How does the operation of PHARMAC's 'Community Exceptional ...

organisation named the Researched Medicines Industry Association (RMI) 26 .
The RMI argued that the only rationale for an exemption to the Commerce Act
was to allow PHARMAC the opportunity to establish a national purchasing
policy (PB/18 The Researched Medicines Industry Association of New Zealand,
2000). This situation was not dissimilar to the limited exemption which was
granted to the four RHAs prior to the Bill to allow them to manage and operate
the pharmaceutical schedule of medicines which were subsidised by the
government. According to the RMI, the arrangement worked perfectly well
without a total exemption and made medicines available at a cheap price or at
no cost to the patients.
The RMI 27 placed emphasis on the words ‘limited exemption’ and strongly
objected to the provisions in the Bill that granted PHARMAC considerably more
price fixing powers than existed under the previous RHA structure.
Essentially the difference in the proposed legislation was that PHARMAC was
to be given an exemption to incorporate agreements between purchasing
agents and individual pharmaceutical companies rather than limiting the
immunity to agreements between the DHBs, Ministry of Health and PHARMAC
(PB/18 The Researched Medicines Industry Association of New Zealand, 2000).
It was suggested that this would allow PHARMAC and the DHBs to enter into
price control arrangements which would distort market forces by virtue of
monopsonistic behaviour 28 .
The RMI argued that the effect would be to limit competition and the ability for
the market to differentiate on the basis of quality of health care products. They
submitted that PHARMAC’s control of the market would also lead to
inconsistent prices in New Zealand which would be out of step with world
prices. This would damage New Zealand’s relationship with international
pharmaceutical companies and act as a disincentive for research and
investment in pharmaceutical developments in New Zealand. There also
existed a potential to antagonise international pharmaceutical companies
26 In September 2011 the Researched Medicines Industry Association (RMI) changed its name to Medicines New
Zealand (MNZ). The new organisation joined together the RMI current members and several other stakeholders from
New Zealand’s health sector.MNZ website is found at http://www.medicinesnz.co.nz/
27 In particular ss27-30 (PB/18 The Researched Medicines Industry Association of New Zealand, 2000)
28 Monopsonistic behavior is where a sole purchaser exerts control over the price and supply to a market for goods or
services (Mankew, 2001). The opposite of monopsonistic behavior is monopolistic behaviour where the sole seller
exerts influence on the price of goods and services.
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