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Commission warning to Pharmacy Guild

23 September 2004-05

Commission warning to Pharmacy Guild:
Premiums Guide at risk of contravening Commerce Act

The Commerce Commission has issued a warning to the Pharmacy Guild of New Zealand (Inc) that the Guild’s Premiums Guide, as published until October 2002, placed the Guild and its members at risk of contravening the Commerce Act, and that the Guild should carefully consider the implications under the Act of any future recommendations it makes to members.

The Commission’s investigation centred on allegations of price fixing by the Pharmacy Guild and/or its members in respect of mark-ups charged to patients on partially subsidised medicines. The Commission particularly looked at the implications of the Premiums Guide, a monthly publication detailing ‘premiums’ for pharmacists to charge patients on partially subsidised medicine.

Chair Paula Rebstock said that the investigation found that for 11 years, between 1991 and 2002, the Premiums Guide stipulated, for each partially subsidised medicine, a price which included a 50 percent pharmacist mark-up on the unsubsidised cost.

“In the Commission’s view, the Guide had the effect of communicating to every Guild member a specified price to charge patients on the unsubsidised portion of partly-subsidised medicines.

“In addition, every Guild member knew the price a competing Guild member was likely to charge patients for these medicines,” she said.

Ms Rebstock said that while the Commission considered the Guild’s historic behaviour was at risk of being anti-competitive, changes made to the Premiums Guide since the Commission started its investigation in 2002 meant the current conduct did not raise the same issues.

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“The Guild still publishes its Premiums Guide, but the prices included now are just the unsubsidised cost of the medicine, and exclude any mark-ups and GST. In addition, the notes at the top of the Guide state that ‘Pharmacies are responsible for determining the mark-up they apply to premium and calculating the resulting patient charge’,” Ms Rebstock said.

“The Pharmacy Guild and all associations should ensure that when making any recommendations to members, that those members are advised and are aware that they are subject to the Commerce Act. Arrangements between competitors to fix prices or arrangements that substantially lessen competition is a breach of the Act and will attract enforcement action by the Commerce Commission.”

Ms Rebstock added that this case illustrates the problems with information sharing by associations.

“Information sharing can facilitate anti-competitive conduct. For example, visibility regarding future prices could be used to co-ordinate pricing in a particular market. The Commission considers that it is important that associations, like the Pharmacy Guild, appreciate the potential competition implications of producing a document like the Premiums Guide.”

Background

The Commission considered the implications of the Guide under sections 27 and 30 of the Commerce Act 1986: section 27 of the Act prohibits contracts, arrangements or understandings that have the purpose or effect or likely effect of substantially lessening competition; and section 27 via 30 of the Act prohibits contracts, arrangements or understandings that have the purpose or effect or likely effect of fixing, controlling or maintaining prices. Such arrangements are deemed to have the effect of substantially lessening competition, regardless of their actual effect.

ENDS

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