A recent High Court decision on the funding and licensing of two Countdown pharmacies confirms that it was open to District Health Boards (DHBs) to contract with 'discount' community pharmacy providers that do not charge patient co-payments for dispensing medicines. However, the Court's decision to quash the licences issued to those pharmacies by the Ministry of Health (the Ministry) on the basis that the pharmacies do not meet the licensing requirements in the Medicines Act could have significant repercussions for the community pharmacy sector. This update covers the Court's finding on the Ministry's pharmacy licensing decision. See our separate update on the Court's finding on the DHBs' contracting decision.
The Medicines Act 1981, which is administered by the Ministry, imposes a number of requirements that pharmacy operators must comply with to be able to receive a licence. This includes, relevantly, under section 55D that a company may not be granted a licence to operate a pharmacy unless 50% of its shares are owned by pharmacists, and those pharmacists have "effective control" of the company.
The Independent Community Pharmacy Group (ICPG), a group of community pharmacy owners, challenged the decision of the Ministry to issue licences in respect of two Countdown pharmacies in Gisborne and Wainuiomata, each owned by the same company.
Key features of the ownership and governance of this company are:
- Three pharmacist shareholders together hold 51% of the company shares, and General Distributors Ltd (GDL), which is wholly owned by Woolworths New Zealand Ltd, holds the remaining 49% of the company shares
- The company can have no more than two directors. One of these directors can be appointed by the three pharmacist shareholders, and the other director can be appointed by GDL
- The decisions of the board of the company (comprising the two directors) must be unanimous.
The ICPG said the Ministry wrongly interpreted section 55D when deciding that the 'effective control' requirement for pharmacist shareholders only required they have veto power or negative control. Specifically, the ICPG alleged that the Countdown pharmacies' ownership structure did not allow for effective control by the pharmacist shareholders because it required board decisions to be unanimous. That meant that GDL was, in effect, able to prevent the pharmacists from making decisions.
The Ministry, on the other hand, had concluded there was effective control, because those pharmacists had 'negative control': they had oversight and control of the day-to-day management and can block any resolution or change by GDL with which they do not agree (due to the unanimity requirement).
The Court held the matter was one of pure statutory interpretation, albeit "not a straightforward one". The section required effective control of the company itself, not merely the pharmacy business or its day-to-day operations. The purpose of this requirement is to prevent mischief associated with a lack of pharmacist control (noting the importance of decisions that are made at a Board level on the health and safety of pharmacy patients). The Court considered that the Ministry's approach of accepting 'negative control' as effective control accordingly undermines that protective purpose of the section. The Court therefore ordered the Countdown licences for the two pharmacies that were the subject of the proceedings – and three other pharmacies owned by that company – to be set aside.
Recognising the decision would have significant impact on the Countdown pharmacies and other pharmacy-operating companies, the effect of orders is deferred for a short period to enable Countdown and the Ministry to determine appropriate next steps.
This decision will have impacts on not just Countdown pharmacies, but also on many other community pharmacy providers that have some corporate ownership, who will be thinking about the implications of this decision on their own pharmacy licences.
Buddle Findlay acted for the second respondent, formerly Hauora Tairāwhiti, now Te Whatu Ora, in this proceeding.
In addition to the authors listed, this article was co-authored by Honor Kelly (solicitor).