Rogers and Anor and Secretary, Department of Health & Ageing

[2003] AATA 1310

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2003] AATA 1310

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No   Q2003/479

GENERAL ADMINISTRATIVE  DIVISION		)
Re		ALLAN ROGERS and GEOFFREY PRIOR

Applicant

And SECRETARY, DEPARTMENT OF HEALTH & AGEING

Respondent

DECISION

Tribunal Deputy President Don Muller

Date19 December 2003 

PlaceBrisbane

Decision The Tribunal affirms the decision to cancel approval number 30210B granted to Allan Rogers and Geoffrey Prior to supply pharmaceutical benefits at approved premises, pursuant to sub-section 98(3) of the National Health Act 1953.

..............SIGNED.........................

D.W. MULLER

DEPUTY PRESIDENT

CATCHWORDS

PHARMACEUTICAL BENEFITS – cancellation of approval to supply pharmaceutical benefits - approved pharmacist not carrying on business at premises in respect of which pharmacist approved – in exercise of discretion to deactivate approval economic viability not taken into account – decision to cancel affirmed.

National Health Act 1953:  ss 90, 98(3)

REASONS FOR DECISION

Deputy President Don Muller        

1.      Allan Rogers and Geoffrey Prior, the Applicants, seek review of a decision to cancel approval number 30210B to supply pharmaceutical benefits under the National Health Act 1953 (the Act), on and from 12 May 2003.

2.      At the hearing the Applicants were represented by Mr. Logan SC and the Respondent was represented by Mr. Stephenson of counsel.

3.      The Tribunal received the following material into evidence:

(a)The section 37 statement, plus supplements;

(b)A statement by Geoffrey Prior, one of the Applicants, plus oral evidence;

(c)A statement by John Arthur Neilson, pharmacist and pharmacy broker, plus oral evidence;

(d)A statement by Karen Neale, Manager, Pharmaceutical Benefits Scheme Branch;

(e)A map of the relevant area of the western suburbs of Brisbane;

(f)Documents relating to applications blocked by the approval the subject of this review.

(g)Guidelines relating to de-activation of pharmacist approvals.

4.      On 14 October 1998, the Applicants were approved (approval number 30210B) for the purposes of supplying pharmaceutical benefits on demand at or from premises situated at Shops 102-104 Mount Ommaney Centre, pursuant to section 90 of the Act.

5.      On 17 July 2002, the Applicants applied to the Respondent to “deactivate” the approval for six months for three reasons, namely:

(a)The business traded at a loss for some time;

(b)Their lease had expired, negotiations for a new lease had broken down and they were going to quit the premises on 12 August 2002;

(c)They proposed to relocate the pharmacy premises to an area outside the shopping centre.

6.      On 3 August 2002, a delegate of the Respondent gave approval for shop 102 to temporarily close from 12 August 2002 to 11 February 2003 on the understanding that the pharmacy at new premises would commence trading within six months.

7.      On 10 February 2003, the Applicants sought an extension of time of a further six months for temporary closure on the basis that they had been unable to secure alternative premises.

8. On 20 February 2003, the delegate of the Respondent indicated by letter to the Applicant’s solicitors that she was reluctant to grant an extension. She said that to qualify for deactivation under section 98(3) of the Act, arrangements must be in train to “transfer” the approval to another location and the Australian Community Pharmacy Authority (ACPA) must be aware of the transfer.  She said that she was minded to cancel pharmacy approval 30210B, but that she would consider written submissions to her before taking that step.

9.      After considering written submissions, the delegate decided, on 10 March 2003, to allow a further period of deactivation until 11 May 2003, on the understanding that the pharmacy located at the new premises would commence trading within the three months period from 12 February 2003 to 11 May 2003.

10.     On 17 April 2003, the delegate wrote to the solicitors for the Applicants to point out that the Applicants had at that point in time taken over eight months in which to either re-open their pharmacy or apply for a relocation of their approval.  She said that she was minded to not allow deactivation of the approval beyond 11 May 2003 but that she would consider further written submissions on the matter.

11.     On 12 May 2003, a delegate of the Respondent cancelled approval number 30210B with effect from 12 May 2003.

12. Section 98(3) of the Act states that:

“Where the Secretary is satisfied that an approved pharmacist is not carrying on business as a pharmacist at premises in respect of which the pharmacist is approved, the Secretary may, by notice in writing to the pharmacist, cancel the approval of the pharmacist under section 90.”

13. The parties agree that when the Secretary is satisfied than an approved pharmacist is not carrying on business at the approved premises, the Secretary has a discretion to cancel or not to cancel the approval, as the case may be. Consequently, the Tribunal in reviewing the decision to cancel, may exercise the discretion contained in section 98(3).

14.     The Guidelines relating to the “Deactivation of Pharmacist Approvals Made Under s90 of The National Health Act 1953”, provide the following insight into the policy associated with this matter:

“… any pharmacist who ceases to carry on business at the premises in respect of which he/she is approved – subject to these guidelines – places themselves at immediate risk of having their approval cancelled.

These guidelines outline the circumstances in which the delegate may be prepared to allow an approval to be temporarily ‘deactivated’.

This is not an expression used or defined in the National Health Act 1953.  It is, instead an administrative concept, intended to describe – in a shorthand way – the situation which arises when a delegate decides not to cancel an approval under s98(3) notwithstanding that the statutory precondition to such a decision (namely, that the holder of an approval under s90 of the National Health Act 1953 has ceased to carry on business at relevant premises) has been satisfied.

(These guidelines) do not bind the delegate who is legally obliged to take into account all relevant circumstances in reaching a decision in individual cases.

GENERAL STATEMENT OF POLICY

In general terms, delegates will give consideration to permitting an approved pharmacist to deactivate a s90 approval by closing a pharmacy where it can be shown that that:

·     Arrangements are in train to allow the approval to be ‘transferred’ to another location and the Australian Community Pharmacy Authority (ACPA) is aware of that transfer, or

·     The holder is able to demonstrate that the closure is temporary and that the premises will re-open within a reasonably short time frame (not more than 6 months).

In all cases, the delegate will not entertain an application for deactivation where the decision to close the premises is linked to the continuing commercial viability of the site.

As set out below, circumstances which may warrant the favourable exercise of the discretion to deactivate an approval may include:

·     Where the holder wishes to relocate the approval to new premises;

·     Where there has been a change of ownership at the premises;

·     Where the holder is obliged to close the pharmacy in order to take leave of absence;  and

·     Where the premises are closed to allow a redevelopment to the premises themselves or the surrounding commercial areas.”

15.     On the material available to the Tribunal, I make the following findings of fact:

(a)In 1987 the Applicants bought a pharmacy in the Mt. Ommaney Centre, for $235,000.

(b)In 1995, the Centre was redeveloped and the Applicants relocated to Shops 102 and 104 in the northern mall.

(c)Over time the tenant mix in the northern mall changed from retail to banking.  This dramatically reduced customer flow to the pharmacy, especially outside banking hours.  The finances of the pharmacy went from a position where it had been making small profits to a position where it was making large losses.  The figures supplied by Mr. Prior were:

YEAR  LOSS

1996  $137,411.64

1997  $154,571.12

1998  $109,137.08

1999  $382,615.06

2000  $192,555.69

2001  $ 82,514.75

2002  $196,726.83

$1,255,532.17

When the Applicants closed the pharmacy in August 2002, they had accumulated a debt of approximately $1.3M.

(d)In 2001, a second pharmacy, located in the same Centre but at a better location (Shops 39 and 40), came on the market.  Mr. Prior purchased the second pharmacy in partnership with Mr. Roger’s wife.  The purchase price was $2.6M.

(e)From March 2000, the Applicants attempted to re-negotiate their lease for Shops 102 – 104.  They sought a reduction in rent, and an exemption from other expenses.  They continued negotiations over the following two years, until the lease expired on 12 June 2002.  The negotiations were not successful as far as the Applicants were concerned and they vacated the premises on 12 August 2002.

(f)The Applicants have looked at the possibility of re-locating to sites outside the Mt. Ommaney Centre.  One site which looked like a possibility at a new shopping centre a few kilometres away has disappeared because the shopping centre did not “take off” and, although it is relatively new, it is practically deserted and looks bad. 

(g)The area is well served with pharmacies.  On a view of the area the Tribunal visited nine pharmacies outside the Mt. Ommaney Centre, all within a radius of a few kilometres from the Centre.

(h)The Applicants attempted to “sell” their approval to a pharmacist in Coolum but the transaction fell through because approval at the new site had been granted to a pharmacist other than the purchaser.

(i)The Applicants cannot now sell their approval because it has been cancelled.  If they were able to sell, it would be worth about $100,000 on the pharmacy market.

(j)The Applicants do not currently have a new pharmacy site to which their approval would be transferred.  Even if they did, the transfer of approval process, particularly to a site at a new shopping centre could take 12 months.

(k)If approval number 30210B is not cancelled and remains de-activated, it blocks any other pharmacist from obtaining approval to operate from the Mt. Ommaney Centre, apart from Mr. Prior and Mrs. Rogers at Shops 39-40.

(l)The Mt. Ommaney Centre has in excess of the number of tenants needed for approval of two pharmacies.  Consequently, if approval number 30210B is cancelled, there would inevitably be a grant of approval for a second pharmacy to operate at the centre, in its place.

(m)There have been a number of pharmacists who wish to apply for a grant of approval to operate a second pharmacy at the Mt. Ommaney Centre.

16.     Two of the aims of the legislation concerning these approvals are:

(a)To provide consumers with reasonable equality of access to quality pharmacy services in their local community;  and

(b)To maximise the value to the taxpayer by encouraging an effective and efficient community pharmacy network.

To this end there has in recent years been a more even distribution of pharmacy sites throughout the community than there had been in the past.  A new pharmacy will only be approved in an area where there is demonstrated need and where the area is not already adequately served by an existing pharmacy.  One of the hoped for consequences was that a pharmacy with less competition from a close competitor would be able to cover its overheads and make a reasonable profit by dispensing more prescriptions, at a lower individual prescription cost, than it would be able to do if it had to cover its overheads and make a profit on a lower number of prescriptions.

17.     Whilst it is obvious that pharmacies will be bought and sold, it is apparent from this case that one of the unintended consequences of the scheme of control of approvals is to create a significant market for approvals.  The estimated value of the approval in this case is $100,000.  The purchase price of the pharmacy at Shops 39-40 was $2.6M.  This seems to go squarely against one of the objects of the legislation which is to keep costs of dispensing pharmaceuticals down.

18.     The Tribunal notes that the Guide specifically excludes consideration of continuing viability of the site in the exercise of the discretion to deactivate an approval.

19.     This case really boils down to the competing interests of (i) the Applicants who seek another six months at least to see if they can sell their approval for $100,000, (ii) pharmacists who may wish to obtain approval to open a second shop in the Mt. Ommaney Centre, and (iii) customers who may benefit from the competition between two pharmacies at the Centre.

20.     The Tribunal is fully aware that trading in approvals is a fact of life and was probably inevitable, but the Tribunal does not intend to create a situation where it is encouraged or assisted.

21.     On balance, and taking the objects of the legislation and the Guide into account, the Tribunal finds that the correct and preferable decision was to cancel the approval.

22.     The decision under review is affirmed.

I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President Don Muller

Signed:         .....................................................................................
           C. O’Donovan, Associate

Date/s of Hearing  15 December 2003
Date of Decision  19 December 2003
Counsel for the Applicant          Mr. J. Logan, SC
Solicitor for the Applicant          McCarthy Holzberger
Counsel for the Respondent     Mr. J. Stephenson
Solicitor for the Respondent      Mr. A. Collins