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Location! Location!

Anthony Tassone
A Pharmacy Manager Perspective

Issue 56: December 2006
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With the recent announcement of Generic Pricing Reform in the PBS – and the stir it has created, one can easily forget the too-ing and fro-ing that occurred between the Pharmacy Guild and Federal Government concerning finalising Location Rules for Pharmacy during the Fourth Agreement.
At the time, it was seen as a ‘win’ for Community Pharmacy. 
Location rules prohibited pharmacies from being located within or directly accessible to a supermarket. 
Many other pre-existing rules were maintained with some slight modifications to entice competition between pharmacies – but overall the Community Pharmacy profession didn’t feel it had much to complain about.

Unfortunately however, a loophole, a little gremlin still exists within the Australian Community Pharmacy Authority (ACPA) location rule book – the bible of Pharmacy ‘re-locations’ and new trade. 
This gremlin has a name and its name is: ‘Backfilling’. 
Backfilling involves a pharmacy re-locating out of a small or large shopping centre and then re-locating a pharmacy ‘back into’ the shopping centre. 
The net result is an additional pharmacy within 1 to 1.5km (Rule 104 and 105 ACPA Handbook) from the Shopping Centre. 

It’s a practice that has been used extensively by a particular head-office run Banner group to propagate their Discount Chemist arm of the business.  
If a Pharmacist was to question the Federal Government, the ACPA or the Pharmacy Guild regarding the practice of ‘backfilling’, somewhere along the way the remark of ‘but the backfilling has been capped now in the new rules so its fine’ will come up. 

The way in which it’s been capped in the ACPA handbook is that any pharmacy opening in a small or large shopping centre after July 2006 must demonstrate ‘exceptional circumstances’ to be approved for a re-location out of the centre (e.g. fire, flood etc). 
However you can already gather that every pharmacy that was open for trade in a small or large shopping centre prior to July 2006 still has the opportunity to complete a ‘backfill’ and gain an additional pharmacy if they so wish. 
If I was a betting man (and those that know me know how much I’m glued to a form guide during spring) I would guess that approximately 99.5% of pharmacies of the hundreds currently operating in shopping centres can still complete a backfill.

Why has the practice of ‘backfilling’ got up my goat so badly? 
Well for a few reasons that I think need some urgent questioning by our profession and the Federal Government. 
Firstly, it calls into question the intentions and spirit of the Location Rules themselves.  Obviously operating in a Shopping Centre prior to July 2006 offers strategic advantages in Pharmacy ownership, to those not afforded to owners in a shopping strip – who are not afforded the same luxury of ‘backfilling’ and have very limited flexibility to impose their ownership more in an established area.

Secondly, when these sorts of operations take place, the pharmacy re-locating ‘back into’ the Shopping Centre needs to obtain an Approval Number for PBS purposes. 
Anecdotally speaking in many cases these numbers are obtained from owners who previously operated in rural areas. 
It is a big concern that with each back-fill there is the potential for fewer pharmacies in the country and more in Suburban and Metropolitan areas that may be already adequately serviced by Pharmacies.

In my local area I have just witnessed two backfills in the space of 12 months. 
It has grown the number of pharmacies from five to seven within a 1.5km radius. 
This situation has definitely prepared my partners and I for the prospects of de-regulation to experience two new players, different players, in such a short period of time. 
This has created a ‘cluster’ of pharmacies within a small defined area. 
Funnily enough the policy intent of Rule 105: Short Distance relocation more than 1km in the ACPA Handbook it reads:

This rule aims to ensure flexibility for pharmacists to relocate their pharmacies within

Their local area, while promoting the level of competition between the local pharmacies

And, in some instances, to limit the clustering of pharmacies.

Inadvertently, the ACPA following the criteria of the rules in their handbook by the letter actually foster clustering when they approve a backfill application.

Should I not be worried about backfilling as it may be a reality that there will be no Location Rules post 2010? 
Is it better to live with a Gremlin rather than have no protection of Location Rules at all?  I’m sure these questions had been many times during the Fourth Agreement negotiations.

What many people may not realise are the thoughts of the Federal Government on this issue. 
I recently contacted the office of Minister for Health Tony Abbott and spoke to one of his advisor’s regarding this issue. 
She explained to me that generally the Federal Government is opposed to the practice of ‘backfilling’ but it was beyond their control if pharmacists persist in ‘cutting each others throats’. 
Interesting summation to which many couldn’t disagree. 

From all reports the Pharmacy Guild tried in their earnest to completely kill off this Gremlin during the Fourth Agreement negotiations but neither the Guild or Government could come up with a workable solution to allow the gremlins complete demise. 
There were concerns regarding ‘restraint of trade’ impositions on businesses operating in Shopping Centres who opened for business on the understanding they could re-locate as they wished. 
However, it would be interesting to see a proprietor from outside a Shopping Centre take legal action against say, the ACPA citing restraint of trade having had a backfill inflicted upon them.

Are the location rules themselves a restraint of trade in many ways? 
Maybe there’s too much at stake to question the Location Rules in a Court of Law – and many proprietors would rather keep with the workable status quo.
So for now the Gremlin lives on – bureaucrats and some representatives from the Guild may expect reduced influence from our little Gremlin – but the figures show that its influence would hardly change moving forward.  
I support the Location Rules and am grateful for the Guild’s work in achieving some stability in this area of pharmacy. 
Unfortunately it is inevitable that some Gremlins are born when rules, policies and criterions are hammered out. 

One way which I feel that this Gremlin’s ability really could have been restricted was to impose a rule that pharmacies within Shopping Centres could only re-locate out of the centre using a Long Distance Re-location (Rule 106: ACPA Handbook). 
This would have required that the re-located pharmacy be at least 1.5km by straight line, or 2km by shortest lawful accessible route from the nearest pharmacy. 
In doing this, there are minimal concerns on any perceived ‘restraint of trade’ for the Shopping Centre proprietor and a reduced likelihood of clustering of pharmacies. 

I hope that has provided some food for thought for you all.

Anthony Tassone
December 2006

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