Roy Heather: New Zealand Public Health and Disability (Enhancement of Competition) Amendment Bill — First Reading 
Roy Heather: New Zealand Public Health and Disability (Enhancement of Competition) Amendment Bill — First Reading 
[Volume:629;Page:1820] 
HEATHER ROY (Deputy Leader—ACT) 
: 
 I move  
That the New Zealand Public Health and Disability (Enhancement of Competition) Amendment Bill be now read a first time. 
 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 that benefits consumers. The Act recognises 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 Pharmac’s 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 regional health authorities to all purchase medicines at the same price. Pharmac at this time was owned by the four regional health authorities. The regional health authorities were later disbanded to form a single health funding authority which continued to own Pharmac. 
When the reduction from four separate purchasing bodies to just one took place it was questionable that the rationale for the Commerce Act exemption still existed but the exemption remained. Today with the public health sector comprising 21 district health boards Pharmac is now 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. 
Originally the exemption was contained in the Health Reforms (Transitional Provisions) Regulations 1993. It has moved through a series of different legislations and today the New Zealand Public Health and Disability Act is where it exists. Pharmac determines what medicines are subsidised. It negotiates prices with manufacturers and operates other cost control strategies. The pharmaceutical schedule lists subsidised 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 such strategy is that of sole supply. Pharmaceutical suppliers tender to become sole supplier of medicines in a therapeutic group. Where this strategy is engaged other companies can supply medicines but patients pay the full cost of those medicines. In practice if a company fails to win a tender then 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 a real issue. Most recently a cheap and nasty brand was chosen for sole supply. The pills were so cheap that they did not have the coating that makes them easy to swallow and the elderly especially had difficulty swallowing them. Many instead of trying went without pain relief because they just could not 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 one of the brand names had been the brand of choice until Felo ER came in at a better price. Thousands of patients were forced to change and general practitioners noticed that their patients’ blood pressures which were previously well controlled on Plendil were alarmingly unstable. Further investigation showed that European data on Felo 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 in the country were low because this brand had lost its control for sole supply. Pharmacists at the brunt of all of this were expected to scurry around the country to find what stocks they could. 
Another strategy Pharmac enlists is agreeing to list 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. The first is between therapeutic groups. An example—Merck Sharp and Dohme agreed to decrease the price of Simvastatin a cholesterol lowering agent in return for its ACE inhibitor Enalapril being relisted. The second way this happens is with deals within a therapeutic group: the best example of that at the moment is risperidone an anti-psychotic agent previously available only in tablet form. It has recently been developed as an injection which is much easier to administer and the results are more reliable because patients do not need to take the tablets daily. Pharmac has reached a deal with manufacturer Janssen-Cilag. The company has drastically dropped the price of the tablets in order for the injectable risperidone 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 Pharmac’s 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 to function. In its briefing to the incoming Minister of Health in 2005 Pharmac vigorously defended its right to the exemption with statements such as: “The exemption means PHARMAC’s 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 the market.” Statements like this show that Pharmac clearly believes it is above the law. This alone is reason enough to remove the exemption. 
Pharmac often offers the argument that the removal of the exemption will result in a flood of vexatious litigation and it points to various court cases over the years. But the claims that litigation is vexatious are simply not borne out in 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 it 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. 
Pharmac argues that it does not control access to the market but merely controls access to Government subsidies. The reality in fact is that without a subsidy a pharmaceutical supplier will find market access difficult if not impossible. Even with a part charge it would 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 costs 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 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 that is Pharmac’s view there should be no need for the exemption to remain in place and this House should look forward to Pharmac’s support of the bill. 
Pharmac’s exemption is neither necessary nor justifiable. It denies choice for doctors and patients 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—often at a lower cost—instead of being limited to whichever medicine Pharmac 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 economic 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 improve their quality of life and in some cases save lives do not belong on our statute book. 
I commend this bill to the House and I look forward to the support of the other parties.