The pharmacists' union claims plans to cut HSE payments to pharmacies will force many out of business, but are they really in such poor health? Ciaran Hancockreports
If pharmacy owners are to be believed, the industry is in poor health, a situation only made worse by the price cuts being sought by the Health Service Executive (HSE) on payments made to chemists for prescription drugs each year.
"Put simply, for every €100 we received from the HSE, we're now going to get €8.20 less," says Cormac Tobin, managing director of the Unicare chain of pharmacies in Ireland. "That's money I lose straight off. Meanwhile, our costs continue to grow."
Unicare is the biggest chain of chemists in Ireland, with 61 outlets. The group, which is owned by Germany's Celesio, recorded sales of €130 million last year but does not reveal its profitability.
Tobin says plans to grow its network - for the time being at least - are being put on ice. "We're going to be very cautious and selective in our growth," he said.
Information on the profits earned by the leading pharmacy chains in Ireland is hazy.
Latest accounts for Uniphar, one of the biggest retailers and wholesalers of pharmaceutical products in Ireland, shows that it made pre-tax profits of €15.6 million on turnover of €618 million in the year to the end of 2005. That represented a net profit margin of 2.5 per cent.
A dividend payment of €1.3 million was paid to shareholders in the group, up from €1.1 million a year earlier. The 11 directors of the company, meanwhile, were paid €807,000 between them in emoluments and fees.
Accounts for Sam McCauley Chemists, another large chain, show that the Wexford-based group made a pre-tax profit of €1.9 million in the year to the end of September 2006 on turnover of €70 million. That is a net profit margin of 2.7 per cent, but this was was after an interest bill of €1.3 million was met.
Its profit figure was almost 50 per cent ahead of the previous year. The company, which employs more than 550 people, said it expects revenues this year to exceed €80 million. Five new outlets are expected to open this year, bringing the number of shops in the chain to 25.
The Hickey chain of pharmacies is one of the biggest Irish-owned chains. Headed by Tralee-born Paddy Hickey, the group has 26 outlets and its 2007 sales have been projected at about €50 million.
On the face of it, the pharmacy sector is a lucrative business. Before deregulation of the sector in 2002, chemists were changing hands for big bucks.
Hickey is reported to have paid close to €30 million in two major deals that netted the company 10 outlets. Celesio paid about €110 million buying the Unicare chain.
In 2002, Uniphar spent €50 million buying the Walsh Pharmacy Group, which had 12 outlets. It also paid Cork-based couple Conor and Denise Phelan a reported €25 million.
According to Conor Phelan, deregulation killed the golden goose, with values dropping by up to 40 per cent. "The values have fallen significantly," says Phelan. "Partly, because of deregulation and partly because of the moves by the HSE to reduce margins."
Phelan is back in the pharmacy business. He is a shareholder in five businesses in Cork but says a couple of them are struggling. "A pharmacist's salary is about €80,000. The costs are high." So why did he re-enter the business? "Because I didn't want to retire at 40."
Phelan says the value of pharmacies has probably dropped by up to 40 per cent in the past few years. "There are sellers, but I'm not too sure if there are too many buyers."
It's a view echoed by at least one leading corporate financier in Dublin. "The money that was paid out for pharmacies earlier in the decade was crazy," he said. "But there was a land grab going on with a few chains looking to buy market share. The next round of consolidation will probably be driven for other reasons - there could be a lot of fire sales by owners who just can't afford to stay in the business."
It's a view shared in part by the Irish Pharmaceutical Union, a representative body for the industry. It has warned that more than 200 chemists from about 1,470 across the country could close as a result of the HSE's move. "There will be more consolidation," says Irish Pharmaceutical Union (IPU) general secretary Seamus Feely.
Many people will be sceptical about the claims of the IPU and its members. After all, the HSE dispensed €1.36 billion in 2006 to community pharmacies "through their participation in primary care schemes". This compared with €1.2 billion in 2005.
The HSE says its decision to cut the wholesale price of drugs followed a "detailed analysis" that shows the wholesale mark-up in Ireland, at 17.66 per cent, is more than double the average for the European Union. It says the cuts in payments made via the medial card and drugs payments schemes would reduce the cost of medicines by more than 8 per cent and save the HSE about €100 million in 2008.
Figures from the HSE showed that 37 pharmacists received €500,001 or more in fees under the general medical services and community drug schemes. It showed that Abbey Healthcare in Monkstown, Co Dublin received more than €4 million in payments from the HSE. Unicare in Cabinteely Co Dublin and McCauley's Pharmacy in Gorey, Co Wexford were each paid more than €3 million by the health body.
These figures don't suggest that pharmacies are struggling. The IPU, however, says they are not representative of the industry as a whole. It argues that the majority of pharmacies are small, family-owned businesses with low profit margins. "This move by the HSE will decimate the pharmacy sector," a spokesman for the IPU warned. "If these changes go through unchallenged then it will fundamentally undermine the economics of the pharmacy sector and will be the death knell for many pharmacists over the next 12 to 18 months."
A recent report by PricewaterhouseCoopers found that net profits in the sector were about 6-7 per cent. The IPU argues that given the large capital investment involved in setting up a pharmacy and the losses racked up in the first few years of business, this represents a poor rate of return.
Despite the doom and gloom surrounding the industry, Unicare's Tobin says the future is potentially still bright. "We've got to get much closer to the HSE to see how we can bring down costs and improve the service to the public."
Unicare carries out blood pressure monitoring and also screens for diabetes and cholesterol levels. These are popular services with the public.
"Pharmacies can play a much bigger role in the healthcare system," he says. "It's probably the one arm of healthcare that operates efficiently. We've just got to look at doing things differently. There are big changes taking place in the business but the future can still be bright."