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ACT: Health (Enhancement of Competition) Bill

First Reading Speech on the New Zealand Public Health and Disability (Enhancement of Competition) Amendment Bill

Heather Roy Wednesday, 15 March 2006

Speeches - Health

Madam Speaker, I move that the New Zealand Public Health and Disability (Enhancement of Competition) Amendment Bill be now read a first time.

Listen_to_this_speech in MP3.

Madam Speaker,

Currently PHARMAC enjoys an exemption from Part 2 of the Commerce Act. The Commerce Act is the cornerstone of the New Zealand economy covering all business conducted in New Zealand. Its purpose is to promote competition, which benefits consumers.

The Act recognizes that competition will not always produce the desired outcomes and allows for certain anti-competitive activities or restrictive trade practices to be 'authorised' where the public benefit of the activity would outweigh any anti-competitive detriment. However, these exemptions are kept to a minimum and should be monitored and reviewed to ensure that competition is not limited more than is necessary to achieve the best results.

This bill seeks to remove PHARMACs exemption from Part 2 of the Commerce Act. At the appropriate time I intend to move that the bill be considered by the Commerce Committee.

Before progressing, a little history is necessary to understand how an exemption came about in the first place.

PHARMAC was established in 1993 with the purpose of controlling pharmaceutical costs. Its establishment was supported by all parties on the basis that it was necessary to contain costs. PHARMAC was granted an exemption from competition laws to purchase pharmaceuticals for the four Regional Health Authorities. The exemption was considered necessary to allow the RHAs to all purchase medicines at the same price.

PHARMAC, at this time, was owned by the RHAs.

The RHAs were later disbanded to form a single Health Funding Authority (HFA) which continued to own PHARMAC.

With the reduction from four separate purchasing bodies to only one it was questionable that the rationale for the Commerce Act exemption still existed, but the exemption remained.

Today with a Public Health Sector comprising 21 District Health Boards PHARMAC is a stand-alone entity managing the Pharmaceutical Schedule on behalf of the Crown.

Today, the scope of the exemption gives PHARMAC 'carte blanche' in all its commercial dealings, free from any scrutiny or liability under the Commerce Act.

The initial form of the exemption was contained in section 29 of the Health Reforms (Transitional Provisions) Act 1993 and was then amended and repeated in section 2 of the Finance Act 1994. The exemption was later moved to the Health and Disability Services Act and then to the New Zealand Public Health and Disability Act where it exists today.

Due to the many changes that have taken place in the health sector since 1993, the original justification for the exemption is no longer sustainable, and is in fact preventing New Zealanders from accessing optimal pharmaceutical treatment.

PHARMAC determines what medicines are subsidised, it negotiates prices with manufacturers and operates other cost control strategies.

The Pharmaceutical schedule lists subsidized medicines, the subsidy level and the conditions under which the drug can be prescribed.

PHARMAC uses a number of bargaining strategies in its dealings with the pharmaceutical companies to drive prices of listed medicines down. One strategy is that of 'sole supply'.

Pharmaceutical suppliers tender to become sole supplier in a therapeutic group. Where this strategy is engaged other companies can supply but patients pay the full cost of these medicines.

In practice, if a company fails to win a tender their medication is effectively shut out of the market for a given period.

There have been several high profile disasters resulting from sole supply arrangements. The most common is that of paracetamol. Each time the contract comes up for renewal the supplier changes and each time supplying adequate amounts of paracetamol is an issue. Most recently a cheap and nasty brand was chosen for sole supply. The pills were so cheap they didn't have a coating - the coating makes them easy to swallow - and the elderly especially had difficulty swallowing them. Many went without pain relief because they just couldn't swallow the pills.

Many kiwis rely on anti-hypertensive agents to control their high blood pressure. One of these - Felodipine - was another high profile disaster with PHARMAC changing brands back and forth. Plendil had been the brand of choice until Filo ER came in at a better price. Thousands of patients were forced to change and GPs noticed that their patient's blood pressure, previously well controlled on Plendil, was alarmingly unstable. Further investigation showed that European data on Filo ER had been falsified and the actual amount of active ingredient in the pills was questionable. Patients were changed back to Plendil, but in the meantime Plendil stocks were low because this brand had lost its contract for sole supply. Pharmacists were expected to scurry around and find what stocks they could.

Another strategy PHARMAC enlists is agreeing to list a new medicine on the condition that the pharmaceutical company reduce the price of another product that is already listed. This happens in two ways and is best described using examples.

1. Between therapeutic groups. Merck Sharpe and Dohme agreed to decrease the price of Simavstatin (a cholesterol lowering agent) in return for their ACE inhibitor Enalapril to be relisted.

2. Within a therapeutic group. Respirodone, an anti-psychotic agent previously available only in tablet form has recently been developed as an injection which is easier to administer and the results are more reliable because patients don't need to take tablets daily. PHARMAC has reached a deal with manufacturer Jannsen Cilag - the company has drastically dropped the price of the tablets in order for the injectable Respirodone to be listed.

Using strategies such as these, PHARMAC has been able to obtain reductions in the overall cost of pharmaceuticals. The purpose and effect of such agreements is to substantially reduce competition and choice for patients.

If it were not for the exemption, these arrangements would raise serious issues under Part 2 of the Commerce Act.

I have little doubt that the following arguments will be raised in the course of this debate about why the exemption is absolutely necessary for PHARMAC.

In its briefing to the incoming Minister of Health 2005, PHARMAC vigorously defends its right to the exemption. Statements such as "the exemption means PHARMACs activities cannot be challenged on the grounds that, for example, PHARMAC is taking advantage of its market power or that its activities lessen competition in a market" show that PHARMAC clearly believes it is above the law. This alone is reason enough to remove the exemption.

Avoiding Vexatious Litigation

PHARMAC often offer the argument that the removal of the exemption will result in a flood of "vexatious" litigation. They point to various court cases over the years but the claims that litigation is 'vexatious' are simply not borne out in the case-law. PHARMAC has only ever been involved in cases raising important issues of principle. PHARMAC has attempted on a number of occasions without success to strike out causes of action brought against them by pharmaceutical companies. Furthermore the courts have found against PHARMAC on a number of issues and determined that PHARMAC is subject to other commercial legislation, including the Fair Trading Act.

Market Access Not Restricted by PHARMAC

PHARMAC argues that it doesn't control access to the market but merely controls access to government subsidies. The reality is that without a subsidy a pharmaceutical supplier will find market access difficult if not impossible. Even with a part charge it will still be difficult to obtain any credible market share. Doctors generally prescribe the medicine that is fully subsidised so that the patient does not have to pay any cost except the dispensing fee. PHARMAC's status as a monopsony buyer means that it does control market access and market share, and this is precisely the reason that its practices should come under the scrutiny of the Commerce Act.

PHARMAC does not act in an anticompetitive manner

PHARMAC has publicly stated often that its practices and procedures are not anti-competitive and do comply with the Commerce Act. Empirical evidence suggests otherwise, but if this is PHARMAC's view, there should be no need for the exemption to remain in place and the House should look forward to PHARMAC's support of this bill.

Madam Speaker, PHARMAC's exemption is neither necessary nor justifiable. It denies doctors and patients choice, limits public access to new medicines and discourages research and development.

Without the Commerce Act exemption patients would be able to access the medicine that best treats them - probably at a lower cost - instead of being limited to whichever medicine PHARMAC's bureaucrats have endorsed.

Like everyone else in the economy, PHARMAC should be subject to the courts' jurisdiction and the central plank of economic policy.

The basic philosophy in the current economic age is a deregulated market, where better products can be secured at lower cost through the normal processes of competition and the dynamics of a contestable market place.

There is no reason for PHARMAC to be exempt from this basic concept.

People's lives and their quality of life are affected significantly by PHARMAC and the decisions it makes. Rules that make it impossible for New Zealanders to gain access to medications that improves their quality of life - and in some cases save lives - do not belong in our statute books.

I commend this bill to the House.


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