The IPU claims that pharmacists are facing a pay cut of 8.2 per cent
THE COUNTRY'S pharmacists will, over the coming months, be keeping one eye on the Four Courts, monitoring the various legal challenges to the Government's controversial new drugs payment scheme, and the other on their profit and loss accounts.
The Irish Pharmacy Union (IPU) and its 1,600 members say pharmacists are facing a pay cut of 8.2 per cent as a result of the decision by the Health Service Executive (HSE) to reduce the wholesale mark-up on drugs delivered to pharmacies.
The IPU says pharmacists will have to weather the cut and still cover the same salaries and overheads as before. Pharmacists make an average net profit of 6-7 per cent on turnover. Some who rely more heavily on State payments claim the cut will reduce their income by up to a third.
One pharmacist, Niall O'Sullivan in Limerick, obtained a temporary High Court injunction last month stopping the HSE from changing the system. O'Sullivan claimed he would have to close his five pharmacies and lay off his 43 staff under the system. More legal actions are expected.
Pharmacists won't see the effect of the changes until the third week of this month when they are due to receive the March reimbursements for drugs dispensed. Most, and particularly the smaller operators, claim the changes will, at best, force them to lay off staff and, at worst, put them out of business.
More than one in five pharmacists, in a survey conducted by the IPU, said the HSE's new system threatened the future of their businesses and could shut them down.
It is hard to assess the true financial picture by looking at company filings by pharmacists. Most accounts filed in the Companies Registration Office cover the 2006 financial years and, in some cases, figures for part of 2007, so they do not provide up-to-date information on the money pharmacists are making.
However, the accounts show profits they have banked over several years. They show that most pharmacies, including small community-based operators, performed exceptionally well in recent years, amassing large profits and cash reserves.
"I have run a business for 10 years and have built up a certain amount of profitability. We are not talking about the past here but the future," says Dermot Twomey, a Co Cork pharmacist who has criticised the changes, saying they would have "a catastrophic effect" on his business.
Twomey told a Dáil committee in February that cutting 8.2 per cent off the wholesale price of drugs dispensed by his business, Cloyne Pharmacy, near Midleton, would shave €75,000 off his bottom line, turning his annual net profit of €38,200 into a loss of €40,500.
His accounts show a strongly profitable business. Cloyne Pharmacy had, according to the accounts, retained profits of €427,800, cash reserves of €147,500 and total assets, before debts, of €1.2 million at the end of its financial year to October 31st, 2006.
Twomey says that the cash balance gave a distorted picture on the health of his business as it included bank borrowings drawn down for a refurbishment of the pharmacy in 2006-7.
He says he had taken out four mortgages to finance the refurbishment and running of his business, and that while the HSE's new system would roughly halve the 16-18 per cent profit on his medical card business, his overheads would remain at 29-30 per cent of a turnover of €1.5 million. The State's General Medical Services (GMS) scheme accounts for 63 per cent of his business, he told the Dáil committee.
Twomey, a chairman of an internal committee within the IPU, is one of the few pharmacists who have opened their books to scrutiny to illustrate the effect of the changes of his business.
OTHER COMMUNITY pharmacists who spoke to The Irish Times were in a similar position.
Noreen Casey, who runs Clifden Pharmacy in Co Galway and employs two pharmacists and a technician, says the pay cut will have a damaging effect on her business.
Her pharmacy received €254,100 in fees and mark-ups in 2007, according to the HSE. She says the GMS scheme is already costly and labour intensive, and State drugs dispensed by her pharmacy are far less profitable than other products sold through her business. She says GMS business accounted for more than a third of her annual turnover.
"We stand to lose up to €100,000 a year so that is one of our pharmacists gone," she says. "This agreement means we will be getting 8 per cent less than last year on the cost of drugs, and we are doing the exact same job and have exactly the same costs."
Casey says she will still have to pay for a dispensing courier service to doctors in a large catchment area in Connemara that includes the villages of Roundstone and Rosmuc. "You might get away with not giving someone a raise, but it is not appropriate to take up to €100,000 off someone who has an existing agreement," she says.
She says she earned a larger profit on selling make-up and film for cameras than on dispensing drugs, and that more expensive retail items and over-the-counter medicines propped up her GMS business.
"Some pharmacists get discounts from wholesalers that make their GMS business feasible and you don't get discounts on all products or from all wholesalers," she says.
Accounts for Casey's pharmacy showed that she had retained profits of €639,200 and cash reserves of €92,000 at end of her financial year to February 28th, 2007. She says she has drawn down very little from the business over the years.
"I would not have paid myself a hell of a lot. The money has always been there in case I needed it. I don't have a pension and that is my savings," says Casey who set up her pharmacy 17 years ago.
Peter Fox, who runs two pharmacies in Co Offaly and Co Tipperary, suggests that his pharmacy in Cloughjordan would run into difficulty under the new system. "You look at the figures for Cloughjordan and tell me what would happen if you take 33 per cent off the business," he says. His pharmacy in Birr had retained profits of €573,400 and cash of €56,400 at the end of the financial year to June 30th, 2006, while the Cloughjordan pharmacy had accumulated profits of €96,100 and cash of just €1,900.
Denis Cooney, who runs three pharmacies in Athlone, Moate and Kilbeggan, Co Westmeath, said GMS business accounted for 65 per cent of his turnover and 80 per cent of business in his Athlone outlet.
He says the Athlone pharmacy was one of the largest recipients of State payments. His main company, Cooney's Pharmacy (Moate), received fees and mark-ups of €669,200 from the State in 2007, according to the HSE's figures, putting it at 15th position in the list of the highest recipients.
The accounts for Cooney's business are more revealing than most. In the year to October 31st, 2006, his pharmacies made a gross profit of €2.6 million, roughly the same as the previous year, and an operating profit of €760,000, down from €1 million in 2005, as overheads rose 18 per cent to €1.8 million.
The business was very healthy at the end of the year. Cooney's Pharmacy (Moate) had retained profits of €3.9 million and cash of €848,000.
"I am in a healthy position because I have been fairly conservative," he says. However, despite this, he says he is "looking at a couple of redundancies" because of the cut in the wholesale mark-up. He is even more pessimistic about the outlook for other pharmacists.
"People are going to go bust - that is unquestionable."
Cooney says GMS business for pharmacists was "fundamentally unprofitable".
"Most pharmacists will be able to survive for three or four months but the long-term problem is that the HSE will not negotiate and pharmacies in high GMS areas will cease to exist because pharmacies won't be able to afford to run them."
He says smaller pharmacists would suffer most of all. "GMS is a volume business. If you do the volume, you will get the discounts to make it viable. A lot of people need the 8 per cent to keep the show on the road."
The battle: The State v the pharmacists
PHARMACISTS ARE up in arms over the system introduced by the Health Service Executive (HSE) on March 1st, which the Government believes will save the Exchequer €100 million, by reducing the mark-up on the wholesale cost of drugs from 15-17.66 per cent to 8 per cent.
Wholesalers and pharmacists share the mark-up in discounts, which pharmacists maintain is essential to the viability of their businesses.
The State, which spends 370 per cent more on drugs than a decade ago, claimed the wholesale mark-up was double the EU average and that more than half of it was returned to pharmacies by wholesalers in discounts. This is where it believes the HSE could make the €100 million saving.
Pharmacists claim they will bear the cost of this saving as they have to take an 8.2 per cent pay cut in the reduction in the mark-up. The Irish Pharmacy Union (IPU), which represents 1,600 pharmacists, says up to 300 pharmacies could close and as many as 5,000 jobs lost in a sector that employs 13,000 people.
The average dispensing fee and mark-up paid to pharmacies by the State last year was more than €200,000 and pharmacists shared fees and mark-ups of more than €320 million, according to health service figures.
The HSE says fees and mark-ups amount to on average 10-12 per cent of a pharmacy's turnover and that the turnover of a pharmacy receiving fees and mark-ups of €300,000 would on average be €2.5-€3 million.
The HSE says pharmacists who claim that they will lose a third of their income from an 8 per cent cut in the wholesale margin may not be including other income in their business.
However, pharmacists say that some rely more heavily on the State's General Medical Services (GMS) scheme than others.
