Re Pharmacy Guild of Australia and James Patrick Matthews v JM Riordan; MA Jackson and JR Richardson (Constituting the Pharmaceutical Benefits Remuneration Tribunal and the Commonwealth of Australia [1989] FCA 439 (26 October 1989)

FEDERAL COURT OF AUSTRALIA

Re: THE PHARMACY GUILD OF AUSTRALIA and JAMES PATRICK MATTHEWS
And: J.M. RIORDAN; M.A. JACKSON and J.R. RICHARDSON (constituting
the PHARMACEUTICAL BENEFITS REMUNERATION TRIBUNAL and THE
COMMONWEALTH OF AUSTRALIA
No. V G273 of 1989
FED No. 642
Social Security

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.(1)

CATCHWORDS

Social Security - National health legislation - Pharmaceutical benefits - Determination by the Pharmaceutical Benefits Remuneration Tribunal of the manner in which "the Commonwealth price" is to be ascertained - Relevant considerations.

National Health Act, 1953 - Part VII

Howells v. Nagrad Nominees Pty. Ltd. (1982) 66 FLR 169

Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1985) 7 FCR 341

HEARING

MELBOURNE
26:10:1989

Counsel for the Applicants : Mr. N.H.M. Forsyth Q.C. and

Mr. G.T. Pagone
Solicitors for the Applicants : Cornwall Stodart

Counsel for the last named : Mr. J.D. Merralls Q.C.,
Respondent Mr J.I. Fajgenbaum Q.C. and
Mr. R.M. Downing
Solicitors for the last named : Australian Government Solicitor
Respondent

ORDER

The application be dismissed.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

Application for an order of review in respect of a determination of the Pharmaceutical Benefits Remuneration Tribunal.

2. The Tribunal was established for the purposes of, and by a section within, Part VII of the National Health Act 1953. That Part constitutes a scheme for the provision by the Commonwealth of benefits in respect of the drugs and medicinal preparations in relation to which the Part applies. A drug or medicinal preparation in relation to which the Part applies is called in the Part "a pharmaceutical benefit" (see s.84(1)). The Minister administering the Act is authorized by s.85 to declare what drugs and medicinal preparations are those in relation to which the Part applies. A person is not entitled to receive "a pharmaceutical benefit" unless it is supplied by a member of a class of persons designated in Part VII who is approved for the purpose of supplying pharmaceutical benefits. The largest class is comprised of pharmacists, with whom the Determination under review is concerned. An approved pharmacist may receive in respect of the supply of a pharmaceutical benefit no valuable consideration except a charge to the person supplied of an amount specified in s.87(2) or s.87(2A) and an amount, ascertained in accordance with s.99, which is paid to the approved pharmacist by the Commonwealth. The ascertainment of the latter amount is by reference to an amount called "the Commonwealth price" of the pharmaceutical benefit. It is in the ascertainment of the Commonwealth prices of pharmaceutical benefits that the Tribunal is concerned.

3. Section 98B provides:

"(1) The function of the Tribunal is to
determine the manner in which the Commonwealth
price of all or any pharmaceutical benefits is
to be ascertained for the purpose of payments
to approved pharmacists in respect of the
supply by them of pharmaceutical benefits.
(2) A manner determined under sub-section (1) shall -
(a) in the case of a ready-prepared
pharmaceutical benefit - take as a basis
-
(i) the approved price to pharmacists of the
pharmaceutical benefit concerned; or
(ii) if the pharmaceutical benefit
concerned is a form of a drug or
medicinal preparation to which a
substance has, or substances have,
been added in accordance with a
determination in force under
sub-section 85(3) relating to that
drug or medicinal preparation - the
approved price to pharmacists of that
form of that drug or medicinal preparation,
that was applicable on the first day of the
month of the year in which the supply occurs;
(b) in the case of other pharmaceutical
benefits - take as a basis the basic
wholesale price of each ingredient that
is applicable on the day on which the
supply occurs; and
(c) provide for the addition of such fees and
other amounts as are determined by the Tribunal.
(3) In sub-section (2) -
'approved price to pharmacists' means -
(a) in relation to a pharmaceutical benefit
that is not a special pharmaceutical
benefit or a form of a drug or medicinal
preparation referred to in sub-paragraph
(2)(a)(ii) - the amount that the
manufacturer of the pharmaceutical
benefit and the Minister agree, from time
to time, is to be taken to be, for the
purposes of this Part, the appropriate
maximum price for sales of the pharmaceutical
benefit to approved pharmacists;
(b) in relation to a pharmaceutical benefit
that is a special pharmaceutical benefit,
but is not a form of a drug or medicinal
preparation referred to in sub-paragraph
(2)(a)(ii) - the amount determined, from
time to time, under section 85B to be the
amount that is, for the purposes of this
Part, to be taken to be the manufacturer's
price for sales of the pharmaceutical
benefit to approved pharmacists;
(c) in relation to a pharmaceutical benefit
that is a form of a drug or medicinal
preparation referred to in sub-paragraph
(2)(a)(ii), but is not a special
pharmaceutical benefit - the amount that
the manafacturer of the form of the drug
or medicinal preparation and the Minister
agree, from time to time, is to be taken
to be, for the purposes of this Part, the
appropriate maximum price for sales of
the form of the drug or medicinal
preparation to approved pharmacists; or
(d) in relation to a pharmaceutical benefit
that is a form of a drug or medicinal
preparation referred to in sub-paragraph
(2)(a)(ii) and also a special
pharmaceutical benefit - the amount
determined, from time to time, under
section 85B to be the amount that is, for
the purposes of this Part, to be taken to
be the manufacturer's price for sales of
the form of the drug or medicinal
preparation to approved pharmacists;
'basic wholesale price' in relation to an
ingredient in a pharmaceutical benefit,
means the amount that The Pharmacy Guild
of Australia and the Minister agree from
time to time is to be taken to be, for
the purposes of this Part, the
appropriate price for sales of that
ingredient to approved pharmacists;
'ready-prepared pharmaceutical benefit' means
a drug or medicinal preparation in
respect of which there is in force a
determination under sub-section 85(6).
'special pharmaceutical benefit' means a
pharmaceutical benefit in respect of
which there is in force a determination
under section 85B.
(4) The Tribunal may approve criteria that it
considers to be appropriate for use in
determining the nature or magnitude of fees or
other amounts referred to in paragraph (2)(c),
and may, at any time, vary or revoke such criteria.
(5) In determining fees or other amounts
referred to in paragraph (2)(c) and in
approving criteria under sub-section (4), the
Tribunal shall have regard to any principles
determined, from time to time, by the
Australian Conciliation and Arbitration
Commission as being appropriate for the
fixation of award wages or salaries."

4. The Tribunal is to be constituted, s.98A(2) requires, by a "chairperson", who must be a Deputy President of the Australian Industrial Relations Commission, and two additional members. Section 98BA provides:

"(1) The Tribunal shall, as soon as
practicable after the commencement of this
section, and at such subsequent intervals as
are determined by the chairman, hold an
inquiry to ascertain whether the Commonwealth
price of all or any pharmaceutical benefits
should be varied.
(2) The holding of an inquiry under
sub-section (1) shall be by means of
proceedings before the Tribunal.
(3) A person interested in the subject matter
of an inquiry under sub-section (1) may seek
the leave of the Tribunal to appear, or be
represented, in the proceedings before the
Tribunal for the purpose of making a
submission, or presenting evidence or other
material, to the Tribunal.
(4) The Tribunal shall ensure that its
findings resulting from its second or any
subsequent inquiry, and the reasons for them,
are issued not later than 12 months after the
date on which the Tribunal issued its findings
resulting from its first inquiry or from the
last inquiry held by it, as the case may be."

Sections 98BC, 98BD and 98BE provide:

"98BC(1) Subject to this Part, in any
proceeding before the Tribunal -
(a) the procedure of the Tribunal is within
the discretion of the Tribunal;
(b) the Tribunal is not bound to act in a formal
manner and is not bound by any rules of
evidence but may inform itself of any
matter in such manner as it thinks just; and
(c) the Tribunal shall act according to
equity, good conscience and the
substantial merits of the case, without
regard to technicalities and legal forms.
(2) Subject to sub-section (3), a proceeding
before the Tribunal shall be conducted in public.
(3) If the Tribunal is satisfied, upon the
application of a party to a proceeding before
the Tribunal, that, by reason of the
confidential nature of a submission, or other
evidence or material, submitted to the
Tribunal in the proceeding, or for any other
reason, it is undesirable to conduct the
proceeding or a part of the proceeding in
public, the Tribunal may direct that the
proceeding or the part of the proceeding, as
the case may be, be conducted in private.
(4) A direction by the Tribunal under
sub-section (3) may -
(a) specify persons for the purpose of
permitting them, but no other persons, to
be present when the proceeding, or the
part of the proceeding, concerned is
conducted in private; or
(b) specify persons for the purpose of
prohibiting them from being present when
the proceeding, or the part of the proceeding,
concerned is conducted in private.
(5) Where the Tribunal is constituted by the
chairperson and an additional member or
additional members -
(a) the chairperson shall preside in any
proceeding before the Tribunal; and
(b) all questions to be decided by the
Tribunal shall be decided by a majority
of votes of the members and, for that
purpose, the chairperson has a
deliberative vote and, in the event of an
equality of votes, also has a casting vote."
"98BD(1) After the completion of an inquiry
under section 98BA, the Tribunal shall issue,
in a proceeding conducted in public, a
statement, in writing, of its findings and the
reasons for them.
(2) Where the Tribunal -
(a) determines fees or other amounts referred
to in paragraph 98B(2)(c); or
(b) makes a decision approving criteria under
sub-section 98B(4) or varying or revoking
such criteria,
the Tribunal shall issue, in a proceeding
conducted in public, a statement, in writing,
setting out the terms of that determination or
decision and the reasons for making it.
(3) Where the Tribunal issues a statement under
sub-section (1) or (2), the Tribunal shall -
(a) submit to the Minister a report setting
out the terms of the statement so issued;
and
(b) cause to be published in the Gazette a
notice setting out the terms of the
statement so issued."
"98BE A determination of the Tribunal under
sub-section 98B(1) shall come into operation
on a date specified in the determination, not
being a date earlier than the date on which a
statement setting out the terms of the
determination is issued by the Tribunal in
accordance with section 98BD."

5. The determination in respect of which an order of review is sought was made on 28 August 1989. The principal provision of the determination was that on and after 1 October 1989 the Commonwealth price for a ready-prepared pharmaceutical benefit should be, where a standard pack is available, the sum of the approved price to pharmacists of that standard pack and "a dispensing fee of $4.20 for each supply of benefits made". For almost a decade the Commonwealth price had been the sum of the approved price and one quarter of that price and a further amount called a dispensing fee or professional fee which was varied from time to time. On 1 February 1989 that fee had been determined by the Tribunal to be $2.54. The determination of 28 August 1989 had been preceded by a substantial inquiry designed to afford the Tribunal more satisfactory information as to what costs were incurred by pharmacists in supplying pharmaceutical benefits. No formal approval of the criteria to which reference is made in s.98B(4) has been given by the Tribunal, nor have I been able to learn exactly what costs (other than the price of the materials constituting the pharmaceutical benefit) the Tribunal desired the Commonwealth price to recompense. But the inference may confidently be drawn, from the many statements in writing published by the Tribunal which were in evidence, that the Tribunal intended that there be some relationship between the Commonwealth price and costs incurred in supplying pharmaceutical benefits, and intended by its inquiry to furnish itself with more satisfactory information about such costs than it had thought available to it.

6. It is also an inference that the Court may draw, with the acquiescence of the applicants and the respondent Commonwealth, that the kind of cost to which the Tribunal intended principally to have regard, apart from the price of the pharmaceutical benefit, was an average cost. Having obtained information about the costs of supplying pharmaceutical benefits of a small number of approved pharmacists chosen as a sample of all approved pharmacists, the Tribunal found that their costs (other than the cost of the material constituting the pharmaceutical benefit supplied) varied, both as aggregate sums and, when the aggregate costs of each approved pharmacist in respect of a period was divided by the number of times a supply of a pharmaceutical benefit was made by that pharmacist during that period, as average costs of each such a supply. (That average cost was commonly designated in the material before the Tribunal and in statements by the Tribunal a cost "per prescription", the word "prescription" being understood to signify, in that context, "supply". I shall adopt the same usage.) The aggregate of the costs of all those approved pharmacists for the same period, the year ended 30 June 1987, was divided by the number of those approved pharmacists to yield an average cost for the period. And the information gained from those approved pharmacists yielded also an average cost per prescription over the whole sample. In a written statement by the Tribunal dated 28 August 1989, entitled "Decision" and said in paragraph 1.1 thereof to be the "decision ... in respect of the appropriate data base on which the fees payable by the Commonwealth to pharmacists for the supply of pharmaceutical benefits is to be calculated in the future as a consequence of relevant decisions of the Tribunal", the following observations were made (paragraph 11):

"11. Costs Differentiation
11.1 The Tribunal explicitly recognised in its
Report of 26 April 1989, that it is not
feasible to determine a single cost of
dispensing a prescription for
pharmaceutical drugs on account of the
numerous variables which exist in
pharmacies of different size and
location. Prescriptions are dispensed in
pharmacies large and small, situated in
various locations servicing varying sized
populations, and are open for different
hours of trading, with substantial
differences in the volume of
pharmaceutical drugs supplied. The
Tribunal, since its inception, has been
concerned to ensure that approved
pharmacists have been paid a fair price
by the Commonwealth for the supply of
pharmaceutical drugs under the NHS. It
has never been considered practical to
have a multiplicity of prices which the
Commonwealth would be required to pay
pharmacists for the supply of
pharmaceutical drugs under the NHS in
accordance with the size and location of
the pharmacy."

The amount which the Tribunal decided should become the dispensing fee (not the $4.20 to which reference has been made, but $3.50, to which amount the $4.20 is to be reduced in two steps by 1 November 1990) is declared in the document entitled "Decision" to have been "fixed on the basis of labour and non-labour costs as at 1 August 1989" (para.13.5). The average cost per prescription disclosed by information concerning the costs incurred during the year ended 30 June 1987 by the approved pharmacists to whom I have referred can be inferred to have afforded a basis upon which the reasoning of the Tribunal to its selection of $3.50 proceeded. I do not suggest that it can safely be inferred that the Tribunal supposed that $3.50 was the best estimate it could make of the average cost per prescription as at 1 August 1989 of those particular approved pharmacists, or of all approved pharmacists. But it can in my opinion be inferred, first, that that amount was thought by the Tribunal to be not far from the average cost per prescription, derived principally from the information concerning 1986-1987, of those particular approved pharmacists as at 1 August 1989 (if it be assumed that each of them continued in business to that date without significant change in the conduct or patronage of the business) and, second, that that amount so derived was, according to the best information available to it, thought by the Tribunal to be not very far from the average cost per prescription of all approved pharmacists as at 1 August 1989.

7. Subject to a qualification concerning the allowance of some amount for "profit", the applicants did not in this proceeding contend that the determination could be attacked as an unreasonable decision on the ground that the amount of the dispensing fee was selected as the estimated average cost per prescription incurred by all approved pharmacists. The applicant did not seek to stigmatise as unreasonable a determination which allows in recompense to many of the approved pharmacists for supplying pharmaceutical benefits less than the amount which it had cost him to supply those pharmaceutical benefits. The attack was rather that, first, the information derived from the particular approved pharmacists in respect of 1986-1987 did not afford a means of determining with any semblance of accuracy what the average of all approved pharmacists' costs was in that year, and, second, particular elements of cost which the evidentiary material before the Tribunal disclosed had been omitted from consideration and, third, a consideration of the information afforded by the particular approved pharmacists in respect of the 1986-1987 year and other material before the Tribunal demonstrated that $3.50 was less than the average cost per prescription as at 1 August 1989, whether in respect of the particular approved pharmacists or in respect of all approved pharmacists.

8. It may be convenient to consider first one instance of the complaints subsumed under the second category. Certain pharmaceutical benefits dispensable in particular quantities were in 1988 authorized to be dispensed in quantities double those previously authorized. If prescribing doctors all took the course of doubling in their prescriptions the quantities to be dispensed at one time in accordance with the authority so conferred, the number of separate occasions of supply might be expected to be halved. The estimation of an average cost per prescription (in the sense of supply) on 1 August 1989 was founded upon information concerning the 1986-1987 year. No account was taken by the Tribunal, in making that estimation, of the diminution of the divisor to be expected to be caused by the change in the dispensable quantities, according to the submission of counsel for the applicants. There was a failure to take into account a consideration relevant to the estimation of an average cost per prescription and, that average cost being, according to the submission, the principal determinant of the decision as to the dispensing fee, a failure to take into account a consideration relevant to the exercise of the power of determination.

9. The submission that the Tribunal had failed to take the change in dispensable quantities into account rested on two grounds : that the Tribunal had not mentioned the point in any of the written statements it published at the time of the making of the determination or in the written statement published on 26 April 1989 (Ex.E34) which it incorporated by reference into one of the later statements (to all of which statements I shall refer as the Tribunal's reasons), and that the Tribunal's reasons justified the inference that the Tribunal thought that $3.50 was the average cost per prescription as at 1 August 1989 and the inference that the Tribunal had reasoned to that belief from the average cost per prescription found in respect of the particular approved pharmacists into whose 1986-1987 costs inquiry had been made.

10. As a matter of arithmetic the $3.50 can be seen to be very close to the sum which is produced by making to the average cost per prescription derived from the 1986-1987 information certain adjustments which either particular cost rises between 30 June 1987 and 1 August 1989 logically required or for reasons it gave the Tribunal stated, expressly or impliedly, that it would make. (An example of the latter kind of adjustment is allowance made for a "notional salary" to the approved pharmacist himself (called "the proprietor"). To this allowance reference is made by the Tribunal in paragraphs 14.2 and 15.12 of a report dated 26 April 1989 by the Tribunal (Exhibit E.34) and in paragraphs 1.3 and 3.6 of a statement called "Report" and dated 28 August 1989, both of which reports form part of the Tribunal's reasons for the determination.) To that arithmetical correspondence the applicant added the circumstance that the $3.50 was declared in paragraph 13.5 of the Tribunal's "Decision" to have "been fixed on the basis of labour and non-labour costs as at 1 August 1989", and submitted that it must be inferred that the reference to "labour and non-labour costs as at 1 August 1989" is to what the Tribunal thought to be the average cost per prescription derived from the 1986-1987 figures.

11. Perhaps the submission may be thought to gain strength from the circumstance that an average cost better satisfies some intuitive perception of rightness than an amount which bears no particular arithmetical proportion to the costs of all approved pharmacists or of any one approved pharmacist.

12. Both in its written statement called "Data Base Inquiry-Statement" and in its written statement called "Decision", both dated 28 August 1989 and each forming part of its reasons for the determination, the Tribunal placed prominently among the opening paragraphs the following:

"This decision is (in the Data Base Inquiry
statement 'The decisions reached are') the
result of a considered judgment of the
available material, all of which has been
given appropriate weight and used with due
caution. The result has not been reached by a
series of arithmetical calculations without
regard to the consequences which are likely to
follow. Rather, the final conclusion is the
result of balancing the findings of the
studies and the available material on the cost
of dispensing pharmaceutical drugs under the
National Health Scheme on the one hand and a
proper consideration of the likely effects of
the adoption of these findings on the
operation of the current pharmaceutical
benefits scheme on the other.
As a result of all of this consideration and
the adoption of a balanced approach a new data
base has been determined which is to be
implemented over time."

13. In the statement called "Decision" the Tribunal narrated the history of its performance of its functions from 1980 until the determination it had made in February 1989, its resolve to seek fresh information concerning the dispensing costs of approved pharmacists and the measures taken to obtain that information, the most substantial of which was inquiry of the particular approved pharmacists whose 1986-1987 costs were stated by them at the Tribunal's request. After discussion of that inquiry the Tribunal stated (para.9.4):

"Whilst there was widespread criticism of the
results, no party has established that they
are invalid or that they are so unreliable
that their use would be unfair or unjust in
the determination of a proper data base. The
Tribunal has a statutory duty which must be
performed and it proposes to discharge that
duty by using the best information and
evidence before it after having given all
concerned the opportunity to test it and make
submissions in relation thereto."

After discussing problems of allocating costs between dispensing costs and other costs of approved pharmacists and after making the observations already quoted from paragraph 11, the Tribunal continued:

"12. Impact on Industry Structure
12.1 Some smaller less efficient pharmacies,
other than those which may be
classified as essential pharmacies, may
be significantly disadvantaged by the
determination which is made as a
consequence of this decision. In all
of the material and evidence produced,
there is no justification to be found
for the payment of a subsidy to those
pharmacies whose existence, whilst
perhaps providing a useful service to
the public are not essential for the
functioning of the PBS. There is,
therefore, no justification for such
pharmacies to be given any special
payment in addition to the amount which
is otherwise justified as a proper
recompense for the service provided in
dispensing pharmaceutical drugs
prescribed by medical practitioners
under the NHS.
12.2 The Tribunal is aware that the
regulation of pharmacies, the
restrictions which exist in respect of
their ownership, the qualifications
required of proprietors and other
related matters are contained in
statutes of the several States.
12.3 Section 90 of the Act as amended
provides for pharmacists to be approved
'for the purpose of supplying
pharmaceutical benefits' under the NHS.
A pharmacist 'who is willing to supply
pharmaceutical benefits on demand at
particular premises' is entitled to
apply for approval.
12.4 The Tribunal has not been advised,
however, of any tests or criteria which
have been used to encourage an
efficient number of pharmacies. There
is a prohibition in Section 90(4) of
the Act against approving a pharmacist
to supply pharmaceutical drugs from
premises where the pharmacist concerned
is not permitted by a law of a State or
Territory to carry on business. This
provision is, of course, not related to
the question of determining the number
of pharmacies required to provide an
efficient service.
12.5 During the proceedings concerned with
the various stages of the Data Base
Inquiry there was some debate and
certain very limited material was
presented about the number of pharmacy
outlets supplying pharmaceutical drugs
to the public. The information
available to the Tribunal, as a result
of the Data Base Inquiry, suggests that
there are very many pharmacies which
are situated in relatively close
proximity to each other. The
Deloitte's study showed that 25 percent
of pharmacies had a competitor situated
within 100 metres and 62 percent had a
competitor within 1 Kilometre.
12.6 Of course, it is to be kept in mind
that two pharmacies may be in
relatively close proximity but be very
effectively separated by a substantial
barrier to easy access. Such a barrier
to easy access might include a busy
highway, a railway line with no
convenient means of crossing, a river or
some other natural barrier. These, however,
should be seen as exceptional cases.
12.7 The Tribunal does not possess authority
to make a determination designed to
achieve a restructure of pharmacy
outlets and has not given any
consideration to it. The level of
efficiency of pharmacies is, however,
an important factor in the cost of
supplying pharmaceutical benefits
pursuant to the requirements of the
NHS. The evidence available as a
result of the studies undertaken as
part of the Data Base Inquiry illustrates
the effect higher prescription volumes
have on the cost of the supply of
pharmaceutical drugs prescribed.
12.8 Undoubtedly, the fee level which will
flow from a Determination following the
Inquiry and this decision could have
some effect on the structure of the
pharmacy industry. Such a market
restructure would be unplanned and
could result in an unacceptable
diminution of the service available to
the community. On the other hand, it
could contribute to a significant
reduction in costs for the supply of
pharmaceutical drugs.
12.9 The structure of pharmacies,
particularly their size and location,
is a matter which should be considered
by an appropriately designed inquiry
and we recommend that this be undertaken.
13. Fee Determined
13.1 Section 98BC of the Act requires the
Tribunal to 'act according to equity,
good conscience and the substantial
merits of the case, without regard to
technicalities and legal form'.
13.2 In all of the various stages of this
Inquiry, over more than two years that
it has taken to complete, the Tribunal
has ensured that each of the principal
parties has been kept informed of each
step taken and has been given access to
each of the reports as they have become
available. Their comments and submissions
have been received and considered. Public
hearings have been held in order to hear
submissions from interested persons.
13.3 In order to ensure clarity and to
reduce the potential for further
misunderstanding about the elements of
the total dispensing fee paid to
pharmacists under the PBS, the Tribunal
has decided that the manner in which
the commonwealth price of
pharmaceutical benefits is to be
ascertained will be restructured.
13.4 There will be two principal elements in
the PBS prescription fee. The first
will relate to labour costs and the
second will relate to non labour costs.
There will no longer be any element related
to a mark-up on the cost of goods sold.
13.5 The basis for future fixation of fees will
be an amount of $3.50 for each RP item
supplied under the NHS. This new fee level
has been fixed on the basis of labour and
non labour costs as at 1 August 1989.
13.6 The Tribunal has not determined this
level of fee as a result of a simple
arithmetical exercise but has made a
judgement based on the evidence in its
totality and after having regard to all
of the submissions which were made by
each of the principal parties, the
various associations and bodies and the
very many individuals who responded to
the advertisements published in the
major daily newspapers circulating in
each of the States.
13.7 The total fee will be constituted by
the two elements stated earlier and
will be separately adjusted on a
regular basis in accordance with
criteria laid down in this decision.
In accordance with the statutory
provisions there will also be an annual
review with a public hearing for the
purpose of generally reviewing the fees
to ensure they remain a fair and
reasonable reward and to hear any
submissions and/or to review any
material submitted by a party,
organisation or interested person
relating to any suggested inequities or
other relevant consideration.
Additional reviews to consider any
special circumstances will be
considered as appropriate.
13.8 The first element in the new base fee
will be an amount of $2.45 which is to
cover the cost of labour in supplying
an item covered by the NHS. This
amount contains a factor for each of
the various labour costs involved
including a notional salary and
on-costs for proprietors, and salary
and on-costs for pharmacists' employed
and non-professional employees. It
also includes the cost of providing
superannuation, public holidays, annual
leave, sick leave, long service leave
and workers' compensation insurance.
This element is to be adjusted on
account of movements in award wages in
accordance with principles laid down
from time to time by the Australian
Industrial Relations Commission. It
will not be adjusted, however, for wage
increases or other improved benefits
which are granted by an industrial
tribunal on the basis that they
represent no significant addition to
net cost on account of offsets or
improved productivity. The adjustment
shall, as far as practicable, be
operative from the date on which the
awards covering the employees of
pharmacies become operative.
13.9 In the event that a relevant industrial
tribunal varies an award covering a
class of employees employed by
pharmacists by an amount which exceeds
the general adjustment made by the
Australian Industrial Relations
Commission, application to vary the fee
to compensate for the higher cost will
be considered by the Tribunal at a
public hearing called for the purpose.
13.10 The second element in the new fee will
be concerned with non labour costs and
has been fixed at $1.05 per item
dispensed. This figure is to be
adjusted each half year in accordance
with movements in the CPI. The rate as
adjusted shall be payable, as far as
practicable, with effect on and from 1
May and 1 November each year.
13.11 The new base rate determined herein
will result in a reduction in
pharmacists remuneration. The new rate
represents the maximum amount which is
justified as a matter of equity and
fairness having regard to all of the
available evidence.
13.12 The Tribunal has estimated the average
remuneration per prescription at the
present time to be $4.55. The result
of this decision is a reduction in the
fee of $1.05 per RP item supplied to a
new level of $3.50 per RP item supplied
under the NHS.
13.13 Because it represents a significant
reduction in pharmacists remuneration,
it has been decided that it should be
phased in by making three adjustments
each equal to 35 cents per RP item; the
first effective on and from 1 October
1989, a second reduction of 35 cents
effective on and from 1 May 1990 and
the third reduction of 35 cents
effective on and from 1 November 1990.
Adjustments due on account of movements
in award wages and the CPI during 1990
will be offset against these reductions.
13.14 The Tribunal is satisfied that this new
structure will be more efficient in
ensuring that the level of fees is kept
up to date and will ensure fairer
remuneration for pharmacists in respect
of their functions and responsibilities
in supplying pharmaceuticals under the NHS."

"RP" in the foregoing passage means "ready prepared", and "Deloitte's study" is a reference to the collection and analysis of the 1986-1987 costs to which reference has been made.

14. What has been quoted is but a small fraction of all the Tribunal's reasons for its determination. I have been unable to find in those reasons any indication of the values which formed the Tribunal's judgment as to what "equity" or "fairness", named in paragraph 13.11 of the passage last quoted, required. Nor have I been able to find any clear indication of the kind of "effects" to which reference is intended in the penultimate sentence of the identical passages quoted from the "Data Base Inquiry-Statement" and from the "Decision". I am unable to accept the submission that it may be concluded that the Tribunal thought that $3.50 was the average cost per prescription as at 1st August 1989, although I think it safe to infer, as I have previously observed, that the Tribunal thought $3.50 to be not very far from that average cost. But it does seem that the Tribunal did not fix upon $3.50 because the Tribunal thought that amount to be close to the average cost per prescription, but rather because the balancing of a number of considerations brought the Tribunal to a conviction of the rightness of that amount.

15. The other ground of the submission that the Tribunal had failed to take the change in authorized dispensable quantities into account in reasoning to its conclusion that $3.50 should be the dispensing fee in respect of the supply of pharmaceutical benefits - that the Tribunal had not mentioned the point in its reasons for the determination - was disputed by counsel for the Commonwealth by reference to the reasons the Tribunal gave in January 1989 for a determination it then made. At that time the Tribunal was engaged in the inquiry which concluded in August 1989 and resulted in the determination under present review. The Tribunal had at that time entered upon a careful examination of the information concerning the 1986-1987 costs. In the reasons published in January 1989 the Tribunal noted the change in authorized dispensable quantities in terms which indicated recognition that the change might have a substantial effect on dispensing costs, but determined that an addition to the dispensing fee which it had granted as from 1 August 1988 in compensation for the possible effect of the increase in dispensable quantities should be deleted from the dispensing fee as from 1 February 1989. It was in those circumstances highly improbable, counsel for the Commonwealth submitted, that the Tribunal had overlooked the possible significance of the change in dispensable quantities in relation to the use of 1986-1987 costs in its reasonsing.

16. Counsel for the Commonwealth also pointed out that no attempt had been made to establish that the material before the Tribunal suggested that the change in dispensable quantities would have had an appreciable influence on the average cost per prescription. The material before the Tribunal disclosed many circumstances by reason of which that amount might vary, but the reasons of the Tribunal condescended to mention relatively few of them, so that an inference of inadvertence to this particular circumstance is not in my opinion justified by the omission of reference to it. I am unable, for the reasons given, to base upon the arithmetical correspondence between the $3.50 and the adjusted average cost per prescription derived from the 1986-1987 costs a conclusion that the Tribunal thought $3.50 the average cost per prescription as at 1 August 1989 and for that reason specified $3.50 as the dispensing fee. And I am unable to conclude, upon a consideration of the Tribunal's reasons, that the omission of reference to the change in dispensable quantities justifies the conclusion that there was a failure to take that change into account.

17. It was submitted that the Tribunal had failed, when specifying as a component of the Commonwealth price of a ready-prepared pharmaceutical benefit the approved price to pharmacists of that pharmaceutical benefit, to appreciate that surcharges on the approved price sometimes added by sellers to pharmacists exceeded in the aggregate discounts from the approved price sometimes allowed to pharmacists for reasons other than prompt payment. This topic became the subject of further consideration by the Tribunal, at the request of interested persons, after August 1989. An attempt has been made to bring some of that surcharging to an end by agreement, between sellers and the Minister administering Part VII, concerning the sellers' terms of trade, in relation to any pharmaceutical benefit the approved price of which for what was described by the Tribunal as "the Commonwealth maximum quantity" was not less that $45. That attempt has the approval of the Tribunal, which made it clear that it did not intend that an approved pharmacist should receive less than he or she had to pay for pharmaceutical benefits and that it would give further consideration to the matter if the attempt failed. The Tribunal indicated that it had acted on its understanding of what the applicants and the Commonwealth had represented the situation concerning surcharges and discounts to have been before the determination was made. It is unnecessary to decide whether the Tribunal's understanding was mistaken. I would not, as a matter of discretion, make an order of review in respect of the determination on a ground related to this subject, because I accept the Tribunal's statement that it would, if necessary, give the matter further consideration.

18. It was submitted that the Tribunal had failed to take into account the circumstance that, in the process of dealing with ready-prepared pharmaceutical benefits for the purpose of supplying them under the scheme ordained by Part VII, approved pharmacists would lose the use of some of them by breakage, obsolescence and other casualties.

19. That loss of that kind is likely to occur may be thought to be within the scope of judicial notice. But not the likely magnitude of such a loss. Counsel for the applicants did not direct me to evidence by reference to which an estimate of the magnitude of loss could be formed. Further, the Tribunal's determination includes detailed provisions for the adjustment of the Commonwealth price of pharmaceutical benefits other than ready-prepared pharmaceutical benefits to compensate for wastage in the course of dispensing. In all the circumstances I would not be justified in inferring that losses in respect of ready-prepared pharmaceutical benefits caused by breakage, obsolescence and other casualties were overlooked by the Tribunal.

20. It was submitted that the Tribunal's decision was an unreasonable exercise of the power conferred on it in that the decision produced the result that an approved pharmacist whose cost per prescription was at or above the average, as disclosed by the information in respect of the 1986-1987 year, would after the determination came into effect make no profit, but rather would be suffering a substantial loss, in respect of his supply of pharmaceutical benefits under the scheme ordained by Part VII. Unreasonable also, it was submitted, was the Tribunal's conception of what should be regarded as profit.

21. Counsel for the applicants answered the question why the Tribunal should be concerned to assure a profit for what might be called the average approved pharmacist (that is, he whose cost per prescription was at or about the average) by saying that the legislative scheme contemplates the continuance in business of approved pharmacists, who, or most of whom, are essential participants in the scheme; that continuance in business activity is assured only by profit, however small; that, although the legislation cannot be said to evince an intention that every pharmacist presently engaged in the business activity of supplying pharmaceutical benefits should persevere in the activity, what can be discerned as a legislative intention is that what counsel called "the composite class" of approved pharmacists receive a profit; and that to provide for a profit to the average approved pharmacist is to provide a profit to that class, in a sense which satisfies the legislative design.

22. It was submitted that the reasoning of Smithers J. in Howells v. Nagrad Nominees Pty. Ltd. (1982) 66 FLR 169 and in Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1985) 7 FCR 341 and the reasoning of Sheppard J. in the latter case provided support for counsel for the applicants' submissions about profit. But each of those cases was concerned with the review of a decision about the permitted unit charge by the proprietor of a single business enterprise, a nursing home business in which only one kind of charge is made. This case is concerned with the review of a decision about three or four classes of unit charge permitted to be made by more than 5,000 business proprietors in the course of their conducting businesses in which scores, perhaps hundreds, of other classes of unit charge are regularly made. The legislation in the nursing home cases was held to contemplate that the provision of nursing home care should be, in part, by persons carrying on business on their own account, and therefore seeking profit. Part VII of the National Health Act 1953 also contemplates that the distribution of pharmaceutical benefits to patients should be, in large part, by persons carrying on business on their own account, and therefore seeking profit. But the conclusion drawn in the nursing home cases that in the fixing of the unit charge regard should be had to profit so that nursing home accommodation be not diminished by withdrawal of the profit seeker from a profitless activity is not in my opinion applicable to this case in the way suggested by counsel for the applicants. First, withdrawal from the profitless activity of supplying pharmaceutical benefits to the community is not necessarily harmful, as diminution of nursing home accommodation may be thought to be necessarily harmful, to the public welfare. If one of two approved pharmacists whose premises are 100 metres apart withdraws from the scheme ordained by Part VII, that may not be demonstrably harmful to the community's welfare. Second, loss in the conduct of part of a business may not induce withdrawal from the conduct of that part, particularly if the conduct of that part of the business attracts custom to the business. Third, if regard to profit is required in order to prevent withdrawal of pharmacists from the statutorily regulated activity, regard should be had, one would think, to the profit of all who carry on the activity, or at least to the profit of all whose participation in the activity is thought to serve the community's welfare, and not to the profit only of those whose unit cost is at or below the average unit cost. Concern with profit was not said in those cases to which counsel for the applicants referred to be required in order to satisfy a legislative intention to advance or to protect the economic interests of those involved in providing the statutorily regulated activity. Profit was to be regarded so that thereby the provision of adequate nursing home care by private enterprise should be assured. If the reasoning in those cases has an application to this case, it is that, if and when the provision under Part VII of an adequate system of distribution of pharmaceutical benefits at a statutorily ordained charge to patients can be assured only by allowing some or all approved pharmacists a profit on their participation in the scheme ordained by that Part, then at that time regard to profit must be had in the exercise of the power conferred by s.98B. But it was not submitted that that time had been shown to have come, except in respect of a certain class of approved pharmacists, for the manner of determining whose Commonwealth prices special provision was made in the determination. That special provision was not the subject of attack in the proceeding. In my opinion Part VII discloses no further legislative intention concerning profit than that. It was in my opinion within the discretion of the Tribunal whether to seek to ensure that a profit to some or to all approved pharmacists resulted from their participation in the scheme ordained by Part VII. It was submitted that the language of s.98B(2)(c) - particularly the separate mention of "fees" and "other amounts" - manifested an intention that provision should be made for profit. The submission was said to be strengthened by regard to the history of the legislation and of the manner in which approved pharmacists' remuneration had in the past been calculated. I find no indication in s.98B(2)(c) of such a legislative intention. The language of that paragraph is, I think, apt to confer a wide discretion on the Tribunal to take into account in the performance of its function whatever considerations it deems appropriate, free of any legislative guidance.

23. Submission was made that the Tribunal had erred in failing to regard profit as including a monetary recompense for the exercise by the proprietor of a pharmacy business of those faculties by which guidance in the conduct of the business and inspiration to servants is given. The expression "proprietorial lead" was applied in description of the exercise of those faculties. Conflicting submissions were advanced by the parties as to what "profit" comprehended, in the discourse of accountancy and in the discourse of economics. Having regard to my conclusion that the Tribunal was not constrained to seek to accord a profit to approved pharmacists, it is unnecessary to express an opinion on these submissions.

24. It was submitted that the information concerning certain approved pharmacists' costs of the 1986-1987 year gave so untrustworthy a means of estimating the average costs of all approved pharmacists in that year, and of estimating the costs of any particular class of approved pharmacists in that year, that the Tribunal's reliance on the information in fixing what it called in para. 13.5 of its "Decision" a "new fee level .... on the basis of labour and non labour costs as at 1 August 1989" was unreasonable in the sense of s.5(2)(g) of the Administrative Decisions (Judicial Review) Act 1977.

25. The reliability of the information as a means of making such estimations was the subject of much evidence and argument before the Tribunal. No doubt constrained by their desire to limit the duration of the hearing of this application, counsel for the parties referred me only to part of that material. The defects of the information, most of which was derived from 53 approved pharmacists, as a source for estimation of the costs of more than 5,000 approved pharmacists, were extensively canvassed before the Tribunal. In its "Decision" the Tribunal observed of the information (to which reference is therein made as "the data"):

"9. Quality of the Data Available
9.1 It is as a result of the situation
described above that the quality of the
data available is poorer than the
Tribunal sought.
9.2 For its part, the Guild has claimed that
the results are 'invalid' and, therefore,
cannot be used to assess a fair and
proper data base. No material or
evidence has been advanced which
establishes that the results are invalid.
The low response rate raises questions of
statistical bias but every effort has
been made to test the results to
ascertain if they are so unreliable as to
be inappropriate for determining an
appropriate data base. These tests were
carried out by the ABS and the consultants
and subsequently published for comment.
9.3 On all of the evidence and material
presented to the Tribunal there is no
justification to conclude that the
results of the survey are invalid. The
question of the reliability of the
results is another matter and it is for
this reason that the various steps were
taken to test their reliability and to
check their alleged invalidity. The
survey results have not been shown to be
invalid, as a result of the further
investigation carried out by the Tribunal.
9.4 Whilst there was widespread criticism of
the results, no party has established
that they are invalid or that they are so
unreliable that their use would be unfair
or unjust in the determination of a
proper data base. The Tribunal has a
statutory duty which must be performed
and it proposes to discharge that duty by
using the best information and evidence
before it after having given all
concerned the opportunity to test it and
make submissions in relation thereto."

26. It was submitted that there was unreasonableness in finding in the circumstance that "the results" were not shown to be "invalid" a reason for relying on those results in reasoning to the decision which found expression in the determination. Reliance should, it was submitted, have waited upon affirmative persuasion that "the results" were not "invalid".

27. I am uncertain what is meant by the expression "the results", and uncertain what the distinction is which is intended between "invalid" and "unreliable". But I consider that unreasonableness in making what use it thought it could of the information it had gathered, rather than seeking further and better information before making a determination under s.98B, was not demonstrated.

28. A consideration of Part VII and of the habitual practices in the community with respect to the procurement by patients not residing in institutional accommodation of prescribed medicines may be thought to justify the conclusions that the power conferred by s.98B must be so exercised that approved pharmacists do not have to pay anything out of their own resources for getting pharmaceutical benefits into their shops, where the supply to the patient is to be made, and must be so exercised that approved pharmacists receive in addition to what may reimburse the expense of getting the pharmaceutical benefits into the shop some monetary consideration for the trouble and expense that supplying pharmaceutical benefits causes them, and must be so exercised that that monetary consideration is sufficient to induce to continue as approved pharmacists within Part VII such a number of pharmacists, and pharmacists whose shops are so situated, as will preserve those habitual practices from gross alteration. Within those constraints, and the constraints which paragraphs 98B(2)(a) and 98B(2)(b) and sub-section 98B(5) impose, the exercise of the power may in my opinion lawfully be guided by such considerations of moral and political and economic philosophy as commend themselves to the Tribunal and as are not beyond the limits of what in this community is considered rationally defensible. I have been able to gain no real understanding of the considerations which guided the exercise of the power on this occasion. A request "for detailed reasons for the Determination" was made by the applicant's solicitors by a letter dated 19 September 1989. The Tribunal declined to add to the several written statements it had published in explanation of the determination and expressed the view that s.13 of the Administrative Decisions (Judicial Review) Act 1977 "has no application" to its determinations. The applicants and the Commonwealth sought to bring the application for an order of review to prompt hearing. Perhaps for that reason, no further attempt was made to elicit a further statement of the Tribunal's reasons for its decision. There was no appearance in the proceeding on behalf of any of the respondents other than the Commonwealth. Although it has been authoritatively declared (The Queen v. Australian Broadcasting Tribunal; Ex parte Hardiman [1980] HCA 13; (1980) 144 CLR 13 at 35-36) that it is not desirable that an administrative tribunal should present a substantive argument in proceedings in the High Court for review of one of its own decisions, and the observation may be thought applicable to such proceedings in other courts, there is in my opinion no reason why the members of such a tribunal may not by their counsel provide a court in such a proceeding with information as to the reasons for the tribunal's decision, if the other parties consent to that course. It was not a ground of the applicants' attack on the decision under review in this case that reasons for the decision did not exist or were not discoverable. On the contrary, the applicant's attack was premised on the assertion that the amount fixed as the dispensing fee was selected by the Tribunal because it represented in the Tribunal's judgment the average cost per prescription as at 1 August 1989, and on the concession that, provided some appropriate amount were added to yield what was designated profit, the average cost per prescription plus an amount which would reimburse the expense of getting the pharmaceutical benefit into the shop might lawfully be determined to be the Commonwealth price. No occasion has arisen for the Court to question the correctness of the concession, because counsel for the Commonwealth was not concerned to dispute it. On the material presented to it the Court has not found the assertion to be justified.

29. The application will be dismissed.