Health has become a discretionary spend activity during these tough economic times, the chairman of chemist chain operator Pharmacybrands has said.

Peter Merton told shareholders at the NZX-listed company's annual meeting today that the economic environment for healthcare is determined by Government policies and, where there is a user pays element, the state of the economy.

''During this worldwide down turn, it is clear that health has become a discretionary spend activity,'' he said.

''Coupled with the general retail softness, it has meant a reasonably tough market for many of our businesses.''

The company, which operates the Unichem, Amcal, Life Pharmacy, Radius and Care Chemist pharmacy franchises, has seen its traditional marketing programmes deliver flat retail sales, Merton said.

But that was better than the 4 per cent decline in sales at the independent pharmacies, he said.

The tough retail conditions though have been balanced by the Government's view that healthcare spend is a priority and an important investment area.

While the industry had not received increases in government spend - healthcare funding includes pharmacy funding.

Merton pointed out its allocations had not been reduced.

''We believe that there are still inefficiencies in the management of healthcare delivery but we have been involved in the health space long enough to know that any major change is very politically charged and inevitably slow to occur,'' he said.

The new payment scheme for prescriptions which took effect on July 1 offers opportunities for the industry and strategically pushed pharmacies and pharmacists further up the primary healthcare chain, he said.

The new system replaced the volume-driven regime and now sees pharmacies more involved in the decision-making regarding the frequency and type of pharmacy services patients receive.

Shareholders today voted to increase the total fee pool for Pharmacybrands directors by $70,000 to $380,000.

They also approved its two cornerstone shareholders taking part in the company's dividend reinvestment plan.

Cape Healthcare and LPL Trustee each hold a 30.4 per cent stake in Pharmacybrands and were happy to support the scheme, but the Takeovers Code dictates shareholders had to approve their involvement.

Pharmacybrands, which has 305 retail outlets around the country, reported a $9.9 million profit for the year to March 31, up from $5.2m last year, on sales of $105.5m.

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