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Commission Issues Warning Over ‘No Discounting’ Clause

Commission Issues Warning Over ‘No Discounting’ Clause

Issued 13 February 2014

The Commerce Commission has warned all New Zealand District Health Boards (DHBs) and pharmacies nationwide that “no discounting” clauses in the 2012 Community Pharmacy Services Agreement (CPSA) are likely to have breached s 27 of the Commerce Act 1986.

The Pharmacy Guild has also been warned for its role in advocating for the inclusion of the clauses in the CPSA.

The CPSA is a standard form agreement between each DHB and each community pharmacy for the provision of pharmaceutical services to the public. The Commission believes that two of the clauses in the 2012 agreement had the effect of prohibiting pharmacies from waiving, or discounting, the $5 pharmaceutical co-payment paid by patients for the dispensing of each prescription item.

Commerce Commission Chairman Dr Mark Berry said, “On receiving notice of our investigation, the DHBs took action and removed the restrictive clause from the agreements at the start of 2013. This meant that a warning letter was an appropriate response.”

Dr Berry said that removing this clause was also an excellent outcome for consumers who stand to benefit from pharmacies being able to compete on prescription charges.

“Once the no discounting clause was removed, two pharmacies in lower socio-economic areas in Christchurch and Auckland advertised discounting again and noticed an increase in the number of prescriptions being dispensed.”

“The outcome of this investigation sends a number of important messages to the parties involved. Government agencies must consider the effects on competition when entering into procurement contracts,” Dr Berry said.

“Pharmacies and other health providers must also remember that they are in competition with each other despite the collegial nature of their professions. And professional associations, such as the Guild, are also subject to the Act and need to give attention to complying with the competition laws,” said Dr Berry.

A copy of the warning letter to DHBs, pharmacies and the Pharmacy Guild can be viewed athttp://www.comcom.govt.nz/business-competition/competition-enforcement-outcomes/commerce-act-enforcement-actions-register/

Community pharmacy services are funded by the Government via a standard services agreement, the CPSA. The CPSA is entered into by each DHB and service provider (ie, pharmacy) and typically re-negotiated every three years. The CPSA covers the provision and funding of core pharmacy services, as well as certain other specified pharmacy services. The 2012 CPSA, which came into effect on 1 July 2012, overhauls the way pharmacists are paid by DHBs and is being phased in over a two year transition period.

The 2012 CPSA caps nationwide payments to pharmacists at $370.5m per year. Under the 2012 CPSA, pharmacists will be paid by the government via DHBs for services provided rather than for the number of items dispensed.

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