Astrazeneca Limited v Pharmaceutical Management Agency HC Wellington CIV-2011-485-2314
[2011] NZHC 1860
•22 December 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-2314
UNDER the Judicature Amendment Act 1972
IN THE MATTER OF an application for judicial review
BETWEEN ASTRAZENECA LIMITED Applicant
ANDPHARMACEUTICAL MANAGEMENT AGENCY
Respondent
Hearing: 28-29 November 2011
Counsel: T P Mullins with I T F Hikaka for Applicant
M G Colson with R E Brown for Respondent
Judgment: 22 December 2011
JUDGMENT OF THE HON JUSTICE KÓS
Introduction
[1] Pharmac is the Crown entity responsible for managing state subsidies paid for pharmaceuticals. In September 2011 it resolved to reduce the subsidies payable for some of Astrazeneca’s asthma treatments to the net subsidy levels paid to GlaxoSmithKline for comparable products produced by that company. Those net subsidies were not the same as the subsidies listed in Pharmac’s pharmaceutical schedule. That was because GlaxoSmithKline effectively reduced the subsidy levels by paying back rebates on stock purchased. Astrazeneca says that if Pharmac is going to engage in ―parity pricing‖, it must use the published (or gross) subsidy levels, not unpublished ―net‖ ones. It also says that there are significant therapeutic
differences between the products being compared, and impacts for patients (some of
ASTRAZENECA LIMITED v PHARMACEUTICAL MANAGEMENT AGENCY HC WN CIV-2011-485-2314
22 December 2011
whom may have to acquire an extra inhaler). It says Pharmac should have referred the issue formally to its specialist clinical advisory committee before making the decision.
[2] The application for review raises two issues for determination:
(a) Issue One:
Does parity pricing by Pharmac require it to use the published (non- rebated) subsidy (or ―gross subsidy‖) shown in the pharmaceutical schedule, or may it use a ―net subsidy‖ (i.e. published gross subsidy, less confidential rebates)?
(b) Issue Two:
Was Pharmac required to refer the parity pricing proposal to the Pharmacology and Therapeutic Advisory Committee (PTAC) before the Board resolved to adopt it?
[3] Delivery of this judgment is required as a matter of urgency due to the need to advise Pharmac of intended price reductions by 12 January 2012. As a result, the expression of reasons needs to be sacrificed to some degree to the expression of the result. If the former is somewhat inelegant, the latter is nonetheless clear to me.
Background
[4] Asthma is one of the most common chronic diseases affecting children and adults in New Zealand. New Zealand has one of the highest rates of asthma in the world. One in four children, and one in six adults, in New Zealand is affected by it. In 2002, the economic burden of asthma to New Zealand was estimated, conservatively, at $800 million per annum. Annual subsidies for asthma products are approximately $60 million, before rebates.1
[5] Asthma causes airways into the lungs to tighten, partially close, swell and/or make more mucus. Asthma may result in the inflammation of passages in the lungs (causing them to swell) and constriction of air passages causing them to narrow. All this makes it hard to breathe in. And even harder to breathe out. Why so many New
Zealanders suffer from asthma is not understood. Nor is it understood why it is most
1 Rebates are a discount on the subsidy paid by Pharmac. See [29] and [34] below.
common in English-speaking countries like New Zealand, the United Kingdom, Australia and the United States.
[6] Asthma cannot be cured. But it can be managed. And it can be treated by pharmaceutical intervention. There are three broad categories of treatment:
(a) Relievers: these provide short term relief from asthma. They are short acting, and used as sole treatment for mild asthma. In conjunction with other treatments, they can be used for more chronic asthma. Reliever medicine relaxes muscle bands around airways, assisting the flow of air in and out of the patient’s lungs. Ventolin (containing salbutamol) is an example. Relievers are described as inhaled short- acting andrenoceptor agonists (SABAs).
(b)Preventers: these are slower acting treatments, used to reduce inflammation. They have been described as the most important form of treatment. They are also described as inhaled corticosteroids (ICSs). An example of a preventer is Flixotide.
(c) Controllers: these are long acting relievers, which provide prolonged relief from the symptoms of asthma. They may be used in conjunction with a preventer. Taken twice a day, they keep the airway muscles relaxed. They are described as inhaled long acting andrenoceptor agonists (LABAs). The product Serevent is a controller.
[7] In addition to this, there are combination inhalers which serve as both preventers and controllers. Examples of these are Symbicort, Vannair and Seretide.
[8] Symbicort can also be taken as a preventer, controller, and reliever. This is
known as a ―SMART‖ regimen.
[9] The products manufactured by Astrazeneca affected by the decision being challenged are Symbicort (preventer, controller, and reliever), Vannair (controller and preventer) and Oxis (controller only).
MedSafe
[10] I will touch briefly on MedSafe. Pharmaceuticals supplied in New Zealand require consent under the Medicines Act 1981 when first registered, and again when changed. MedSafe is a division of the Ministry of Health. It administers the Medicines Act, including the approval of pharmaceuticals. An applicant for approval must lodge a data sheet. That includes a description of the proper use of the pharmaceutical. MedSafe operates independently of Pharmac. It does not control subsidies for pharmaceuticals.
Pharmac
[11] Pharmac is a Crown entity. It was established originally in 1993, and is governed by the New Zealand Public Health and Disability Act 2000 (the Act). The statutory objectives of Pharmac are set out in s 47 of the Act:
47 Objectives of Pharmac
The objectives of Pharmac are—
(a) to secure for eligible people in need of pharmaceuticals, the best health outcomes that are reasonably achievable from pharmaceutical treatment and from within the amount of funding provided; and
(b) any other objectives it is given by or under any enactment, or authorised to perform by the Minister by written notice to the Board of Pharmac after consultation with it.
[12] As can be seen from that provision, the achievement of the objective of ―best health outcomes‖ is qualified by what may reasonably be achieved within the amount of funding provided. A similar qualification is found in s 3(2) of the Act which relates to the objectives of the Act as a whole.
[13] Pharmac’s statutory functions are set out in s 48 of the Act:
48 Functions of Pharmac
The functions of Pharmac are to perform the following within the amount of funding provided to it and in accordance with its statement of intent (including the statement of forecast service performance) and (subject to section 65) any directions given under the Crown Entities Act 2004:
(a) to maintain and manage a pharmaceutical schedule that applies consistently throughout New Zealand, including determining eligibility and criteria for the provision of subsidies:
(b) to manage incidental matters arising out of paragraph (a), including in exceptional circumstances providing for subsidies for the supply of pharmaceuticals not on the pharmaceutical schedule:
(c) to engage as it sees fit, but within its operational budget, in research to meet the objectives set out in section 47(a):
(d) to promote the responsible use of pharmaceuticals:
(e) any other functions it is for the time being given by or under any enactment, or authorised to perform by the Minister by written notice to the Board of Pharmac after consultation with it.
It will be noted that a key function is to maintain the ―pharmaceutical schedule‖. I
will return to this topic shortly.2
[14] Pharmac has a Board of five members; each appointed by the Minister of Health. Of the present Board, two are senior medical practitioners (one a surgeon and the other a general practitioner), two are accountants (including the Chairman) and one has expertise in the governance of healthcare providers.
PTAC
[15] Section 50 of the Act requires Pharmac to establish advisory committees. One such of these is known as PTAC, the Pharmacology and Therapeutics Advisory Committee. It is established ―to provide objective advice to Pharmac on pharmaceuticals and their benefits‖. PTAC has a set of terms of reference, adopted in 2008. The terms of reference do not require the Board of Pharmac to refer issues to PTAC. I was informed by Mr Colson that PTAC meets four to five times per annum, for a two day meeting. Its members are paid on an hourly rates basis for
meetings and preparation. They may also be consulted on an ad hoc basis between
2 At [17].
meetings, and may claim payment therefor. The members of PTAC are all qualified in medicine, pharmacology, or both. PTAC also has its own subcommittees, comprising clinical specialists. One of these is a Respiratory Subcommittee, which deals with asthma treatments.
[16] Three key instruments issued or negotiated by Pharmac need further elucidation at this point:
(a) the pharmaceutical schedule;
(b) Pharmac’s operating policies and procedures; (c) listing contracts.
Pharmaceutical schedule
[17] As we have seen, s 48(a) provides that Pharmac’s first function is to maintain and manage a ―pharmaceutical schedule‖ including ―determining eligibility and criteria for the provision of subsidies‖. The schedule comprises a list of pharmaceuticals subsidised by District Health Boards (DHBs). Nearly 2000 pharmaceuticals are subsidised by the Government. Pharmac’s role is to decide which pharmaceuticals should be listed, what subsidies should be paid for each, and the eligibility and criteria for the provision of subsidies generally. To manage the schedule, Pharmac manages a fixed notional budget set by the Minister of Health. For the year ending 30 June 2012 the notional budget is $777.4 million. The budget is notional, because Pharmac does not pay subsidies to pharmacists. They are paid to pharmacists by a Ministry of Health entity called Sector Services, on behalf of the DHBs.
[18] This is how it works: the pharmacist enters into a pharmacy services agreement with the relevant DHB. Pharmacists buy their stock from wholesalers or suppliers in the usual way. When a subsidised pharmaceutical is provided to a patient, the pharmacist claims the amount of the subsidy (being the amount specified in the schedule) from the Ministry of Health’s Sector Services unit.
[19] The schedule states the subsidy payable, and (where different) the manufactured price. Where the amount of the subsidy payable and the price of the pharmaceutical is the same amount, the pharmaceutical is ―fully subsidised‖ or
―fully funded‖. The patient is not required to pay for the cost of the pharmaceutical, except for a small ―co-payment fee‖, which in most cases is $3. This subsidy effectively reimburses the pharmacist for the cost of the medicine, together with the pharmacist’s dispensing fee.
[20] Where the amount of the subsidy is less than the price of the pharmaceutical, then the pharmaceutical is ―part subsidised‖ or ―part funded‖. The patient will be required to pay a part charge to the pharmacist in order to obtain the pharmaceutical.
[21] Astrazeneca contend that experience shows that subsidy levels affect prescribing practice. Doctors are said to be more likely to prescribe a new patient a product that is fully subsidised. Likewise, where a formerly fully subsidised product becomes only part-subsidised, doctors are likely to switch patients to another fully subsidised product. Thus, Astrazeneca contend ―whether a product is listed and the level of its subsidy affects clinical practice and outcomes of patients‖.
Operating policies and procedures
[22] The Act requires Pharmac to establish the pharmaceutical schedule. It does not, however, require Pharmac to establish ―operating policies and procedures‖ (OPPs), or the terms of reference for PTAC that we have seen already. Nonetheless, Pharmac has established OPPs to assist it to meet its statutory objectives. Pharmac says they are ―a guide to interested parties about Pharmac’s objectives, functions, practices and procedures and had been the subject of consultation‖.
[23] The first OPPs were published in 1993. The current edition (the third) was published in 2006. Clause 1.3.1 of the OPPs provides:
1.3.1The operating policies and procedures contained in this document are intended to provide guidance on the way in which Pharmac carries out its role. Pharmaceutical suppliers, pharmacists, medical practitioners and other interested parties should consult the Schedule for information about the pricing of pharmaceuticals and other
matters relating to the prescription and supply of subsidised pharmaceuticals. Further details about Pharmac’s operations may be found on its website at The OPPs discuss the pharmaceutical schedule, and notes that PTAC, suppliers, DHBs and other interested parties may approach Pharmac to suggest amendments. It goes on to say:3
Pharmac may amend the schedule as it considers appropriate, including initiating amendments of its own accord. Possible amendments to the schedule include (but are not limited to):
...
(c) Changing the subsidy levels of pharmaceuticals as a result of Pharmac adopting one of the strategies set out in s 3 or by any other means.
[25] Turning now to clause 3 (―the Pharmac strategies‖), that provision commences:
3.1 General
Pharmac may adopt a range of strategies in order to achieve the core objective described in clause 1.1 or in pursuit of any other objective or its functions. These strategies are generally used to assist Pharmac in determining the price or subsidy at which pharmaceuticals are to be listed on the Schedule. Pharmac is not bound to pursue any particular strategy. Pharmac may also modify or depart from a strategy previously adopted, including not applying the strategy the same way in all situations, or may adopt new strategies, provided that Pharmac complies with its public law obligations, including consultation, and that any new decision is made in accordance with Pharmac’s statutory objectives, functions and powers, including any additional objectives and functions that may be given to Pharmac under the NZPHD Act.
[26] This provision clearly signals the potential for Pharmac modifying strategies, or applying strategies inconsistently, provided that it complies with public law obligations, including consultation.
[27] Strategies are then identified in clause 3.2.1. This reads:
3.2.1Subject to clauses 3.1 and 3.2.3, strategies that Pharmac may adopt in relation to the subsidisation of community pharmaceuticals include (but are not limited to):
(a) reference pricing (as defined in clause 3.3);
3 Clause 2.1.
(b) entering into contracts with pharmaceutical suppliers which detail the terms of listing of a pharmaceutical on the Schedule (listing contracts);
(c) entering into arrangements which involve the sharing of financial or other risks between Pharmac and a pharmaceutical supplier, including (but not limited to) rebate arrangements for a particular pharmaceutical or market;
(d) cross deal or bundling arrangements whereby a composite decision may be made entailing amendments to the Schedule in respect of more than one pharmaceutical (whether or not those pharmaceuticals are in related therapeutic groups or sub-groups);
(e) tendering, or issuing requests for proposals (RFPs), or entering into arrangements for the supply of one or more subsidised brands of a chemical entity or one or more members of a sub-group, which may entail the delisting of other brands of a chemical entity or other members of a sub- group;
(f) tendering, or issuing RFPs, or entering into arrangements whereby pharmacists may be obliged to dispense a particular brand of a pharmaceutical;
(g) issuing RFPs in relation to other subsidy arrangements for particularpharmaceuticals or therapeutic groups or sub- groups;
(h) two part pricing arrangements whereby Pharmac may make an up front payment (in addition to any ongoing subsidy) in return for the listing of a pharmaceutical on specific terms;
(i) parity pricing, whereby Pharmac may reduce the subsidy payable for a pharmaceutical in a particular therapeutic sub- group to the level of the subsidy payable for a pharmaceutical in any other sub-group; or
(j) making subsidies available for pharmaceuticals to particular patient groups.
[28] I will discuss reference pricing (clause 3.2.1(a)) and parity pricing (clause
3.2.1(i)) in a moment.
[29] The other aspect of clause 3.2.1 which calls for comment is paragraph (c). Arrangements involving ―the sharing of financial or other risks‖ are something of a euphemism for the ―rebate arrangements‖ referred to later in that paragraph. The effect of rebates is to allow pharmaceuticals to retain an apparent (higher) price level
on the pharmaceutical schedule, while the true price is disguised by rebates granted by suppliers under the listing contracts entered between Pharmac and the supplier.4
(a) Reference pricing
[30] Reference pricing (referred to in clause 3.2.1(a)) occurs where all pharmaceuticals in a given therapeutic sub-group5 are subsidised at the level of the lowest priced pharmaceutical in that sub-group. Pharmaceutical suppliers then may choose to lower the price of their pharmaceutical to match the new subsidy, or retain the higher price of their product (so that a part charge to the consumer will apply). Pharmac uses this technique ―as a method of ensuring price competition where
otherwise it may not exist‖. Its Acting Chief Executive, Steffan Crausaz, states in his affidavit that:
Reference pricing was used extensively by Pharmac in the 1990s, but the more common tool for ensuring price competition in recent times has been tendering.
[31] Reference pricing typically occurs when generic pharmaceuticals became available. The OPPs expressly state that Pharmac is not bound to apply reference pricing in every situation, or in the same way in every situation, if pharmaceuticals have been classified into a therapeutic sub-group: clause 3.3.4.
(b) Parity pricing
[32] Parity pricing was introduced by Pharmac in 1998. It was first included explicitly in the OPPs in their second edition, dated January 2001. It involves the reduction of the subsidy payable for a pharmaceutical in one therapeutic sub-group to the level of a subsidy payable for a pharmaceutical in another sub-group. It involves cross-sub-group pricing. Again, it is not used very often. Pharmac was able to point in its evidence to three examples. One of these involved asthma. In August 2002 parity pricing was used for some asthma treatments when high dose Flixotide (active ingredient fluticasone) was parity priced to beclazone (active
ingredient beclomethasone). Parity pricing, rather than reference pricing, was used
4 See discussion at [34]–[35] below.
5 A group of pharmaceuticals having the same or similar therapeutic effect.
in this case ―because there is no equivalent beclomethasone for high dose fluticasone‖.
Listing contracts
[33] About half the pharmaceuticals listed on the pharmaceutical schedule are the subject of a listing contract between Pharmac and the supplier. The listing contract sets out the terms and conditions on which the pharmaceutical is listed on the schedule. It expressly acknowledges Pharmac’s right to apply the strategies in the OPP to that pharmaceutical. The listing contract will specify the subsidy payable for the pharmaceutical, and the price at which the supplier must supply the pharmaceutical to the community pharmacy. Normally the supplier is prohibited from increasing the supply price above that specified in the listing contract. But it remains free to decrease the price if it wishes to.
[34] Listing contracts may contain:
(a) a cap, placing a dollar or volume ceiling on the subsidies provided for a product in a given period of time. In such a case the supplier will usually make a rebate payment back to Pharmac (on behalf of DHBs) for subsidies over and above that cap;
(b)a rebate arrangement where the price is set to the subsidy, but the supplier then rebates a sum back to Pharmac so that the net subsidy is actually lower. This method is used when a supplier does not want the international market to become aware that its pricing in New Zealand is lower than elsewhere.
[35] A tension is at once apparent. The supplier wants the scheduled manufacturer’s price to be high (and the subsidy as close to it as possible – preferably identical). Pharmac has the opposite objective: it wishes to see pharmaceutical prices as low as possible. Its core technique, tendering, results in the non-listing of non-chosen pharmaceuticals on the pharmaceutical schedule. Parity and reference pricing, in combination with rebating, enable a middle ground to be
found, where the apparent (or ―gross‖) subsidy shown in the pharmaceutical schedule is inflated, but the real (or ―net‖) subsidy is lower, once the supplier’s rebate is taken into account. In that way suppliers (who enter into these arrangements on a confidential basis) limit the appearance of price elasticity in relation to both (1) their customers in other jurisdictions and (2) their competitors in this.
[36] In March 2001 Pharmac and Astrazeneca entered into a listing contract. It dealt with a range of pharmaceuticals, including Oxis and Symbicort.
[37] The parties subsequently entered into a new listing contract in May 2006 covering Oxis, Symbicort and Vannair. That contract set out initial prices to apply from July 2006, and at which the pharmaceuticals were to be subsidised from
1 August 2006. These initial prices were considerably less than those shown in the
2001 listing contracts. It is common ground that reduction in prices over time often occurs, particularly where patented pharmaceuticals are nearing the end of their patent terms. Of course, when that happens, generic pharmaceuticals may enter the market in competition to the patent holders’ products.
[38] The 2006 listing contract also provided that the price at which the pharmaceuticals were to be supplied was to be reduced further in five years time – with effect from 12 June 2011. Subsidies would reduce from 1 July 2011. The listing contract provides that the subsidies are to match the relevant price taking effect in June 2011. However the relevant provision provides that the pricing clause
―does not override‖ another clause. That clause refers to Pharmac’s OPPs. In that clause Astrazeneca expressly acknowledges the existence of Pharmac’s OPPs, that those OPPs may be amended or updated from time to time following consultation, and that:
The actions which Pharmac may take under its OPPs include (without limitation)
(a) listing new pharmaceuticals;
(b) changing guidelines or restrictions on the prescribing or dispensing of pharmaceuticals;
(c) changing the subsidy levels of pharmaceuticals as a result of Pharmac adopting one of the strategies set out in the OPPs or by any other means;
(d) amending the basis on which pharmaceuticals are classified in a therapeutic group or sub-group;
(e) the listing pharmaceuticals or the delisting all or part of therapeutic group or sub-group.
On the other hand the contract also provides:
Pharmac agrees not to apply, amend or up-date its OPPs in order to avoid
any of Pharmac’s obligations under annex 4 of this agreement.
Annex 4 is the provision dealing with price and subsidies. No argument was presented to me by Astrazeneca that Pharmac’s actions breached its contractual obligations in the preceding clause.
Decision challenged
[39] At the start of 2011 the parties consulted on the expected price reductions to take effect in June 2011. In June 2011 Astrazeneca wrote to Pharmac stating:
Astrazeneca hereby gives notice that it is unable to reduce the price ex- manufacture of the Symbicort Turbohaler products and Oxis 6 on 12 June
2011. Astrazeneca is unable to obtain the necessary approval for the price
reduction from its worldwide parent company.
[40] Astrazenca advised it would continue to supply all the products, and pay Pharmac a rebate representing the difference between the price ex-manufacturer and the amount that Pharmac would have subsidised under the agreement if the price ex- manufacturer had been reduced in accordance with the agreement.
[41] Pharmac’s Acting Chief Executive, Mr Crausaz, says:
Astrazeneca’s failure to decrease its prices in accordance with the 2006 listing agreement left Pharmac in a difficult position, as it had planned for price/subsidy decreases at this point, in advance of the entry into the market of any generic pharmaceuticals. That is, Astrazenca’s contracted decrease in the price and subsidy would have assisted Pharmac to signal to the market that pricing was moving down.
[42] Pharmac staff then prepared a memorandum. It is dated 15 June 2011. It considered various options available. None other has been advanced before me in any serious fashion. It noted the potential disruption to patients’ treatment. So it recommended, in order to avoid patients having to pay a part charge on Symbicort, Oxis and Vannair,6 that an ―endorsement‖ be applied. That would mean that existing patients would receive an additional subsidy until 1 November 2011. New patients, however, would need to pay part charges from 1 July 2011. The cost to the pharmaceutical budget of the proposal would be approximately $600,000 per month until a new position was reached.7 Astrazeneca then agreed to decrease its price for Vannair. So no endorsement was required for that product.
[43] The Pharmac memorandum was considered by the Board. As Mr Crausaz notes, the Board needed to balance two considerations:
(a) the cost of continuing to fund the Astrazeneca products at the higher price, despite the intended price reductions mandated by the 2006 listing agreement; and
(b)the potential impact to the 18,000 patients using Symbicort and 5000 patients using Oxis who would need to pay a manufacturers surcharge or switch treatments if Astrazeneca did not drop its prices.
[44] It is, however, accepted that Astrazeneca has offered to keep Pharmac whole in relation to the difference between the agreed price reduction, and the cost to Pharmac’s budget from its ultimate failure to give effect to that price reduction. The amount owed by Astrazenca is yet to be computed. But once the amount is advised, it will pay it.
[45] The Board accepted the recommendation by Pharmac staff. The interim position was notified to the market on 16 June 2011.
[46] In looking then to the position to apply after 1 November 2011, three memoranda were prepared for the Pharmac Board meeting in September 2011.
6 Ranging between $4.15 and $41.00.
7 Although see [44] below.
First memorandum
[47] The first memorandum recommended extension of the additional subsidy for Symbicort and Oxis patients through to 1 February 2012. This would enable time for alternative arrangements to be ―put in place to manage subsidies for various asthma management products and to communicate appropriately with clinicians and patients‖. That meant Symbicort and Oxis would incur a part charge if Astrazeneca did not reduce its prices from that date.
[48] Pharmac circulated the proposal for consultation in August 2011 to all suppliers and other affected parties. It received no responses.
Second memorandum
[49] The second memorandum lies at the heart of this case. It presented proposals to parity price Symbicort and Vannair (both combined preventers and controllers) to the ―net subsidies‖ payable for comparable GlaxoSmithKline (―GSK‖) preventers and controllers (albeit they are in different therapeutic sub-groups).8 The expression
―net subsidies‖ means the subsidy payable in respect of the parity product net of rebates. That is a figure not found in the pharmaceutical schedule, but calculated separately. In the case of Symbicort and Vannair the proposal was to parity price to Seretide, a GSK product. That product had a confidential rebate, which made the expression of its net price difficult for Pharmac.
[50] The other proposal in the paper was to parity price Oxis and Floradil (a Novartis product). Both are preventers. The proposal was that they be parity priced with Serevent, a GSK preventer.
[51] This memorandum was prepared by Pharmac’s Therapeutic Group Manager. It was reviewed by Pharmac’s Medical Director, and approved by Mr Crausaz (whose qualifications are in pharmacology).
[52] The memorandum records that parity pricing does not necessarily require therapeutic equivalence in price setting:
The principle is that Pharmac would pay similar prices for pharmaceuticals that have similar therapeutic outcomes.
[53] The memorandum noted that, if Astrazeneca did not reduce its prices, customers switching to the GSK Seretide product would still have access to a combination inhaler, with the ―same or similar (clinical) effect‖, but:
the LABA component of Symbicort (eformoterol) is associated with a faster onset of action. This means that patients using it notice relief more quickly; however there is no evidence that this results in better overall control of asthma.
[54] In short, Seretide uses salmeterol, which provides preventer and controller function, but not reliever function. A patient needing reliever functionality (e.g. for an acute asthma attack) would need to carry a second reliever (SABA) inhaler (e.g. Ventolin). Eformoterol and salmeterol both have controller functionality, but because efomoterol acts within 1 to 3 minutes, it also provides reliever functionality.9
Because it provides maintenance (i.e. controller and preventer) and reliever therapy,
Symbicort (using eformoterol) is known as a SMART product. The memorandum continued by referring to a report of the Respiratory Subcommittee of PTAC in April
2006.
[55] The proposals advanced in the paper were not referred expressly to the Respiratory Subcommittee in 2011. However, they were referred to individual members of PTAC, including at least one member of the Respiratory Subcommittee. The parity pricing proposal had also been circulated for consultation to others in August 2011. Astrazeneca’s comments were noted (but discounted) in the memorandum. Also circulated with the proposal were the Ministry of Health, DHBs, and members of the Royal College of General Practitioners (via the College). A number of them responded. Their comments were all attached to the memorandum given to the Board. Astrazeneca was critical of the summary of responses given in the memorandum. But the fact remains that the responses were attached to the memorandum, for the Board to see.
[56] The OPP decision criteria (clause 2.2) required consideration of nine criteria.
Decision Criteria
Pharmac uses the criteria set out in this clause, where applicable and giving such weight to each criterion as Pharmac considers appropriate, to make decisions about proposed amendments to the Schedule. Where Pharmac makes decisions that do not involve amendments to the Schedule (for example, decisions relating to Pharmac’s demand side activities), it endeavours to use these criteria, to the extent that they can be applied to those decisions. The criteria for decisions about proposed amendments to the Schedule are:
(a) the health needs of all eligible10 people within New Zealand; (b) the particular health needs of Māori and Pacific peoples;
(c) the availability and suitability of existing medicines, therapeutic medical devices and related products and related things;
(d) the clinical benefits and risks of pharmaceuticals;
(e) the cost-effectiveness of meeting health needs by funding pharmaceuticals rather than using other publicly funded health and disability support devices;
(f) the budgetary impact (in terms of the pharmaceutical budget and the
Government’s overall health budget) of any changes to the Schedule; (g) the direct cost to health service users;
(h) the Government’s priorities for health funding, as set out in the objectives notified by the Crown to Pharmac, or in Pharmac’s funding agreement, or elsewhere; and
(i) such other criteria Pharmac thinks fit. Pharmac will carry out appropriate consultation when it intends to take any such ―other criteria’ into account.
[57] As to the fourth consideration (clinical benefits and risks), the memorandum said:
The proposal would not change the clinical benefits and risks of the relevant pharmaceuticals; however, if Astrazeneca does not reduce its prices the proposal may change the access costs to some of the pharmaceuticals necessitating a switch in pharmaceutical for some patients. There may be some risk in a switch if transition is not properly managed.
[58] As to the sixth consideration (budgetary impact), the memorandum stated:
The proposal is estimated to be cost saving of $18.5 million (5 year NPV,
8%) to the pharmaceutical budget.
Third memorandum
[59] I should mention, briefly, the third memorandum considered by the Board. It proposed a widening of access to asthma products. Previously there had been a three month trial period required before patients could move to a combination inhaler. Patients were required to be on separate ICS (preventer) and LABA (controller) inhalers for three months prior to becoming eligible for a combination inhaler. Both Astrazeneca (Symbicort and Vannair) and GSK (Seretide) supplied combination inhalers. So this proposal, at least, was favourable to the interests of Astrazeneca.
[60] This access-widening proposal had been given a high priority by PTAC at its August 2011 meeting. Earlier access to combination inhalers was seen to be safety- enhancing for patients. Other persons consulted gave support to the proposal. It is uncontroversial in this proceeding.
Board decision
[61] On 30 September 2011 the Board considered the three memoranda. The proposals contained in the memoranda were endorsed and accepted by the Board.
Issue One: parity pricing: relevant subsidy
[62] Issue 1 is:
Does parity pricing by Pharmac require it to use the published (non- rebated) subsidy (or “gross subsidy”) shown in the pharmaceutical schedule, or may it use a “net subsidy” (i.e. published gross subsidy, less confidential rebates)?
[63] In the present case parity pricing approved by the Board has the effect of parity pricing:
(a) Symbicort to the ―net level of subsidy‖ of the Flixotide accuhaler and
Servent accuhaler;
(b) Vannair to the ―net level of subsidy‖ of the Flixotide pMDI and
Servent pMDI;
(c) Oxis 6 turbohaler to 50% of the level of subsidy of the Floradil 12 aeroliser;
(d) Floradil to the ―net level of subsidy‖ of the Servent accuhaler. Each of these parity prices apply from 1 February 2012.
Pleadings
[64] Astrazeneca pleads that:
(a) ―under the OPPs the schedule and the Act ―subsidy‖ means the amount listed in the schedule as the subsidy‖;
(b)―in adopting parity pricing under the OPPs, Pharmac must use the level of relevant subsidy listed in the schedule‖ (i.e. the gross subsidy);
(c) in using a ―net subsidy‖, Pharmac has erred in law.
Submissions
[65] Astrazeneca’s submission is encapsulated in the following passage in its
submissions, presented on its behalf by Mr Tim Mullins:
That Pharmac purported to parity price is explicit in the decision and the proposal. Parity pricing is defined as a strategy of Pharmac at clause 3.2.1(i) of the OPPs:
parity pricing, whereby Pharmac may reduce the subsidy payable for a pharmaceutical in a particular therapeutic sub-group to the level of the subsidy payable for a pharmaceutical in any other sub-group;
The use of a ―net level of subsidy‖ is contrary to the meaning of the word
―subsidy‖ in clause 3.2.1(i) [of the OPPs].
[66] Mr Mullins submits that the relevant starting point is the Act, and s 6 thereof. It defines the pharmaceutical schedule as follows:
―Pharmaceutical schedule‖ means the list of pharmaceuticals for the time being in force that states, in respect of each pharmaceutical, the subsidy that the Crown intends to provide for the supply of that pharmaceutical to a person who is eligible for the subsidy.
[67] Astrazeneca in effect says that this ―statement‖ of ―subsidy‖ should be applied consistently, and is not to be discounted in some instances (but not in others) to have regard to rebates paid by suppliers.
[68] The schedule itself recognises that the subsidies stated in the schedule do not
―show the final cost to Government of subsidising each ... pharmaceutical‖.11 The final cost is expressly said to depend on rebates. Such rebates ―are not specified in the pharmaceutical schedule‖. This is also made clear, Mr Mullins submits, in the definition of ―subsidy‖ in the pharmaceutical schedule. That states:12
―Subsidy‖ means the maximum amount that the Government will pay Contractors for a Community Pharmaceutical dispensed to a person eligible for Pharmaceutical Benefits and is different from the cost to Government for subsidising that Community Pharmaceutical.
[69] Astrazeneca submits that the schedule consistently distinguishes between the
―precise, transparent and published‖ subsidy – the amount listed in the schedule – and the actual cost to Government of subsidising a pharmaceutical. Mr Mullins submits:
The decision completely collapses this distinction. It is accordingly an error of law and at odds with the schedule, Act and OPPs, all of which are consistent on this point.
11 Pharmaceutical Schedule at p 16.
12 Pharmaceutical Schedule at p 19.
[70] For Pharmac, Mr Mike Colson submits that Astrazeneca’s argument effectively elevates the OPPs (which are merely policies and guidelines) ―to the status of statute‖, and then attempts to interpret the elevated OPPs in an entirely literal way. Mr Colson submits that the OPPs, both as a matter of general principle and given their own inherent provision for flexibility, are not to be applied in a rigid way. In particular Mr Colson relies on clause 3.1 of the OPPs, which I have set out at [25] above. Mr Colson submits that for there to be an error of law in relation to the application of the OPPs, there would need to be a fundamental modification or departure from the existing strategy, or the adoption of an entirely new strategy, and a failure to then consult on the proposal involving that modification, departure or adoption – such course being expressly permitted in clause 3.1 of the OPPs.
Analysis
[71] Error of law is a distinct ground of review. As Matthew Smith says in his excellent new text book New Zealand Judicial Review Handbook:13
A decision can be invalidated and set aside if it is tainted by an error of law. Common errors of law include situations where a decision-maker has asked itself the wrong question, or where it has misconstrued or disregarded the law it has been entrusted to apply. Errors of this nature may be more likely to arise where a decision-maker has ―glossed‖ a statutory test, or it has too narrowly or too broadly construed wording which does not permit such a construction.
[72] Astrazeneca’s pleading in respect of this issue (the first cause of action) was essentially an ―ask the wrong question‖ or ―applied the wrong test‖ one.
[73] The error of law must, of course, be a material one. That is, it must be one which may well have altered the ultimate decision made by the statutory body.14
Where the alleged error is essentially one of misconstruction – which the first cause of action in this case is – the error must be a clear one. It is not enough that another interpretation is open. The Court must be quite clear that the construction favoured by the body below is in error, for it to intervene.
[74] The scope of review in the context of Pharmac’s OPPs has been considered before by the Courts. In Pharmac v Roussel Uclaf Australia Pty Limited15 the Court of Appeal was called upon to consider the method of reference pricing for macrolide antibiotics in the mid 1990’s. Roussel’s argument (which evolved from the High Court to the Court of Appeal) was that Pharmac had promulgated, and was bound to follow, its OPPs. It was bound to ―follow the procedures it had prescribed for itself‖.
After referring to the expressed and contextual need for flexibility in the application and construction of the OPPs, Blanchard J said:
The question then is whether in the particular circumstances giving rise to this case Pharmac’s procedure was so far at variance with the principles of the OPPs that, even allowing for their skeletal nature and the consequent need for flexibility in their application to a given situation, it can be said that Pharmac has failed to observe them and thus erred in law.
[75] It is appropriate to start with the Act. Section 47(a)16 requires Pharmac to secure the best health outcomes reasonably achievable within the amount of funding provided. That objective is reinforced by s 3(2) which provides that the objectives set out in s 3(1) of the Act ―are to be pursued to the extent they are reasonably achievable within the funding provided‖. It is a clear aspect of Pharmac’s objectives to drive costs down. But there is a balance between cost and risk. Section 48(a)17 provides that it is a core function of Pharmac to ―maintain and manage a pharmaceutical schedule that applies consistently throughout New Zealand,
including determining eligibility and criteria for the provision of subsidies‖.
[76] How then is one to construe s 6?18 In my view that provision has a direct impact on the outcome in the present proceedings. Pharmac must state its intended subsidies in the schedule. The schedule must apply consistently throughout New Zealand. But its composition is otherwise to be determined by Pharmac consistently with its statutory objectives and functions and in accordance with the course it has
itself expressed and published in both the schedule and the OPPs.
15 Pharmac v Roussel Uclaf Australia Pty Limited [1998] NZAR 58 (CA) at [66]. See also the decision of Ronald Young J in SmithKline & Beecham (NZ) Limited v Minister of Health HC Wellington CP 49/02, 15 May 2002 at [75]—[76] concerning guidelines published by Medsafe.
16 See [11] above.
17 See [13].
18 See [66] above.
[77] As to the schedule, its purposes are set out at page 7:
The purpose of the Schedule is to list:
The Community Pharmaceuticals that are subsidised by the Government and to show the amount of the subsidy paid to contractors, as well as the manufacturer’s price (if it differs from the Subsidy) and any access conditions that may apply; and
Some Hospital Pharmaceuticals that are purchased and used by DHB Hospitals, including those for which national prices have been negotiated by Pharmac.
The purpose of the Schedule is not to show the final cost to Government of subsidising each Community Pharmaceutical or to DHBs in purchasing each Hospital Pharmaceutical since that will depend on any rebate and other arrangements Pharmac has with the supplier and, for some Hospital Pharmaceuticals, on any logistics arrangements put in place by individual DHB Hospitals.
[78] It is clear in this passage that the schedule uses ―subsidy‖ in two senses. The expression ―subsidy‖ is used in the gross sense (without discount for rebating). On the other hand, the expression ―subsidising‖ reflects the net value of the subsidy provided. This dualism appears in various places in the schedule.19
[79] I turn, then, to the definition of ―subsidy‖ in the schedule. That provides,
―unless the context otherwise requires‖, that:20
Subsidy means the maximum amount the Government will pay Contractors for a Community Pharmaceutical dispensed to a person eligible for Pharmaceutical Benefits and is different from the cost to Government of subsidising that Community Pharmaceutical. ...
[80] The definition tends to suggest that the expression in the pharmaceutical schedule of ―subsidy‖ will be the gross subsidy. And that the true costs of subsidising (or net subsidy) may be something less. There are, however, two important qualifications to that observation. The first is the definition is not a mandatory requirement in all cases. Indeed it is, as I have set out and as is usually the case, subject to variation where ―the context otherwise requires‖. Secondly, the pharmaceutical schedule may itself be varied, in accordance with procedures set out in the OPPs.
[81] I have already set out clause 2.1(c) of the OPPs.21 This contemplates (and notifies suppliers) that Pharmac plainly reserves the right to amend the schedule. In particular, to change the subsidy levels as a result of adopting strategies including, parity pricing.
[82] The prospect of variation is reinforced in clause 3.1 of the OPPs.22 In combination these provisions make clear that the OPPs are not to be construed as if engraved on stone tablets. The manner in which Pharmac undertakes parity pricing – one of the ―strategies‖ provided for in clause 3.2 – may be modified from previous applications. Expressly, the strategy may not be applied ―the same way in all situations‖.
[83] It is against this background that Astrazeneca’s core complaint must be assessed. Namely, that ―the use of a ―net level of subsidy‖ is contrary to the meaning of the word ―subsidy’ in clause 3.2.1(i) [of the OPPs]‖.
[84] At face value there is apparent force in that point. But it does not withstand more detailed contextual scrutiny. In a perfect world, subsidies payable (and published) would be transparent. But the pharmaceutical companies themselves have resisted that course, and have instead insisted on gross subsidies being published with separate rebates being paid so that the true (or net) subsidy is obscured. There is, however, something patently illogical about parity pricing to an inflated subsidy level. Hence Pharmac proposing to set subsidies for Astrazeneca (and Novartil’s) products at levels comparable to the true (or net) subsidy levels in fact paid in respect of the parity products produced by GSK. As we have seen, doing so is not a course without precedent. The consequence of Astrazeneca’s submission would be that Pharmac would be compelled to state the subsidy available for Astrazeneca’s products at a significantly higher level than the net subsidy for the GSK’s comparables. Pharmac would have no assurance as to the rebate it could achieve in negotiation with Astrazeneca. If it could not reach a satisfactory outcome, it would have no other option than to further amend the pharmaceutical schedule to
de-list Astrazeneca’s products. That is a course which Pharmac would be loathe to
21 At [24].
22 Set out at [25].
take. It would cause disruption and hardship to patients. It would, as Mr Colson put
it, place Pharmac on a ―slippery slope‖.
[85] I do not consider that Pharmac erred in law in the way in which it went about applying parity pricing in this case.
[86] First, I do not consider that the parity pricing strategy provided for in clause
3.2.1(i) compels use of a methodology whereby the ―level of subsidy payable‖ for the comparable is the level of subsidy published in the schedule for that product. There is no definition of ―subsidy‖ in the OPPs. The character of the OPPs is not one requiring conservative, formalistic construction. Rather they are broad
―outlines‖, or guidelines, for understanding. Of essence, they are flexible. That could hardly be made more clear than in clause 3.1 of the OPPs.23
[87] Secondly, such a definitional approach to the words ―level of subsidy payable‖ in clause 3.2.1(i) would be self-defeating. It would not enable true parity pricing, but compel comparison with a false level of payment. It would be a false comparable. The ―level of subsidy payable‖ for the purposes of parity pricing ought, prima facie, to be to the true or net level of subsidy – i.e. taking into account rebates. In the case of reference pricing (which applies within a therapeutic sub-group) pricing to true or net subsidy level has been done before by Pharmac. In the instance given in evidence for Pharmac, the reference comparable was in fact an Astrazeneca product, Losec. A contrary interpretation would be inconsistent with Pharmac’s fundamental statutory objective of providing cost-effective access to pharmaceutical treatments. The prospect of de-listing as a lever to then achieve some sort of effective ―net versus net‖ parity, despite the prior published subsidy level, seems to me to be an unrealistic, uncertain and unnecessary means of constraint.
[88] Thirdly, and finally, Pharmac gave due notification of the approach it intended to take when it consulted on the proposal in August 2011. The proposal (circulated, inter alia, to Astrazeneca, on 30 August 2011) said:
It is proposed that, effective from 1 February 2012 and 1 July 2012, the subsidies of budesonide with eformoterol (Symbicort turbuhaler and
23 See at [25].
Vannair) and eformoterol fumarate (Oxis turbuhaler and Foradil) are reduced to the level of the subsidies for fluticasone and salmeterol.
The proposed subsidies then set out did not accord with any published subsidies for fluticasone and salmeterol, as Astrazeneca’s solicitors at once pointed out. Pharmac immediately confirmed that the proposal was that the subsidies for the affected products ―are to be reduced to the ―net‖ subsidies for fluticasone and salmeterol inhalers, being actual or effective subsidies after allowing for deduction of rebates‖. Thus, the course of conduct being proposed by Pharmac was made patent, at the very latest, by 21 September 2011. To the extent, therefore, that the way in which parity pricing is to be applied in this instance might be seen to be a departure from the strict terms of clause 3.2.1(i) of the OPPs, Pharmac consulted with Astrazeneca and provided it with the opportunity to comment on the course proposed. No further response was obtained from Astrazeneca. The Board of Pharmac considered the proposal on 30 September 2011 and the proposal was adopted by the Board at that meeting.
Issue Two: formal reference to PTAC?
[89] Issue two is:
Was Pharmac required to refer the parity pricing proposal to the Pharmacology and Therapeutic Advisory Committee (PTAC) before the Board resolved to adopt it?
Pleadings
[90] Astrazeneca’s initial pleading – filed understandably in some haste a month after the Board of Pharmac’s decision of 30 September 2011 – advanced four
―mandatory relevant considerations‖ that Astrazeneca said that Pharmac had failed to consider. Those four considerations were:
(a) Whether the proposed comparables (Serevent, Seretide and Flixotide) were therapeutically equivalent to, or substitutable for, Astrazeneca’s rapid-acting products containing eformoterol (Symbicort, Vannair and Oxis).
(b) The need to consider that Symbicort alone has an indication for
SMART therapy on its data sheet.24
(c) The need to consider that if a patient previously prescribed Symbicort was switched to a different ICS/LABA (whether in one inhaler or not), they would now need a second or third) SABA inhaler for acute asthma treatment.25
(d)Patient safety (which is improved with the prescription of fewer inhalers).
[91] After some discussion between Bench and Bar during the course of hearing, Mr Mullins sought to re-plead, orally. The end result was the fourth to seventh causes of action are now subsumed into a single proposition:
In all of the circumstances (including those set out in the fourth to seventh causes of action), Pharmac was required to refer the proposal to PTAC (because failure to refer led the decision process awry as material clinical issues were raised, but were addressed on the basis of PTAC minutes that did not properly address the material of clinical issues).
[92] Mr Colson, very responsibly and pragmatically, did not object to this revision
of Astrazeneca’s case.
Submissions
[93] Astrazeneca submits the high prevalence and significant impacts of asthma required Pharmac to consider closely impacts of changes to the schedule which would materially affect the health needs of asthma sufferers. Different pharmaceuticals might have different clinical benefits and risks. Those risks required meaningful consideration. Astrazeneca submits that means consideration by a body ―that has the requisite expertise‖. Of necessity, that would include taking advice from PTAC, and its Respiratory Subcommittee. Failure to take advice from PTAC, where such issues arise, would mean that Pharmac could not have properly
considered those matters. Further:
24 See at [8] above.
25 For example, the provision of a Ventolin SABA: see [6](a).
The consultation feedback given to Pharmac on the proposal made it clear that specialist input from PTAC was required. Pharmac failed to do so and the decision was made in error of law.
[94] Mr Mullins also criticises the consideration by Pharmac’s Board of historical minutes of PTAC and its Respiratory Subcommittee in 2006 and 2010. The 2006 minutes pre-dated approval of Symbicort as a SMART therapy. None of those previous considerations ―can reasonably be said to amount to clinical advice that the Astrazeneca products (especially Symbicort in the light of the SMART indication) had the same or similar effect to Seretide, Serevent or Flixotide‖.
[95] Mr Colson, for Pharmac, submits there was no statutory requirement for reference of the issue to PTAC. Although he accepts that there have been a number of occasions in the past where Pharmac has seen fit to refer asthma related issues to PTAC. PTAC, for instance, expressly commented on the contents of the third proposal before the Board in September 2011.
[96] In this instance, although Pharmac did not formally consult PTAC or the Respiratory Subcommittee on the second proposal it had sent the August 2011 consultation proposal to each member of those bodies. Mr Colson also submits that the second memorandum did address the issue of therapeutic equivalence, and recognised that Servent, Seretide and Flixotide were not suitable for acute asthma attacks (with the consequence that patients prone to such attacks would have to carry an additional SABA inhaler).
[97] Having said all that, however, Mr Colson concedes that the OPP decision criteria in clause 2.2 (set out at [56] above) are relevant considerations. And, moreover, that they are mandatory relevant considerations.
Analysis
[98] Although the OPPs do not have statutory force, and contain express inherent
flexibility in application, Mr Colson’s concession that the decision criteria in clause
2.2 are mandatory considerations was properly made. I have listed the criteria in
[56]. The introductory part of the clause makes clear that the criteria will normally
be used by Pharmac in making decisions about proposed amendments to the schedule. It also makes clear that relative weight between criteria is a matter of judgment for Pharmac. The three memoranda all applied the criteria. Each criterion is reviewed at the end of each memorandum.
[99] I accept that Pharmac’s own publications and practice makes the clause 2.2 decision criteria mandatory relevant considerations, in the sense contemplated in Ashby v Minister of Immigration.26 Where a potential consideration is, however, merely a permissive relevancy, failure to take account of it is not a reviewable error.27 The question in the present case is whether it was an implicit mandatory consideration – arising out of the Act, PTAC’s terms of reference, the OPPs or Pharmac’s past practices (such as give rise to legitimate expectations of consistency)
– that the second proposal be referred to PTAC. Or that, at the very least, the Board expressly consider doing so. The former proposition is more an allegation of requirement than relevancy. The re-pleading was made in the context of the fourth and seventh causes of action, all of which allege relevancies were overlooked. In the absence of objection to the re-pleading, which perhaps broadens the base of what lay there before (while also narrowing the focus to PTAC), I will consider the argument on both bases.
[100] The appropriate place to start is with the Act. Section 50 provides that the Board of Pharmac ―must establish the following advisory committees‖ – PTAC and a consumer advisory committee. PTAC is to be established ―to provide objective advice to Pharmac on pharmaceuticals and their benefits‖. Beyond specifying the function of PTAC, it does not specify when and where Pharmac is to make use of PTAC. That, ultimately, is a matter for Pharmac’s own judgment. Obviously it would not be lawful for it to fail to establish PTAC. Nor would it be lawful to establish it but not use it. Or establish it, use it, but not fund it. But the evidence is (as I have said at [15]) that PTAC meets four to five times a year, is also consulted
on an ad hoc basis, and is adequately resourced for its functions. As I also noted at
26 Ashby v Minister of Immigration [1981] 1 NZLR 222 (CA).
27 Smith NZ Judicial Review Handbook (Brookers, 2011) at 61.1.3, and the authorities there referred to.
[15], the terms of reference do not require the Board of Pharmac to refer issues to it. Clause 2.1.1 of the terms of reference are at the heart of the matter. That provides:
2.1.1 PTAC and PTAC Subcommittees are to:
provide objective advice to Pharmac on community and hospital pharmaceuticals and their benefits;
make recommendations to the Pharmac Board on Applications or Pharmac staff proposals related to the management28 of the Pharmaceutical Schedule which have been referred to it by Pharmac;
subject to the prior agreement of the Pharmac Board, initiate reviews of any policy adopted by Pharmac in relation to the management of the Pharmaceutical Schedule and provide reports or make recommendations to the Pharmac Board arising from those reviews; and
consider and report, or make recommendations, to the Pharmac
Board on any other matters that may be referred to it by Pharmac.
[101] I cannot derive from this provision, or any other in the terms of reference, a necessary implication that every significant pharmaceutical schedule amendment which may impact therapeutic comparison, prescribing practice or even (to a degree) patient safety must be referred to PTAC. Nor is such a mandate to be found in the OPPs. Nor, in fairness, did Mr Mullins suggest that it was to be found in such sources.
[102] Mr Mullins’ argument was that the degree of clinical impact here was sufficient to require Pharmac’s Board to pause before proceeding to adopt the proposal set out in the second memorandum. Then the Board should ask itself,
―Well, what does PTAC say about this proposal?‖ Having done so, the Board could not be satisfied by the purely historical information it had before it from PTAC (or the Respiratory Subcommittee) – which pre-dated Symbicort’s SMART indication, making it unnecessary for an asthma patient with acute symptoms to retain a second SABA inhaler. The third memorandum, concerning the widening of access to combination inhalers, had been discussed by PTAC at its August 2011 meeting. So why not, then, the equally significant (and potentially deleterious) proposal in the
second memorandum?
28 Possible amendments to the Pharmaceutical Schedule are outlined in the OPPs.
[103] Despite the skill with which Mr Mullins advanced this argument, it does not in the final result persuade me.
[104] First, it remains a matter of judgment for Pharmac as to whether to refer or not. Pharmac’s staff and members of the Board include expert clinicians in their own right.
[105] Secondly, the clinical impact on patients of the amendment to the schedule was clearly stated in the proposal considered by the Board. In particular the memorandum stated:
The clinical effect of the GSK and Astrazeneca combination products is considered to be the same or similar. However, some complexities exist, such as the use of a particular Symbicort regimen (the SMART regimen).
...
In the event that ASZ does not reduce its prices the options for current patients include:
...
Switching to fully funded individual inhalers – this may require a change in the LABA pharmaceutical but would off more options. For those switching from a combination product this would involve having two inhalers instead one which is not ideal.
[106] The SMART regimen is discussed in some detail in the memorandum:
ASZ argued that this regimen has a ―steroid-sparing effect‖ in that overall, patients using this regimen use less inhaled corticosteroid than with a fixed dose regimen. The other quoted advantages are that instead of having to carry two inhalers (a SABA and a combination product), they only have to carry one. We accept that there may be a significant number of patients who will be using their Symbicort inhaler under the Smart regimen who may have difficulty switching to a fully funded product.
[107] Thirdly, and more importantly, the proposal was circulated for consultation not only to suppliers but to members of the Royal College of General Practitioners, other interested bodies (such as the Asthma Foundation and Asthma New Zealand) and individual members of PTAC and the Respiratory Subcommittee. Dr Jim Lello (a member of both committees) provided a response. That response was attached to the Board paper, and was there to be considered along with the earlier passages quoted. Dr Lello said:
There may be some clinical concern regarding the loss of full subsidy on the only product registered for maintenance and relief – i.e. those users of Symbicort that have adopted this way (SMART) of using their inhaler. Seretide users cannot use their inhalers in this way. It would be great if Astrazeneca would play ball and elect to stay in the market by lowering their price.
[108] It may be noted that the second memorandum put to the Board provided a short summary of Dr Lello’s comment. That summary noted that Dr Lello had said there ―may be some clinical concern regarding the SMART regimen‖, and noted his support with clinical comment if required. Mr Mullins complains that the memorandum goes on, in a ―staff note‖ to record that Dr Lello is a member of the Respiratory Subcommittee and ―thank[s] him for his support and note[s] his comments‖. However in its context, the reference of support plainly relates to the offer of clinical comment (which does appear in his consultation response). And the memorandum does record, correctly, his observation of ―some clinical concern‖ regarding impact on the SMART regimen. As I have said, the memorandum attached the consultation responses, including also that from Mr Justin Travers, a respiratory physician at Hutt Hospital, who expressed concern about the need for a
―fully funded budesonide/eformoterol inhaler for use in the SMART regimen‖.
[109] The issues of therapeutic equivalency, prescribing practice and potential patient disadvantage/risk were all, as a result of the consultation process and the memorandum compiled for the Board, clearly before the Board. The differing perspectives were available for the Board to consider. Both by inspection of the material before it and through resort to its own expertise. It cannot be said that the Board failed to have regard to these issues. The Board was entitled also, to have regard to the limited number of the adverse responses to the consultation document. I was advised that Pharmac issues consultation documents like this to the medical profession approximately once a month. It is not, therefore, as if the proposal got lost in a blizzard of consultation.
[110] Given the extent of consultation, and the nature of responses, I cannot discern a justifiable basis to conclude that Pharmac acted unlawfully in failing to refer the issue more formally to PTAC. I do not find, as a matter of law, that it was obliged to do so. Nor was the extent of clinical impact on patient safety such as to make
specific consideration of reference of the issue, following consultation, a mandatory relevant consideration. (Equally, I would not have found it irrational for the Pharmac Board to have proceeded on the material in front of it alone).
[111] Finally, I note that the Chairman of Pharmac, Mr McLauchlan, makes the point that the Board papers (including consultation responses) were sent to Board members in advance of the meeting; that he had read them in advance of the meeting (as all other Board members would have); and that:
The Board was well aware of the clinical issues associated with the Asthma
Proposals.
[112] I find no basis on the evidence to reach a different conclusion. Given the Board’s appreciation of the issues, it was not required as a matter of law to refer the clinical impact of the proposals to PTAC formally. Nor was it in breach of any duty to give further consideration to that course of action.
Disposition
[113] The application for review is dismissed.
[114] The defendant will have costs in the category 2 band B basis. [115] I thank counsel for their assistance.
Stephen Kós J
Solicitors:
LeeSalmonLong, Auckland for Applicant
Bell Gully, Wellington for Respondent
0
0
0