Key Points
- The purpose of the Pharmacy Location Rules is to reduce the cost to the Commonwealth of administering the Pharmaceutical Benefits Scheme, not to protect individual pharmacies’ geographic markets.
- Informal, temporary “deactivation” of approvals to dispense pharmaceutical benefits is within the discretion of the Department of Human Services. Deactivation can be a useful alternative to cancellation for pharmacists who wish to cease carrying on business for a period of time, e.g. pending completion of a sale of the pharmacy, relocation of the pharmacy to new premises, or due to reasons beyond the pharmacist’s control.
- Where a pharmacist applies for approval of a new premises after relocating from an existing premises, the correct time to apply the Pharmacy Location Rules is at the time the approval decision for the new premises is being made, not the time that the approval for the existing premises was granted.
Who
Mr Lin, a pharmacist who relocated his pharmacy a short distance after the shopping centre in which his existing premises was situated was marked for demolition. Mr Lin applied for deactivation of his approval to dispense pharmaceutical benefits from the existing premises, and subsequently applied for approval to dispense from a new premises less than 1km away.
Mr Assarapin and Ms Belegrinos, two pharmacists who operated a pharmacy situated about 210m away from Mr Lin’s new premises. Mr Assarapin and Ms Belegrinos applied to the Federal Court for judicial review of the decision to grant Mr Lin approval for the new premises.
Mr Lin’s existing premises
In May 2008, Mr Lin obtained approval1 from the Secretary of the Department of Health & Ageing (Secretary) to supply pharmaceutical benefits from a retail premises in Westfield Miranda in New South Wales (existing premises).
In August 2012, the landlord of the retail premises gave notice to terminate the lease to Mr Lin as the entire shopping centre was being demolished.
The temporary “deactivation” of Mr Lin’s approval
Mr Lin ceased carrying on business as a pharmacist at the existing premises on 14 April 2013. Under section 98 of the Act, if an approved pharmacist ceases carrying on business, the Secretary has the discretion to cancel their approval. In practice, however, the discretion is often used by the Secretary to assist pharmacists in various situations, in what is known administratively within the Department as “deactivation”.
Deactivation is the term used to describe the informal process whereby the Secretary decides not to cancel an approval under section 98, notwithstanding that the trigger for such a cancellation (ie that the pharmacist has ceased to carry on business at the premises) has occurred.
The Secretary deactivated Mr Lin’s existing approval for a period of six months (Mr Lin having already made an application for approval for the new premises) because he was unable to continue to carry on business at the existing premises for reasons beyond his control, ie the demolition of the shopping centre.
Westfield Miranda was demolished in May 2013.
Mr Lin applies for approval for the new premises
On 15 April 2013, Mr Lin commenced operating a pharmacy business at 589 Kingsway, Miranda (new premises).
Before approval can be granted by the Secretary, the application must first be referred to the Australian Community Pharmacy Authority (ACPA) for consideration.2 Approval cannot be granted unless ACPA first recommends to the Secretary that the application be approved.3
In making its recommendation, ACPA is bound by certain rules set down by the Minister under section 99L of the Act4 (Rules). Different parts of the Rules apply depending on whether or not the application involves cancellation of an existing approval.5 As Mr Lin’s existing approval had simply been deactivated (but not yet cancelled), his application for approval for the new premises was an application involving the cancellation of existing approval, with the effect that different, more lenient Rules applied.
Relevantly, item 124 of the Rules6 provided:
ACPA must recommend that an applicant be approved under section 90 of the Act in relation to particular premises if:…
- The proposed premises are no more than 1km, in a straight line, from the existing premises; and
- Either:
- the existing premises are not in a facility; or
- the existing premises are in a facility and the proposed premises are at least 500m, in a straight line, from all approved premises not located in the facility.
“Facility” is defined in the Rules to mean:
- (a) a small shopping centre; or
- (b) a large shopping centre; or
- (c) a large medical centre; or
- (d) a large private hospital.
ACPA recommends that the application be approved
ACPA recommended to the Secretary that Mr Lin’s application be approved.
In reaching this decision, ACPA said that the Rules were satisfied because Mr Lin’s existing premises “have been demolished and are unavailable for occupation” and are therefore no longer part of Westfield Miranda. According to ACPA, this meant that the existing premises are not “in a facility”.
The Secretary granted approval to Mr Lin in respect of the new premises on 9 September 2013.
Competing pharmacists apply for judicial review of the decision
Mr Assarapin and Ms Belegrinos applied to the Federal Court for judicial review of both ACPA’s recommendation and the Secretary’s decision to grant Mr Lin approval.7
On appeal,8 the Full Federal Court found that ACPA correctly applied the Rules to Mr Lin’s existing premises at the time it made its recommendation. In the Court’s opinion, ACPA was therefore right to say that the existing premises were “not in a facility”, because the shopping centre no longer existed.
The purpose of the proximity restrictions is not to prevent competition between pharmacies
The Rules provide for a number of restrictions on how physical close pharmacies can be to one another.9
In considering the appeal, the Court considered the objective of the Rules, namely to reduce the number of existing pharmacies and regulate the approval of new pharmacies so as to reduce the cost of dispensing prescriptions by increasing the average output per pharmacy, with consequential savings for the Commonwealth. The proximity restrictions were not designed to minimise completion among pharmacies or protect geographic markets.
1 Approval was granted by the Secretary under section 90 of the National Health Act 1953 (Cth) (Act). 2 Section 90(3A) of the Act. 3 Section 90(3B) of the Act. However, the Secretary can still reject the application in its own right—ACPA’s recommendation is necessary but insufficient. 4 National Health (Australian Community Pharmacy Authority Rules) Determination 2011, commonly known as the Pharmacy Location Rules. 5 Part 1 of Schedule 1 of the Rules applies to applications involving cancellation of an existing approval; Part 2 of Schedule 1 applies to applications not involving cancellation of an existing approval. 6 Item 124 of the Rules applies to ‘short distance relocations’ of 1km or less. 7 Assarapin v Australian Community Pharmacy Authority [2015] FCA 268. 8 Assarapin v Australian Community Pharmacy Authority [2016] FCAFC 9. 9 See Schedule 1 of the Rules.
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