And finally... (unless someone comes back with more questions!!)
The answer to the original question, which was:
"Pharmacies - Price competition - Why is there none?"
There is price competition between pharmacies in most sections of the business. Let's say the business breaks down into four main sections:
1. Prescriptions for which the Govt pays.
2. Private prescriptions, for which the patient pays.
3. Over the counter medicines.
4. Sundries, such as shampoo, razor blades and all the rest.
I'm going to look at each of these, but not in order coz I'll get the brief ones out of the way first.
4. There is considerable price competition between pharmacies on this type of item. It is easily verifiable. Just go into 5 different pharmacies and look for, I dunno, a bottle of Radox or something. Let me know how you get on.
1. No price competition whatsoever. The Govt decides how much they're going to pay, and they pay all pharmacies the same amount. It is these payments that Mary Harney's just announced drastic cuts to, amounting to, on average, 36% of the gross profit for this activity. Gross profit is made up of: fees, allowances, mark-ups and discounts received. For every € that a pharmacist used to get for this activity, they'll now get €0.64. Other sectors of society are being ask to give up 8%. We're having 36% imposed upon us.
3. Over the counter medicines. There is price competition, but not a huge amount of it, for various reasons. Mainly, remember that medicines are not ordinary items of commerce. If I run a bike shop, I'm going to try to sell you the fanciest, shiniest bike I can, with lights and bells and a new helmet. If I'm selling you a medicine, I'm trying to sell you what will make you better and/or relieve your symptoms. There are ethics and laws involved. We only sell you 12 or 24 paracetamol tablets because that's what the law says, and in any case, as the package says "If symptoms persist, consult your doctor". If your headache hasn't gone after a day or two on paracetamol, there's something more serious wrong that needs to be checked out. We can't sell you a jumbo pack because a) it's illegal and b) it's unethical.
A packet of Solpadeine sells for the same price - give or take a few cent - in almost every pharmacy. Those words "give or take a few cent" are very important. We all buy them off one of the same three wholesalers, or perhaps through the manufacturer's sales rep, for the same invoice price. We all want to make a profit when we sell it, and most of us have approx the same percentage in mind. Differences arise because:
a) different pharmacies get different amounts of discounts from the wholesaler depending on the size of their account.
b) the pharmacy may decide to pass all, none or some of this discount on to the customer.
c) some may decide to aim for a slightly higher or lower percentage profit depending on the affluence or otherwise of their location.
d) some may decide to round the price up or down a few cent for convenience's sake.
Either way, look around for the price differences. They might not be very big, but they are there. (Somebody gave the example of a huge difference in Zirtek liquid. I don't have any price lists in front of me, so can't look up either of the prices, but it was a massive difference. Are you sure the two bottles were the same size?)
Incidentally, the pharmacist is perfectly entitled to make as large a profit as s/he thinks they can get away with on these items. A pharmacist is the only person in any kind of shop that I can think of who will actually turn down a sale and sell you nothing if they think that that's what's best for you. Why not make a profit when they do sell something?
2. Private Prescriptions. Now, this is the tricky one, and the bit that I suspect most readers are interested in. In alot of cases, there's not much price competition here. The reason, however, isn't the cosy cartel one might imagine. It has more to do with history, and believe it or not the amount the Govt pays for the prescriptions too. Let me explain.
It has been explained before by me and by others that the invoice price for medicines is set by an agreement between that IPHA and the Govt. The invoice price is the same whether it's going to be dispensed on a private pescription or not.
The pharmacist only controls how much mark-up (a percentage) and fee (a flat amount) he puts on to it. In practice, most pharmacists chose to put on the same fee and mark-up that the Govt would put on if they were paying for the item through the Drugs Payment Scheme. The reason is this: once a family's prescription bill in a given calendar month passes €100.00, the Govt steps in and pays the rest (ie if your drugs bill is €150, you pay €100 and the Govt pays €50). In this scenario, the Govt has set the mark-up (currently 50%) and fee per item (currently, I think, €3.16) that they will use for calculating the payment.
Now, If a pharmacist has decided that they'll only charge 48% and €2.75, for example, sooner or later there'll be a customer whose bill cames to, say, €98.50, and the pharmacist will say to himself "Hang on, if I get that patient to use the DPS, it only costs him an extra €1.50, but I'll get an extra (say) €6.50".
On the other hand, what if another pharmacist who's a little greedier or in a richer area is using 52% and €3.50. Sooner or later, some customer is going to have a bill that, by the pharmacist's calculations, comes to €103.50. The patient however knows his rights, so he's going to (quite rightly) say "No, put it through on the DPS, and I'll give you €100.00" So the pharmacist with a red face has to explain that "Well, actually, if I were to put that through the DPS, it would actually only be €97.50!".
Either of these situations would involve a lot of messy and time-cunsuming paperwork to correct at the last minute. When a private prescription is dispensed, neither the patient nor the pharmacist knows how many more prescriptions they'll need to get before the month is out, and whether or not the patient will hit the magic €100.00 figure. So, to avoid either of the situations described above, many if not most pharmacies set their fee and mark-up level at the same as the DPS level, which is set by the Govt.
Thanks you for reading. I hope I've answered all your questions. Before I go, though, allow me a couple of minutes to speak to all of those who said to themselves "50% mark-up?!? That's outrageous!!". Go on, admit it, some of you thought that, didn't you?
Here's couple of thoughts for you:
1. When you go into a clothes shop, the mark-ups are routinely 100 or even 200%. What they buy in for €10, they sell for €20 or even €30. When the sale comes around and they reduce it to half price, then they are getting the same margin as pharmacists are on private or DPS prescriptions!
2. Calculated as a % of the invoice value, 74% of all drugs that the Govt pays for are on the GMS, and attract no mark-up whatsoever, just the flat fee. Only 26% of it gets the 50% mark up. Half of 26% is 13%. So for every €100 we pay our wholesalers, we get reimbursed €113 plus the fees (which are nice, but not huge).
There is also a discount from the wholesaler. If you have dilligently read the whole thread, you'll know that the wholesaler's margin is 15% (so, of that €100 I mentioned above, €85 goes to the manufacturer and €15 to the wholesaler.) In practice, the wholesaler gives part of this €15 back to the pharmacist in discounts. This discount has developed over time due to changes in business practices:
-these days the order is entered into the computer by pharmacy staff and transmitted electronically, so the wholesaler employs less telesales personnel;
-most pharmacies pay their bills by direct debit at months end, instead of the old practice of 60- or even 90-days credit, so there's no credit control staff needed;
-pharmacies commit to buying a certain % of their goods from one company, that sort of thing.
Discounts are a normal part of any business; that money belongs to the pharmacies who have earned it! And, to be brutally honest, the GMS scheme with its flat-fee remuneration model would have collapsed years ago without the discount. It is quite simply not financially viable on the flat fee only without that couple of percent profit that comes from the discounts.
On Thursday June 18th, the cuts that some of you mentioned above were announced. I'm not going to re-hash them all here, but I will say this: the Govt is trying to grab 6.5% of that discount from us by reducing the wholesaler mark-up to 10%, as well as reducing the 50% (which is really only 13%) mark-up down to 20% (which therefore becomes 5.2%).
In future, for that €100 worth of drugs I mentioned, the pharmacy will get reimbursed:
{85 (ex-factory gate price) + 8.50 (10% wholesaler mark-up)} + 4.86 (20% of 26% of 93.50) = 98.36 plus the fees.
Now admittedly, the fees are going to go up, but not by anywhere near enough to even begin to compensate for this loss. Remember, for the same amount of drugs, with an invoice price of €100, we used to get €113 plus a fee, we'll now get €98.36 plus a fee. And out of that, we have to pay the wholesaler €100 (less the discount, of course).
The fees, by the way, are going from €3.60 (GMS) and €3.16 (DPS) to a sliding scale of 5.00, 4.50 and 3.50; the more you dispense, the less you'll get paid for it!
I'm not going to reproduce all the calculations here, but these cuts overall amount to 36% of gross profit on dispensing business to the average pharmacy.
Please, if you rely on pharmacies at all, ever, or if anyone in your family does, please pay a visit to your local pharmacy. Talk to the pharmacist. Ask him or her to tell you the impact of these cuts. Ask them to tell you, for a few sample prescriptions, how much the drugs cost to buy in, how much they used to be paid, how much they'll be paid in the future. And if you still think we're all a bunch of greedy sods when you've done that, come back and let me know.