Chemist giants are testing the rules

Health regulators are preparing to challenge the increasing dominance of Australia’s pharmacy giants.

The push to test the legality of complex ownership arrangements threatens the rapid expansion of the big pharmacy chains. Picture: iStock

Health regulators are preparing to challenge the increasing dominance of Australia’s pharmacy giants, with threats to prosecute and cancel licences if franchise agreements breach strict ownership laws.

The push to test the legality of complex ownership arrangements threatens the rapid expansion of the big pharmacy chains and is set to cause further disruption in the $21bn a year sector.

The industry is already facing an imminent class action by franchisees against pharmacy giant Priceline, as revealed by The Australian on Monday, in a case that will test the pharmacy ownership laws of NSW, Victoria and Queensland.

The Priceline franchisees claim parent company Australian Pharmaceuticals Industries exerts an unacceptable level of control over their business in breach of laws restricting ownership and control of pharmacies to registered pharmacists.

But regulators in some states are also cracking down on the ownership arrangements that underlie many of the chains.

Potential targets include Priceline, Amcal, Blooms, Terry White, Ramsay Health Care and the gorilla of the sector, Chemist Warehouse.

Investigations have found the industry is rife with ownership breaches, with some chains exerting undue influence over pharmacists in everything from displays and pricing, to supply and dispensing of medicines.

The Victorian Pharmacy Authority last year reported it had found “extensive evidence that franchise agreements and other complex commercial arrangements provide for third ­parties to exert control or undue influence over pharmacy businesses.”

An ownership audit of 35 Victorian pharmacies found only eight fully compliant with ownership laws, the remaining 27 still to be determined pending a legal review by the authority, or potentially not compliant with the control and undue influence provisions.

In Queensland, the state government is moving to introduce legislation to give it authority to compel pharmacy owners to provide commercial documents.

A parliamentary inquiry found that the ownership requirements for pharmacies in Queensland were “clear and unambiguous”. A number of submissions to the inquiry pointed to examples of ownership transfers they believed breached the requirements of the Act, including the 2017 sale of the Malouf group to Ramsay Health Group.

Alan Milostic of LiveLife Pharmacy in Airlie Beach, pointed out that all the nominated pharmacists were employees of Ramsay Healthcare, most, if not all, of whom “did not even own their home outright, let alone have enough capital to provision $120m in cash, on short notice, for the sale to proceed.”

Furthermore, these pharmacists “went from being employees in the hospital pharmacy sector, to owning 4-5 community pharmacies in their own right, overnight.”

In Western Australia, the Pharmacy Review Board has rejected at least two applications by Ramsay Pharmacy franchisees for transfer of ownership because the franchise agreements required that all products had to be approved by Ramsay.

The “franchisee” would have been obliged to pay Ramsay 100 per cent of the profits generated by the chemist, so as the barrister representing the Board put it, “all of this was a subterfuge” aimed at hiding the true owner.