PHARMACEUTICAL COMPANIES AGREED ON MARGINS OF REIMBURSABLE MEDICINES

The Lithuanian competition authority Konkurencijos taryba has found that the Lithuanian Pharmacy Association (LPA) and 8 pharmaceutical companies agreed on the margins of reimbursable medicines. The infringement of the Law on Competition and the Treaty on the Functioning of the European Union resulted in more than EUR 72 million in fines.

Konkurencijos taryba found that in 2017 the Ministry of Health of Lithuania (Ministry) decided to assess the need to change the retail and wholesale margins of pharmaceuticals and thus asked the association to submit proposed margins based on economic calculations.

Assisted by the LPA, pharmaceutical companies coordinated the margins of reimbursable medicines, which were submitted to the Ministry and which were allegedly based on the firms‘ operating costs. Later, the competitors jointly prepared a document of a prototype pharmacy, which was supposed to show that the companies would be able to stay in the market only if the Ministry approved the proposed margins. The document indicated that a pre-tax profit of the prototype pharmacy with the margins provided to the Ministry by the association is equal to "0", while current profit with the existing margins is negative and is even expected to decrease, after changing the procedure for the reimbursement of pharmaceuticals. Business correspondence revealed their intention to emphasise that if the margins remained unchanged, due to the allegedly unprofitable activities of the pharmacies, part of them would be closed.

However, as it was revealed by Konkurencijos taryba, the margins of reimbursable pharmaceuticals coordinated between the competitors were supposed to cover not only the costs incurred by the companies, but also to ensure additional profits. This was also evidenced by the firms’ internal correspondence emphasising that when setting the margins, even 1 cent, which brings EUR 90,000 in revenue per year, is important.

Konkurencijos taryba found that while submitting coordinated margins and their calculations, the LPA and the pharmaceutical companies had a significant influence on the Ministry‘s decisions regarding the margins. The Ministry, which did not have information on the costs incurred by businesses, relied on the margins agreed between the LPA and competitors, and subsequently – having made amendments agreed with the LPA – approved them. Such margins of reimbursable pharmaceuticals approved by the order of the Minister of Health came into force on 1 July 2018 and have remained valid to this day.

Later, the Ministry introduced additional regulation, under which a pharmacy that is willing to compete and reduce the margin, would face a proportionate reduction in the price of a pharmaceutical reimbursed by the Compulsory Health Insurance Fund. Such legal regulation eliminated economic incentives for companies to compete by setting a lower price of pharmaceuticals, and this way the margins in fact became fixed.

Konkurencijos taryba concluded that the competitors‘ agreement on the margins, which were later set by the Ministry, restricted competition between the wholesalers and retailers of reimbursable pharmaceuticals. As a result, the companies influenced the Ministry‘s decisions in setting the margin rates: if the competitors had provided information to the Ministry independently and had not coordinated the margins, these might have been lower.

The mere fact that the prices (or margins) are set by binding legal acts does not mean that companies are not able compete. The Supreme Administrative Court of Lithuania has ruled that companies can compete by submitting independent offers and data on possible prices to the state authority, thereby influencing the prices that it sets. The Court of Justice of the European Union has also stated that a case where several undertakings agree to provide coordinated unobjective information to a public authority, seeking to achieve that it adopts a respective decision, may be considered a competition law infringement.

Having assessed the scope and other circumstances relating to the infringement of the Law on Competition and the Treaty on the Functioning of the European Union, Konkurencijos taryba imposed the following fines: LPA – EUR 7,380, EVD – EUR 2,746,720, Siromed Pharma – EUR 11,210, Eurovaistinė – EUR 27,483,740, EVRC – 1,273,310, Limedika – EUR 7,423,360, Gintarinė vaistinė – EUR 16,701,640, Tamro – EUR 9,267,520, Benu vaistinė Lietuva – EUR 7,722,900.

Konkurencijos taryba decided to propose the Ministry to evaluate whether the established legal framework, which eliminated pharmaceutical companies’ incentives to apply lower margins as compared to those approved by the order of the Minister of Health, is necessary and proportionate and, if not, to amend the established regulation, as well as to set new wholesale and retail margins of reimbursable pharmaceuticals.

Besides, the authority decided to propose that the Government initiates an amendment to the Law on Pharmacy and other legal acts, establishing clear and transparent criteria for determining the margins of reimbursable pharmaceuticals, as well as the mechanism relating to their calculation and the provision of data to decision-making bodies.

The decision of Konkurencijos taryba may be appealed to Vilnius Regional Administrative Court within one month of its notification or publication on the authority's website.