A review by the Grattan Institute concluded the Pharmacy Guild of Australia, which represents about 70 per cent of community pharmacies, unduly lobbies the federal government.
The review claims dispensing fees, about $9 for an average medicine, were unjustified and rules that generally stopped pharmacies from opening within 10km of each other prevented competition.
The guild has donated $2.5 million to political parties in the past five years, making it the largest health-care donor.
The report says there is also a need for more transparency around the Community Pharmacy Agreement - some $25 billion of federal government funding for 6000 community pharmacies over five years.
"(Pharmacy) profits have surged while patients miss out on cheaper medicines and choices about where to get them, and taxpayers pay too much," the report says.
The Australian Medical Association, the nation's peak body for doctors, and the Royal Australian College of GPs have called on the government to act on the report's recommendations.
"We know that archaic pharmacy location rules restrict patients' access to cheaper medicines and pharmaceutical services," association president Danielle McMullen said.
"They mean Australians pay more for medicines than they need to, and they do not guarantee supply or safety for Australian patients."
Guild vice-president Simon Blacker said removing location stipulations would not create greater access to health care and would risk concentrating pharmacies in the most commercially attractive places.
The guild had been a leading advocate for affordable medicine and worked with the federal government to cut the Pharmaceutical Benefits Scheme co-payment, he said.
Community pharmacies provided a range of services including dispensing, medicine safety services and vaccination programs, he said.
"The current funding structure recognises the full value pharmacies deliver to patients and the health system," he said.
Among six recommendations, the report calls for an end to community pharmacy agreements or greater evidence of how the funding is calculated.
Restrictions on where pharmacies can be established should be removed and pharmacies should be allowed to discount all medicines, the report says.
Health Minister Mark Butler did not directly answer when asked if the federal government would consider the recommendations.
He said the latest Community Pharmacy Agreement was formulated after extensive engagement with stakeholders.
The government was making medicines cheaper and had cut the maximum price of a Pharmaceutical Benefits Scheme medicine to $25, Mr Butler said.
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