts – this only further compounds the issue for pharmacies.

While the Government has stated that they intend to reinvest every dollar saved from the change in policy back into community pharmacy, this is yet to be seen.

How we can help you

If you have not taken the time to review the impact that 60-day dispensing will have on your pharmacy, now is certainly the time to do so.

Please feel free to contact our team of experts who can help you work through the numbers and provide you with the necessary guidance tailored to your pharmacy.

Some of the areas we are currently working with our clients on that may be relevant to you include:

• Valuation of the pharmacy whether it be for security lending purposes or simply indicative valuations for internal analysis and management
• Cashflow forecasting and sensitivity analysis factoring in the timing of the three tranches to support decision-making at each critical phase
• Bank covenant monitoring and reporting factoring under the revised position
• Supporting new owners with pending settlements including purchase price adjustments.

Despite the challenges now facing the industry, it is important to note that the outcome of any situation can be influenced by our response.

Contact the PKF Pharmacy team for your tailored action plan today.