Part VII of the National Health Act 1953 (Cth) regulates the operation of the Commonwealth Pharmaceutical Benefits Scheme (PBS) by, in part, controlling the number and distribution of pharmacies approved to supply subsidised medicines under that Scheme.
To this end it creates a process for decision making (based on a set of strict pharmacy location rules involving legally defined terms and concepts) about approvals (whether new or relocations) to operate a pharmacy supplying such medicines.
The Australian Community Pharmacy Authority (ACPA) is an independent body established under the National Health Act. Its role in the process is to consider applications for approval and make recommendations to the Secretary of the Department of Health & Ageing (Secretary) about whether or not an application should be approved. The Secretary (who has delegated this function to Medicare Australia) must then decide whether or not to approve an application. The ACPA’s recommendation is critical because, although the Secretary may still refuse an application endorsed by the ACPA, the Secretary may not approve an application that has not been recommended by the ACPA for approval.
Don’t Jump Straight into Bed
The 2010 Federal Court decision of Commonwealth of Australia v Horsfall illustrates the potential disastrous outcomes in prematurely lodging a pharmacy approval application with the ACPA.
Briefly, the Horsfalls applied on 10 July 2008 for approval to supply medicines on the PBS for a new pharmacy in Yackandandah. On 2 September 2008 the ACPA recommended to Medicare that the Horsfall application not be approved because it was not satisfied from information supplied by the Horsfalls that they had a legal right to occupy the proposed premises as at the date of lodgement of the application. As an aside, another requirement of the Horsfalls new pharmacy rule application was that the proposed premises were at least 10 kilometres from the nearest approved premises. This latter requirement was satisfied both at the time of lodgement of the application and at the time of the ACPA’s rejection of the application.
Their original application included a copy letter addressed to them from the landlord’s solicitors dated 7 July 2008 which, in summary, set out the main terms of the lease but also indicated that a formal lease would not be prepared and issued until the Horsfalls confirmed that they were ready to sign the formal document. The ACPA concluded this letter did not evidence that the Horsfalls had a legal right to occupy the proposed premises on the date of lodgement of the application, as the Horsfalls had not provided the necessary confirmation.
Once the Horsfalls had received notification of the ACPA’s rejection of their application, on 23 September 2008 they applied to the AAT for a review of the ACPA’s decision. However, in the meantime, on 22 August 2008, the ACPA had received a new pharmacy approval application from a Ms Carter applying for approval to supply pharmaceutical benefits from proposed premises on the same street in the same town.
On 25 September 2008, the ACPA received a copy of the Horsfalls’ application for review of their decision by the AAT. The next day at its scheduled monthly meeting, the ACPA recommended the Carter application be approved as it met all the relevant statutory criteria.
False Satisfaction
At the AAT hearing, the Horsfalls filed material to show that they had in fact a legal right to occupy the proposed premises. However, before the AAT, the ACPA now argued that the Horsfalls’ application no longer met another legislative requirement, ie. that the proposed premises be at least 10 kilometres from the nearest approved premises, given that the Carter application had been approved in the interim.
The AAT determined that it was not required to take notice of the recommended approval of Ms Carter’s application and that the Horsfalls’ application should be assessed by applying the facts as at the time that the Horsfalls initially made their application. Accordingly, the AAT held that the Horsfalls’ application met the 10 kilometre distance requirement and did in fact satisfy the legal right to occupy premises requirement at the time the Horsfalls provided further supporting material.
An Unfortunate Climax
However, the Horsfalls paid the full price for prematurely lodging their application as the ACPA successfully appealed to the Federal Court of Australia for the decision of the AAT to be set aside. In summary, the Federal Court affirmed the ACPA’s decision on the basis that, as a matter of law, the AAT was required to take into account the fact that Carter’s subsequent application had been recommended for approval at the time the AAT came to review the ACPA’s decision in relation to the Horsfalls’ application. The effect of this was that the Horsfalls’ application should not have been recommended for approval as it now clearly did not comply with the distance requirement.
Appropriate Measures of Protection
The Horsfalls’ case clearly illustrates the potential pitfalls in a pharmacist (whether knowingly or not) prematurely lodging a pharmacy approval application with the ACPA. Hindsight is a wonderful thing but if the Horsfalls had first confirmed their acceptance of the landlord’s lease offer before lodging their original application, the Horsfalls may now be happily operating their new pharmacy business in Yackandandah. Instead, an initial successful appeal to the AAT was followed by an adverse Federal Court decision which left the Horsfalls not only without their new rural pharmacy, but also a Federal Court order to pay the Commonwealth’s legal costs!
With pharmacy approval numbers presently being worth hundreds of thousands of dollars, the Horsfall case illustrates the importance of pharmacists protecting themselves against such unfavourable legal outcomes by seeking at the outset appropriate expert advice to assist with applications under the ACPA pharmacy location rules.
Prepared by
Anthony Cannizzo
Partner
Robert James Lawyers
Level 10, 200 Queen Street
Melbourne 3000
Tel (03) 8628 2000
Fax (03) 8628 2050
Email: Anthony@robertjames.com.au
Website: www.robertjames.com.au