Federal Budget Helps Pharmacy Budget
The 2019 Federal Budget was released on 2nd April by Treasurer Frydenburg who drew attention to the number of new molecules listed (over 2,000) on the PBS during the current Government’s term in office. The use of PBS Reforms to reduce the price of high volume older molecules is good policy which has created the ‘headroom’ to introduce these new molecules.
Whilst not all new molecules are being dispensed in Community Pharmacy, some are/will and while they are usually of a higher cost, pharmacy needs to remain focussed on meeting customer needs while managing the patient journey rather the cash flow impact that may be associated with higher cost medicines. Pushing customers away because of the timing of receipt versus payment of medicines does not make good business sense as it simply invites a customer to shop a competitor.
Under the current remuneration structure, high cost molecules can deliver a pharmacy more than $80 per script in GP$ compared the PP pharmacy average GP$ per script of $12.00 to $13.00. Add to that other health conditions that may be impacting high need patients and the opportunity is significant.
Transitioning to the new model
Also of significant value is the announcement to extend and increase the instant asset write-off threshold. Prior to the Budget there were announcements to expand the deduction which have been further enhanced in the Budget. The expansion of the rules apply to medium sized businesses (defined as businesses with aggregated turnover of less than $50 million). While this will not impact many Community Pharmacy operators (although there are aggregation rules where multiple businesses are owned) the extension of the claim period and increased claim thresholds will apply to all Community Pharmacies.
There are now effectively three different thresholds that apply for purchases of the assets made during the 2019 financial year (assuming the budget announcements pass through the upper house). In summary, the immediate deduction will be available in respect of assets that cost and are installed ready for use as follows:
Up to $20,000, purchased from 1 July 2018 to 28 January 2019 (for small business)
Up to $25,000, purchased from 29 January 2019 to 2 April 2019 (for small business)
Up to $30,000, purchased from 3 April 2019 to 30 June 2020 (for both small and medium sized business)
The importance of the extension with reference to pharmacy is that 30 June 2020 coincides with the expiration of the 6th Community Pharmacy Agreement. Based on the changing remuneration structure experienced over the course of the 6th CPA Agreement it is evident that the business model of Pharmacy continues to change and continues to require ongoing adaption by owners. This is unlikely to change with 7CPA post 2020.
The expansion of the instant asset write-off concession will avail pharmacy owners of significant opportunity to invest in their businesses and hasten the transition to an enhanced fit for purpose business model. All owners should view this as a windfall opportunity to assist their businesses in getting ready for the transition to the new operating environment of the 7th Agreement.