Ryall under pressure to step in on lab testing

Health Minister Tony Ryall is coming under increasing pressure to change the way the state finances community laboratory testing, because of the risks and economic costs of the huge change soon to hit Auckland.

Diagnostic Medlab (DML), the Australian-owned company about to lose its $72 million-a-year public Auckland contract, says the risks of its replacement by another Australian-owned company are unjustified and Mr Ryall should intervene.

The Royal College of Pathologists of Australasia also wants a new funding model, but is not taking sides in the Auckland dispute.

Mr Ryall said on Wednesday he could not intervene because the Court of Appeal had directed the contract be taken up by Labtests Auckland, and yesterday he refused to be drawn into the transtasman corporate struggle.

Auckland's three district health boards triggered the fight in 2006 by awarding their monopoly community laboratory contract to Labtests, leading to protracted legal action after DML sought a High Court review.

Labtests is now preparing to take over the contract - set at $66.9 million for the first year - on September 7.

DML lawyer Adam Ross said Mr Ryall was permitted to intervene by health and Crown entities legislation.

"He can't issue a direction saying the contract with Labtests is no longer valid, goodbye.

"He can issue a direction on policy.

"It's entirely within his power to direct the Auckland region DHBs to say that that model of contracting is against Government policy because the transition risks and economic costs of doing that are not justified."

Mr Ross said DHBs routinely included clauses in supplier contracts - and had done so in the Labtests contract - that permitted them to change a contract to accommodate a ministerial direction.

He cited Canterbury as a good model. There, laboratories owned by companies related to DML and Labtests competed on the quality of their work in a system with a capped total budget.

Mr Ryall refused to be interviewed on the matter yesterday.

"The minister is not going to be drawn into an argument with one of the big Australian companies involved in this matter," his spokeswoman said.

"The Court of Appeal has directed that the Labtests contract be put in place, which is the responsibility of the DHBs who signed the contract.

"They have reassured the minister they can manage the transition safely for the people of Auckland."

The College of Pathologists said it would ask Mr Ryall to halt the tendering of laboratory contracts because the practice had destabilised a sector already suffering from a shortage of pathologists. The instability was likely to drive more overseas where they were in high demand.

DHBs, introduced in 2001, ushered in competitive tendering for community laboratory services, which were previously funded nationally through a price list for tests. Pressure to change came from the rising cost of a service whose volume of tests was not capped.