Financial and economic impact of 60-day dispensing
19 June 2023
The Pharmacy Guild of Australia asked Professor Henry Ergas AO to review, draw policy conclusions and make recommendations based on a Technical Report prepared by Tulipwood Advisory Pty Ltd (Tulipwood Economics) and the Relational Insights Data Lab (RIDL) at Griffith University in relation to the Australian Government’s 60-day Maximum Dispensing Quantity (MDQ) policy.
The financial impacts on the community pharmacy sector were estimated using a ‘top-down’ approach based on aggregated PBS dispensing data and a ‘bottom-up’ approach using a large sample of actual pharmacy financial data supplied by several accounting firms.
The national level analysis measured the reduction in dispensing revenue only (the first of the two dot points above). Based on the analysis of the publicly available PBS data, at a national level, over the four-period 2023-24 to 2026-27:
In the Central Scenario:
o The estimated reduction in dispensing volumes is 348.2 million scripts over four years based on the assumed GP take-up rate that ramps-up from 63% in Year-1 to 90% in Year-4.
o The corresponding estimated reduction in community pharmacy revenue is $4,532.9 million in nominal terms over four years.
In addition, the financial impact modelling included a pharmacy-level based (i.e. bottom-up) approach to quantify the financial impact of the MDQ policy change. This approach was based on a large sample of actual pharmacy financial data sourced from commercial online pharmacy calculators (e.g. Nostradata and Strongroom), accounting firms, valuation firms and finance brokers. The dataset, which represents a large sample of pharmacies from all states and territories, was used to account for regional variations in economic circumstances, population health, demand for services and existing financial performance (which is relevant to understanding the impacts of the MDQ policy change).
Based on individual community pharmacy level financial data, the estimated impact on pharmacy net profit of the MDQ policy in the Central Scenario is as follows:
- Average reductions in net profit per pharmacy per year range between $169,332 (at the 63 per cent GP take-up) and $183,925 (at the 90 per cent GP take-up).
- Reductions in net profit per year in median terms range between $160,138 (at 63 per cent GP take-up) and $174,887 (at 90 per cent GP take-up).
- A ‘lower bound’ net profit point has been defined as the lower bound of 1 standard deviation around the average net profit. This lower bound net profit point falls from being positive (+$9,472 in the Base Case) to negative (between -$132,407 and -$147,024 in the Policy Case). What this means is that many pharmacies even within the first standard deviation of financial performance will be vulnerable in the Policy Case.
- Moreover, it is estimated that at least one-sixth of all pharmacies (i.e. a further 944 pharmacies in the second and greater standard deviations below the average net profit level) are likely to be in a negative net profit position after the MDQ policy change and will be, therefore, forced to take action such as reducing staff to remain financially viable.
The consequence of the reductions in community pharmacy income and profitability will, ultimately, be the closure of some community pharmacies and job losses. Community pharmacies are likely to shed jobs and reduce their operating hours first to remain viable for as long as possible. However, some community pharmacies will not be able to cover their operating costs, even with reduced staff costs, and will be forced to close. Those pharmacies noted above that will fall into a negative net profit position will obviously be most vulnerable.
In the central scenario, the individual community pharmacy level modelling indicates that:
- At least 200 community pharmacies will likely close as a result of the MDQ policy change based on cautious assumptions. If a debt servicing obligation or return on investment (ROI) requirement is added to the financial analysis, it is estimated that more than 600 community pharmacies could close.
- The MDQ policy could put up to an estimated 944 additional community pharmacies under significant financial strain where staff numbers would likely need to be reduced to maintain a positive net profit that could cover debt (principal) payments or ROI obligations as both the MDQ policy ramps up (in terms of the number of medicines in-scope) and the GP take-up rate ramps up.
At an aggregate level, in the Central Scenario, it is estimated that:
- 4,938 full time equivalent (FTE) jobs will be lost over the four-year timeframe due to the MDQ policy change, before considering debt or ROI obligations.
- In a sector with a high proportion of part-time jobs (35 per cent of community pharmacists work less than 34 hours per week), the employment impacts are more significant when viewed as actual jobs (i.e. headcount) rather than in FTE terms. In the central scenario, a total of 10,863 actual jobs are lost in the central scenario over four-years (or 14.7% of all community pharmacy workers), including 801 community pharmacists and 10,062 pharmacy assistants.
In terms of the economic impacts, in the central policy case, the total impact of the 60-day dispensing policy on the Australian community is a loss of $1,209.9 million in net present value terms over 4-years. The estimated benefit-cost ratio (BCR) is 0.73, which is well below the threshold where the benefits of a policy exceed its costs of 1.0. In the Central Case, any benefit to the Australian community from a reduction in patient co-payments and government savings on dispensing fees is outweighed by the significant impact on the Community Pharmacy sector
Economic Impact Analysis of proposed Clean Energy and Logistics Hub at Port of Newcastle
2 March 2023
The Port of Newcastle engaged Tulipwood Economics to independently assess the potential economic impacts of a $466 million Enablement Works infrastructure investment over the planned 7-year construction period from 2022-23 to 2028-29.
We estimated the impact across the Australian economy to be:
In gross output terms, the economic impact of the Enablement Works is estimated to be $1,153 million over the 7-year construction period in net present value terms
This equates to $721 million in additional value-added (an equivalent measure to GDP), which consists of the returns to labour (gross wages incl. taxes paid) and returns to capital (gross profits incl. taxes paid)
The total increase in gross wages and salaries as a result of the investment is estimated to be $251 million.
During construction phase, the Enablement Works will support:
A total of 4,040 jobs across the 7-year construction period
A total of 1,522 jobs during the peak construction year (in Year-5), comprising:
A total of 435 direct jobs, all within the Hunter region; and
A further 1,088 jobs along the industry supply chain (including induced consumption impacts from the additional wages paid to workers)
In annual terms, a total of 566 jobs on average across each of the 7 construction years.
The estimated impact in the Hunter regional economy is:
In gross output terms, the economic impact of the Enablement Works is estimated to be $947 million over the 7-year construction period in net present value terms
This equates to $573 million in additional value-added (an equivalent measure to GDP), which consists of the returns to labour (gross wages incl. taxes paid) and returns to capital (gross profits incl. taxes paid)
The total increase in gross wages and salaries as a result of the investment is estimated to be $206 million.
During construction phase, the Enablement Works will support:
A total of 3,319 jobs across the 7-year construction period
A total of 1,250 jobs during the peak construction year (in year-5), comprising:
A total of 435 direct jobs within the Hunter region; and
A further 816 jobs along the industry supply chain within the Hunter region (including induced consumption impacts from the additional wages paid to workers)
In annual terms, a total of 457 jobs on average across each of the 7 construction years.
Economic value of Children’s Hospital Foundation research grants
31 March 2023
The Children’s Hospital Foundation (CHF) asked us to assess the economic impacts and benefits of its paediatric research grant program. Since 2010-11, CHF provided more than $60 million in medical research grants across several research categories, including oncology, respiratory health, digestive tract and nutrition, cystic fibrosis and cerebral palsy. This investment has leveraged more than $150 million (in real terms) over the past decade in further investment in paediatric medical research and also generated significant impacts for the Queensland and Australian economy, as well as benefits for patients, their families and researchers.
Economic impact analysis of Mort & Co’s proposed Lysine Plant at Grassdale Queensland
21 July 2022
We assisted Mort & Co, one of Australia’s largest integrated beef producers, develop an Economic Impact Analysis of its proposed Lysine Plant at Grassdale on Queensland’s Darling Downs. We found significant economic benefits to Queensland and Australia from the project including the potential to provide broader economic and social benefits to Queensland.
• It would station an advanced bio-manufacturing plant in an important regional Queensland economic hub that will, in our view, become more important in the future (in part because of the significant increase in investment in transport infrastructure connecting the Darling Downs to SEQ and beyond);
• It would develop and utilise IP, chemical processing technology and specialist skills within Queensland;
• It would strengthen a vital agricultural input supply chain at a time of significant global uncertainty with, for example, significant post-COVID global supply-chain disruption,
the ongoing war in Ukraine and its impact on global resources (including food) supply;
ongoing trade tensions with China; and rising global inflation and interest rates.
COVID19: Getting Australia Back to Work
14 July 2020
The Menzies Research Centre released a report by Professor Henry Ergas AO and Joe Branigan COVID19: Getting Australia Back to Work that argues the costs of many social distancing restrictions, such as Queensland’s hard border closure are likely to be greater than any benefits in terms of avoided COVID19 cases. The report takes a step back at a critical term in the COVID response to evaluate the likely economic and social impacts of the social distancing restrictions and makes a number of recommendations to get Australians safely back to work.
Future Timber Hub
30 May 2020
Tulipwood Economics is currently assisting the Future Timber Hub at the University of Queensland evaluate four marquee projects.
Tulipwood Economics has been engaged by the Future Timber Hub at the University of Queensland to undertake four cost benefit appraisals (CBAs) for the Hub’s marquee ARC grant projects. The projects relate to advancing industry knowledge about the use of engineered timber (such as cross laminated timber or CLT) in tall frame timber buildings. Specifically, the projects relate to improving the safety of exposed CLT, the strength of structural post and beam joinery, and the use of lower-value wood products in making engineered timber products. Tulipwood Economics has partnered with the Australian Institute for Business and Economics in the Business Economics and Law Faculty of the University of Queensland to undertake the project.
The Future Timber Hub (the Hub) is Australia’s leading timber industry research hub dedicated to cutting-edge research and innovation. The core objective of the Hub is to increase the use of timber in large and tall commercial buildings. The Hub was established as an Industrial Transformation Research Hub that has broad industry, academic and government support, including from the University of Queensland (CFTS), Queensland Department of Agriculture and Fisheries, Queensland Fire and Emergency Services, Griffith University, the University of British Columbia and the University of Canterbury, Scion Research, as well as leading firms such as Arup, Hyne Timber and Lendlease. The Hub sources funding from the Australian Research Council.
Tulipwood Economics assists the University of Queensland undertake a market analysis of Australia’s rail transit and rail freight market
15 December 2019
Tulipwood Economics is currently assisting the University of Queensland undertake a major study in to the Australian rail transit and rail freight markets for a major international rail manufacturer. The study looks at several rail markets in details, such as the five major heavy rail networks, the five major light rail networks, all regional passenger rail networks and the major freight networks by commodity.
Tulipwood Economics assists the Cooperative Research Centre Association prepare its 2020-21 pre-budget submission.
5 December 2019
In its submission, the CRC Association argues strongly that its level of funding has fallen in real terms in recent year’s. Further, that the CRC model, especially following recent governance reforms recommendation (and accepted) as part of the Miles Review, puts the CRC model in a strong position to foster innovation and collaboration between the university and industry sectors. As such, the CRC Association believes that a sustainable increase in funding over the forward estimates represents money well spent by the Federal Government on behalf of the Australian taxpayer.
Tulipwood Economics assists iMOVE Cooperative Research Centre prepare its submission to the Productivity Commission’s Inquiry into National Transport Regulatory Reform.
29 June 2019
In its submission, iMOVE argued that the recent ICT revolution calls for a rethink of how Australia’s transport network operates on a day-to-day basis, and how the network is regulated. iMOVE proposed to build on the COAG reforms of 2011 and move towards greater utilisation of available data and greater uniformity across regulators in recognition that Australia’s transport network operates as a single system.
While it is true that there are significant differences between rail, heavy vehicles and maritime industries, there are also critical network interdependencies. And these linkages are more likely to intensify rather than dissipate going forward. If those interdependencies are not recognised, and we persist with a siloed approach to transport regulation, we would expect future productivity will be constrained and regulatory settings risk being inconsistent and ‘mode-parochial’.
Going from fragmented state regulators, to national mode-based regulators, to ultimately a single national regulator has been recognised in other infrastructure sectors. It’s part of Australia’s regulatory ‘journey’. iMOVE proposed that Australia’s reform journey, in the transportation space is not about more regulation, but better regulation.
iMOVE made a number of far-sighted recommendations, including: (i) establishing a shared governance framework and common information model, (ii) a National Transport Regulator, and an Australian National Transport Coordinator.
Here’s the link to the report:
Ecotourism in the Post Mining Investment Boom Decade
6 August 2018
Tulipwood Economics has been working in the Ecotourism space for a number of state governments and private companies. It’s a growing industry in Australia, particularly in Tasmania, but has enormous potential in Tropical North Queensland.
We recently completed a report for the Queensland Government reviewing the Tasmanian success story in ecotourism. And we are currently working with our partners Aurecon and PWC looking at ways to grow ecotourism in the beautiful Whitsundays.
Supply Chain Efficiency
6 August 2018
At the SMART Infrastructure Facility, Joe has been working with Ben Ellis, a highly respected transport economist and Partner at KPMG on identifying representative supply-chains in the Australian economy for the Bureau of Industry Transport and Regional Economics (BITRE). This is a fascinating project and should hopefully, with better information, underpin improvements in supply-chain investment in Australia.