Court hands $560m Lab Tests contract back

Diagnostic Medlab says it wants to go to the Supreme Court to try to overturn a Court of Appeal decision handing the $560 million contract for Auckland community laboratory testing back to competitor Lab Tests.

The Court of Appeal today quashed last year's High Court ruling that the decision of the Auckland Regional District Health Boards to hand the contract to Lab Tests ahead of Diagnostic Medlab Ltd (DML) was invalid.

The presiding judges ruled the conflict of interest of then-Auckland DHB member Tony Bierre was more limited than High Court Justice Raynor Asher saw, and that it did not undermine the process.

Court of Appeal Justices Terence Arnold, Ellen France and Grant Hammond ruled that Lab Tests take up the contract for the remainder of the contractual term, and that Diagnostic Medlab pay $48,000 costs to both Lab Tests and the ARDHBs, plus usual disbursements.

Diagnostic Medlab clinical services director Paul Ockelford said the company was very disappointed and surprised at the Court of Appeal's decision.

"We will be seeking leave to make an appeal to the Supreme Court," he said.

DML thought Justice Asher's view that a high level of accountability applied to DHB decision making was appropriate, Dr Ockelford said.

He also said DML believed Dr Bierre had a high conflict of interest and that wider public consultation was required as the decision to change was an important one.

The Court of Appeal judges said Dr Bierre did not have a conflict of interest from the time he started sitting on the ADHB in December 2004, but rather periods where he had two different conflicts.

They said the conflict when he first started was in regard to his plan to set up a boutique laboratory service, which was quite different to an Auckland-wide service which Lab Tests eventually won, and that that conflict was over once Dr Bierre mothballed the scheme in mid 2005.

Any potential conflict over the Lab Tests plan did not emerge until he decided to put together a consortium to tender in late November or early December 2005, the judges said.

"While Dr Bierre did not immediately arrange to take leave of absence, he did so on December 22. This delay, while undesirable, is not problematic as nothing occurred in the intervening weeks to prejudice the position," the judges said.

They also said there was no evidence that Dr Bierre made any improper use of inside information he gained from being on the Auckland DHB.

Diagnostic Medlab said Dr Bierre gained an advantage over the issues of the wish for open book accounting, the perception Diagnostic Medlab's profits were too high, knowledge over the amount of savings the DHBs wanted, and the desire for radical change.

"We do not agree that the evidence supports the view that DML was misled into tendering on the basis that the ARDHBs were not looking for any significant change to DML's existing system of delivery."

The DHBs said when awarding the contract in 2006 that it would save $15 million a year.

The judges also ruled the obligation to consult the Public Health Organisations in Auckland was not triggered in the circumstances.

Their ruling means that Lab Tests has been handed back the laboratory services contract.

The 2006 decision of the district health boards to take the contract away from long-time providers Diagnostic Medlab provoked bitter opposition by many in the Auckland health sector, with protest rallies staged by health professionals.

Diagnostic Medlab has been running Auckland's community laboratory testing services on an interim basis since last year's decision, a contract due to expire at the end of this year.

Lab Tests, which is owned by Australian company Healthscope, told the court it could be operational in Auckland in six to nine months.

Healthscope managing director Bruce Dixon said Lab Tests would provide a world-class service that would be more responsive, transparent and accountable to Aucklanders.

"We are ready to serve the users of this vital service in Auckland and look forward to entering into the transition arrangements with DML as soon as practicable.

"We have a world-class facility at Mt Wellington and can also draw on the significant resources and expertise of our Southern Community Laboratories staff and operations."

Dr Bierre resigned from Lab Tests about a month after the High Court decision and a spokeswoman for Lab Tests said he now has no involvement with Healthscope New Zealand.

The ARDHBs said the judgment "re-affirmed that the ARDHBs handled all processes appropriately and commercially".

"The interim contractual arrangements with DML anticipated this outcome," it said.

"The current provider will continue until Healthscope takes over and DML agreed to act in good faith and co-operate to ensure a smooth transition."

- NZPA