Court finds health fund guilty of exclusive dealing

A South Australian health insurer was today found guilty of forcing one of its affiliated suburban pharmacies to remain a member of the Chem-mart buying group or risk losing its members patronage.

In a decision handed down today in the Federal Court Adelaide, Mansfield J. found that Health Partners Incorporated had engaged in exclusive dealing conduct in breach of section 47(7)(a) of the Trade Practices Act. The Court held that this conduct was serious and that it was in the public interest that it should be marked with the Courts disapproval.

Pharmacies affiliated with Health Partners offer its members retail discounts and prescription benefits. The Court found that the insurer had cancelled a contract with an Adelaide suburban chemist shop, Goodwood Centre Pharmacy, to service its members for the reason that the pharmacy had, for its own commercial reasons, left the Chem-mart pharmacy chain.

Health Partners had issued a letter box circular to inform its members in the relevant area that Goodwood Centre Pharmacy was no longer an affiliated pharmacy and that another Chem-mart pharmacy, just up the road, was now affiliated with Health Partners.

Findings of fact were also made by the Court and Health Partners was ordered to pay the ACCCs costs. Penalty was not sought by the ACCC.

ACCC Chairman, Professor Allan Fels, said today. Businesses cannot supply or withhold goods or services on the condition that the purchaser will acquire goods or services from a third party. This is known as third line forcing and, in this particular instance, a small business was placed at a disadvantage by a large health insurer merely because it made a commercial decision to stop doing business with a buying group.

It is not for larger businesses to make commercial decisions for small businesses with whom they are dealing. Small businesses are in the best position to judge what is best for their business. In this case a small business was penalised for its business decision despite the fact that membership of the Chem-mart buying group was not essential to the business success.

The success of this action by the ACCC facilitates flow-on litigation for damages by the affected pharmacists.

For further information about this media release: Professor Allan Fels, Chairman, (03) 9290 1812 Alana Woods, Acting Director, Public Relations (02) 6264 2808 (w) MR 178/97 22 December 1997

Background

In 1987 Goodwood Centre Pharmacy entered into an agreement with Health Partners to provide discounts to its members. At no stage did Health Partners inform the pharmacy that its agreement with Goodwood Centre Pharmacy was contingent upon it being a member of the Chem-mart group. However, Health Partners refused to supply its marketing and promotional services to Goodwood Centre Pharmacy when the pharmacy stopped acquiring services from Chem-mart, an alliance of independent pharmacies who pay a fee for using the Chem-mart name, group advertising and the purchase of merchandise at concession rates to enable competitive pricing.

Goodwood Centre Pharmacy ceased to be a Chem-Mart pharmacy in December 1994. Health Partners terminated its agreement with Goodwood Centre Pharmacy from March 1996. A formal complaint was made to the ACCC in March 1996.

After Goodwood Centre Pharmacy solicitors wrote to Health Partners threatening to institute proceedings Health Partners withdrew its notice of termination and advised its members that Goodwood Centre Pharmacy was to continue as an affiliated pharmacy. Health Partners did not acknowledge any wrong doing.