Nelson Pharmacy Fined $344,000 And Director $50,000 For Price-fixing

The Wellington High Court has ordered Prices Pharmacy 2011 Limited and a director of the company, Stuart Hebberd, to pay fines of $344,000 and $50,000 respectively, after they admitted engaging in price-fixing in breach of the Commerce Act.

The Commission filed proceedings 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 $6, instead of $5, for their prescription items.

The arrangement arose from a Nelson region pharmacy owners’ meeting in April 2016 which was attended by 10 pharmacy owners. It stopped in June 2016 when pharmacy owners received additional taxpayer funding from the Nelson Marlborough District Health Board.

His Honour 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.”

Commission Chair Anna Rawlings says while the Commission accepts 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” says, 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 says.

A copy of the judgment will be available on the Commission’s case register shortly

Background 
The parties
Prices Pharmacy 2011 Limited operated two Nelson pharmacies at the time of the price fixing: Prices Nelson on Hardy Street and Nelson Care Chemist on Collingwood Street in the CBD. The pharmacy businesses operated by Prices Pharmacy 2011 Limited were sold to another company during 2017.

The 10 pharmacies that are operated by the nine companies who were warned in 2018 are:
• Savine Holdings Limited (Bay Pharmacy, Motueka)
• Tasman Pharmacies Limited (Greenwood Street Pharmacy, Motueka)
• Tasman Pharmacies Limited (Unichem 162 High Street Pharmacy, Motueka)
• Queen Street Pharmacy Limited (Queen Street Pharmacy, Richmond)
• Wakefield Pharmacy 2012 Limited (Wakefield Pharmacy)
• Richmond Mall Pharmacy 2001 Limited (Unichem Richmond Mall Pharmacy)
• Nelson City Pharmacy Limited (Life Pharmacy, Nelson City)
• McGlashen Pharmacy Limited (McGlashen Pharmacy, Richmond)
• Fry’s Pharmacy Limited (Fry’s Pharmacy, Richmond)
• Mapua Pharmacy Limited (Mapua Pharmacy)

Previous warnings to the Pharmacy sector
The Commission has previously warned the pharmacy sector about similar conduct. Details of the 2004 warning can be found here and 2014 warning here.

Guide to competition law for businesses
The Commission has a number of quick guides and animations to help businesses understand competition law. They can be found on our website.

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