Price-fixing scheme was to pressure health authority

A pharmacy and a director of the company have been handed fines of nearly $370,000 after they admitted engaging in price-fixing

A New Zealand case has resulted in Prices Pharmacy 2011 Limited being fined NZ$344,000 (AUD$322,003) and a director of the company, Stuard Hebberd, fined NZ$50,000 (AUD$46,803) by the Wellington High Court.

The Commerce Commission had filed civil proceedings in the Nelson High Court against the company and its directors in April 2018, alleging that Prices Pharmacy 2011 Limited and its directors facilitated a price-fixing arrangement with competing Nelson pharmacies in May 2016, in breach of Part 2 of the Commerce Act.

In most cases, the arrangement resulted in consumers paying NZ$6, instead of NZ$5, for their prescription items (AUD$5.62 instead of AUD$4.68).

It arose after 10 pharmacy owners from the Nelson region in the north of New Zealand’s South Island met in April 2016 – and did not end until June 2016, when the pharmacy owners received additional taxpayer funding from the Nelson Marlborough District Health Board.

At the time of the price-fixing, Prices Pharmacy 2011 Limited operated two pharmacies in Nelson: the Prices Nelson and Nelson Care Chemist.

These two pharmacies were sold to another company in 2017.

Justice Robert Dobson had handed down an interim judgement in April 2020, which offered the parties involved 10 working days each in which to invite him to reconsider his conclusions if there were any misapprehensions suggested in the interim judgement, or other relevant data.

Mr Hebberd did provide an affidavit about his financial position, confirming that his investment assets had dropped but that he did not wish to plead poverty.

Both the Commission and the defendants filed supplementary submissions after the interim judgement.

In the final judgement Justice Dobson said that “the effect of the arrangement was to fix the prices that the participating pharmacies would charge for filling prescriptions”.

“The immediate consequence was to substantially lessen competition in the Nelson community pharmacy market, to the detriment of the customers purchasing the prescription medicines”.

He noted that it was common ground that the aim of the scheme was not to gouge patients, but to pressure the District Health Board into dealing with the pharmacies on more generous terms.

New Zealand’s District Health Boards are responsible for providing or funding the provision of health services in their area.

“I remain of the view that applying pressure on the DHB was the main reason for the arrangement because the pharmacists blamed the DHB for the need to make the extra charge,” Justice Dobson said.

“When explaining it to their customers they did not demand the extra charge from those they perceived would have difficulty paying it, and they ceased the arrangement once the DHB had indicated its preparedness to alter the terms on which it would contribute to payment for the prescription medicines.”

Commission Chair Anna Rawlings said that while the Commission accepted that the defendants did not intend to breach the Act and were motivated by what they considered to be underfunding of prescription medicines by the Nelson Marlborough District Health Board, the law exists for a very good reason. 

“Competition between pharmacies is important because studies suggest that even modest changes in patient charges can result in some patients not collecting all or some of their medicines, which can in turn put pressure on other aspects of the health system such as hospitals,” said Ms Rawlings.

“This case, and the penalty imposed, are a timely reminder to health professionals of their obligations under the Commerce Act, and risks of discussing prices with competitors.

“The Commerce Act prohibits anti-competitive behaviour that can amount to price fixing. It is important that businesses and individuals are aware of the risks of engaging in this type of conduct, especially since price fixing will become a criminal offence from April 2021,” Ms Rawlings said.

This was not the first time the Commerce Commission had warned the sector about price-fixing, issuing two warnings in 2004 and 2014.

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