Health Minister Sussan Ley says Labor has "serious questions" to answer about a $15 billion deal struck with pharmacists under the Rudd Government, following an audit which identified several shortcomings in the administration of the agreement.
The Australian National Audit Office report, tabled in parliament late on Thursday, criticised the federal health department for miscalculating the amount of savings to be delivered by the agreement, failing to fully realise a number of government negotiating objectives, and poor record keeping.
The report comes as the department negotiates a new five-year deal with the powerful Pharmacy Guild of Australia.
The current agreement provides $15.4 billion over five years to pay pharmacies to dispense medicines, pay pharmaceutical wholesalers to deliver medicines to pharmacies, and to fund professional programs. It expires on June 30.
Ms Ley said she was "deeply concerned" by the findings and would consider the report closely as part of negotiations for the Sixth Pharmacy Agreement.
"These serious allegations seem to be just another example of Labor's culture of secret handshakes, winks and nods and general incompetence in government," Ms Ley said.
"Labor had ultimate responsibility for the creation, implementation and administration of this $15 billion pharmacy agreement. The findings of this report don't relate to one or two minor issues - they go to the core of the agreement and its management."
Ms Ley said the report supported the Abbott government's decision to consult with a range of groups, including consumers, before finalising the next agreement.
Consumers Health Forum chief executive Adam Stankevicius called on the government to extend the current agreement for one year while parliament's Joint Committee of Public Accounts and Audit conduct a full and public inquiry into the agreement.
"It beggars belief that a program of such financial significance and health importance has been beset by such fundamental administrative deficiencies," Mr Stankevicius said.
Labor health spokeswoman Catherine King said the report made clear that the agreement signed under Labor delivered "significant savings".
Ms King said Ms Ley should commit to implementing all of the report's recommendations, including publishing full details of negotiations and detailed financial costing of every aspect of the next agreement.
"Given the minister's strong words today about the need for transparency and her demand for financial rigour, any agreement which does not deliver on these commitments will expose the minister's attack today as hypocrisy and empty rhetoric," Ms King said.
In a statement, the Pharmacy Guild noted the audit did not make any adverse findings against it in relation to its role in the administration of the agreement.
"Given their vital public health care responsibility, it is imperative that community pharmacies are viable and that the remuneration for their core role of dispensing PBS medicines enables pharmacies to make an adequate return on their sizeable capital investments," the statement said.
The audit office found pharmacy remuneration, which accounts for $13.8 billion or 90 per cent of the funding under the agreement, has not been fully reviewed since 1989.
The report documented "persistent shortcomings in departmental record-keeping," including a failure of the department to keep a formal record of its meetings with the guild during the negotiations and its discussions about contracts.
The audit office found limited departmental information and deficiencies in the department's performance reporting and evaluation frameworks meant the department could not assess whether the Commonwealth was receiving value for money, and a lack of documentation meant there was no straightforward means for the Parliament to be informed of the expected or actual cost of key components of the agreement.
While the agreement states that it will produce $1 billion in savings over the life of the deal, audit office analysis found the net savings were closer to $400 million.
The audit office found instances when the department had reallocated funds within the agreement without prior ministerial approval, including the reallocation of $5.8 million which was supposed to be spent on professional programs to a communications strategy to be delivered by the guild.
It also noted there was no documentary evidence that a $127 million increase to the budget for professional programs had been authorised.
And while ministers considered it "non-negotiable" that the agreement would provide the government with access to the full range of Pharmaceutical Benefits Scheme data, the agreement did not ensure it received cost information.