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The Fourth Community Pharmacy Agreement

Partner Institute: 
Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney
Survey no: 
Gallego, Gisselle
Health Policy Issues: 
Pharmaceutical Policy
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no yes no no


Pharmacy Agreements represent a five-year collaborative relationship between the government and the Pharmacy Guild of Australia, which is a national employers' organisation. The agreements establish the remuneration pharmacists receive for dispensing medicines listed on Pharmaceutical Benefits Scheme (PBS). The Fourth Agreement came into effect in July 2006 and includes changes in the current payment arrangements for wholesale distribution of PBS medicines, pharmacists dispensing fees.

Purpose of health policy or idea

This is a fourth in a series and marks the renewal of an existing policy. The Federal Government is concerned about the long term growth of the PBS costs. It has identified the community pharmacy sector as a potential area to reduce government outlays. Under existing trends, the government estimates that pharmacy revenue will increase from 0.2 percent of the GDP to 0.7 percent in 2040. The government expects to achieve AU$350 million in savings over the life of the fourth agreement. The main features of the fourth agreement were:  

  • A reduction of the wholesale price mark-up from 11.1% to 7.5%.  
  •  An increase in the pharmacists dispensing fee from AU$4.40 to AU$5.15 per prescription.
  • The establishment of a Community Service Obligation (CSO) pool (AU$150 million per year) for direct payments to wholesalers who supply the full PBS range of medicines. The aim of the pool is to ensure there are arrangements in place for all Australians to have access to the full range of PBS medicines, via their community pharmacy, regardless of where they live and usually within 24 hours.
  • Changes in the Pharmacy Location Rules to allow pharmacies to: co-locate with large medical centres that operate extended hours; relocate into small shopping centres with 15 or more shops and a large supermarket and relocate to single pharmacy rural towns and urban areas with high population growth.

Over the five-year period, the agreement will provide AU$11.1 billion in payments for the dispensing and supply of PBS medicines. This equates to an average of AU$11.38 per prescription dispensed, a nominal increase of 14.5% (6.2% in real terms) on the average payment under the third agreement (AU$9.93). The agreement will also provide AU$500 for funding of professional pharmacy programs and services. This will fund Home Medicines Reviews and programs that promote correct use of medications as well as E-Health initiatives.

Main points

Main objectives

The government expects the initiatives to achieve a reduction in the rate of growth of payments to the pharmacy sector "with the long-term aim of limiting pharmacy sector revenue to 0.4 percent of the GDP in 2040. 

Type of incentives

There are no new financial incentives. However there is an incentive for wholesalers to provide the whole range of PBS listed medications especially in rural areas. There might also be an incentive to open pharmacies in different locations as per new Location Rules.

Groups affected

The agreement is good news for pharmacists. Pharmacy remains one of the most tightly regulated sectors of the economy, with strict rules on the location and ownership, The Community Service Obligation (CSO) pool is designed to make it commercially viable for wholesalers to supply the full range of PBS medicines to pharmacies across Australia, The partial deregulation on pharmacy location and the wholesaler incentive to supply the full range of PBS medicines, regardless of pharmacy location and the relative cost of supply; should translate into better access to PBS medicines for consumers.

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Characteristics of this policy

Degree of Innovation traditional traditional innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal rather marginal fundamental
Public Visibility very low high very high
Transferability strongly system-dependent strongly system-dependent system-neutral

The PBS plays a very important role and is a key instrument for providing access to affordable medicines for Australians. The new policy should improve access to these medications in rural/remote areas.

The most controversial issue in this policy was the Pharmacy Location Rules. While this agreement "relaxed the rules" it is still uncertain how this will increase greater competition.   

Political and economic background

Pharmacy in Australia is a highly regulated protected business. Before the fourth agreement was signed the issue of pharmacies opening in supermarkets was hotly debated. Some commentators considered that Federal rules have sheltered pharmacy from competition. A government commissioned report established that the current rules had allowed pharmacies to increase their incomes without passing on the benefits to consumers, and that competition between pharmacists, including from within supermarkets, would lead to "the delivery of higher quality pharmacy services". The Pharmacy Guild as described by the National Competition Council is a strong lobby group. The Guild has been able to obtain big concessions from the government. It is understood that the Prime Minister, John Howard, played a crucial behind the scenes role to secure the CSO deal. The Prime Minister has been a key ally of the Guild for many years. Mr Howard and the Health Minister, Tony Abbott, have indicated they stand by "community pharmacies" against supermarket entry.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no yes no no

Origins of health policy idea

Since the early 1990s Australia has negotiated a series of five-year Agreements with the Pharmacy Guild of Australia to ensure the delivery of Pharmaceutical Benefits Scheme (PBS) listed items and other pharmacy services to the community. The third community pharmacy agreement expired in 2005. Formal talks for the fourth agreement began in April 2005.

Initiators of idea/main actors

  • Government
  • Providers: Represented by the Pharmacy Guild
  • Patients, Consumers
  • Others

Approach of idea

The approach of the idea is described as:
renewed: This is the fourth in a series. It marks the renewal of an existing policy

Actors and positions

Description of actors and their positions
Minister of Healthvery supportivevery supportive strongly opposed
Pharmacistsvery supportivevery supportive strongly opposed
Patients, Consumers
Consumer associationvery supportivesupportive strongly opposed
Australian Medical Association
Australian Medical Associationvery supportivestrongly opposed strongly opposed

Influences in policy making and legislation

The health policy will not lead not any formal piece of legislation.

Actors and influence

Description of actors and their influence

Minister of Healthvery strongvery strong none
Pharmacistsvery strongvery strong none
Patients, Consumers
Consumer associationvery strongweak none
Australian Medical Association
Australian Medical Associationvery strongweak none
Minister of Health, PharmacistsConsumer associationAustralian Medical Association

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

Stakeholder positions

The government requested comments on the wholesale distribution payments proposal on the 9th of August 2005. Discussions were held between the government and Guild before the fourth agreement was signed. According to the president of Australian Medical Association (AMA), the agreement fails the public benefit test and it should be the last of its kind. The AMA has indicated that it will be monitoring the Agreement over the next five years to see if the "Government's targets are met and whether distribution costs do actually fall". The AMA will also follow the new pharmacy location rules closely. The Consumer Health Forum (CHF) only commented on the priority areas in community service provision. The CHF has highlighted the importance that funds are provided to projects that deliver services with positive health outcomes for consumers.

Monitoring and evaluation

No formal evaluation of the policy has been announced; however funding was provided for research and development of services in community pharmacies. The Agreement has also identified some clear targets that should be straight forward to monitor in future years.

Expected outcome

The government expects significant savings against the current forward estimates over the life of the next agreement, as well as substantial further savings over time, in order to improve sustainability of the PBS.

Impact of this policy

Quality of Health Care Services marginal marginal fundamental
Level of Equity system less equitable four system more equitable
Cost Efficiency very low high very high

Quality: The policy's impact on quality is marginal

Equity: The policy aims to improve access to PBS funded medications specially in rural/remote areas.

Efficiency: Cost efficiency by government reducing expenditure on the PBS.


Sources of Information

For Department of Health and Ageing fact sheets on the Fourth Goverment Agreement policy go to:  

For information about Pharmacy Location Rules go to:

Parliament Library  

The National Competition Council of Australia  

Community Pharmacy in the Australian Capital Territory

For the Australian Medical Association press release go to:

Australian Medical Association

Author/s and/or contributors to this survey

Gallego, Gisselle

Suggested citation for this online article

Gallego, Gisselle. "The Fourth Community Pharmacy Agreement". Health Policy Monitor, March 2007. Available at