A watershed legal win
1998 - 2003
At one point in the early years of PHARMAC, according to founding general manager David Moore, the agency had more legal cases on the go than it had staff.
Litigation with the pharmaceutical industry was threatening to prove naysayers right – that the agency would collapse under the legal bombardment.
Simon Watt, a Wellington-based lawyer at Bell Gully with a background in banking law, was seconded to PHARMAC in 1995 to help ease the strain. He describes it as a “pretty torrid time”.
“There were six judicial review proceedings on the go at one time, two Commerce Act cases and patent extension proceedings all involving PHARMAC,” he says.
PHARMAC had 10 sets of litigation going on and no in-house lawyer.
“It was a siege mentality at that stage.” - Simon Watt
Part of Watt’s role was to come up with templates for watertight legal contracts that PHARMAC’s contract managers could use in the agency’s agreements with pharmaceutical companies.
But while the pharmaceutical companies would happily sign on the dotted line one day, they’d be filing lawsuits objecting to a funding decision the following day.
A circuit breaker was needed and it came in 1997 and 1998 during the course of protracted legal action with French multinational pharmaceutical company Roussel Uclaf, over funding of the antibiotic Rulide (roxithyromycin).
PHARMAC’s Board had decided to reduce the level of subsidy on Rulide by more than half of its former level as a result of reference pricing. Roussel Uclaf claimed that was anti-competitive and sought to challenge PHARMAC’s processes through judicial review.
It would prove to be a test case as the pharmaceutical company, unsuccessful at the High Court, sought redress in the Court of Appeal and eventually went all the way to the Privy Council, New Zealand’s highest court.
The case validated practices around reference pricing but it and other legal action around the same time also confirmed that PHARMAC’s decisions and contracts relating to subsidised medicines were exempt from New Zealand’s Commerce Act 1986, which bans other companies from anti-competitive behaviour.
The Privy Council noted that there were “sound economic reasons” for PHARMAC’s actions and a “public interest in reducing expenditure on pharmaceuticals”.
“When the Privy Council case was won, most of the litigation fell away, because the industry could see that having set the case law all the way to the Privy Council they weren’t going to win those kinds of cases,” says Wayne McNee, a former Dunedin hospital pharmacist who was a therapeutic group manager at PHARMAC before becoming its general manager in 1998.
“That was pretty groundbreaking.”
“Success at the Privy Council in 1998 in the Rulide case was perhaps the most significant confirmation our procedures are correct,” wrote Denis Tait in PHARMAC’s 2000 Annual Review.
But it came at a cost – PHARMAC had to spend around $3 million on legal advice in the five years leading up to the Privy Council win. Simon Watt ended up staying at PHARMAC for 18 months, and 20 years later Bell Gully continues to provide legal advice – though the court cases are few and far between these days.
The ‘contract bible’ that Watt drafted for PHARMAC continues to form the basis of many of its contracts.
“We helped create a document that has been used time and time again to secure significant savings.”
His fond memories of his time at PHARMAC include working alongside a fiercely intelligent group of experts, who knew the importance of the law to their work.
“When you gave legal advice, you knew it was going to be tested, not blindly accepted.”
1998 - 2003
Last updated: 13 September 2018