On June 22, 2022, the Spanish Competition Authority (“CNMC”) published a study about the wholesale distribution market for medicines in Spain (the “Study”). In particular, the CNMC addresses a number of barriers of entry to the market due to applicable national legislation and provides some recommendations to the legislative and executive powers aiming to ensure effective competition

1. Context and background

In the European Union and its Member States, the principle of prevention is one of the cornerstones of the health sector, particularly regarding pharmaceutical products. It is one of the main reasons why this sector is highly regulated. However, the CNMC evaluates whether there are certain rules that may undermine competition and lead to market failures, which could have a negative effect on public health.

The Study’s focus is to assess to what extent the measures implemented in recent years inhibit or foster effective competition within the market of prescribed medicines for human use and distributed through pharmacies. The Study therefore excludes both medicines not subject to medical prescription and medical devices.

This Study also confirms the CNMC’s particular attention to the competitive situation of the pharmaceutical sector, since in 2015 it issued a similar study regarding Spain’s retail distribution market for medicines. In that Study, the CNMC recommended to permit the sale of medicines without prescription online and in other establishments rather than pharmacies.

2. CNMC’s main conclusions and recommendations

In general terms, the CNMC has identified certain areas where it believes that regulation is inefficient. It further provides alternative options which should be considered not only to boost competition but also to protect the general interest that is behind the pharmaceutical market’s regulation.

On the basis on the foregoing, it is clear that the CNMC’s position is that the sector demands several regulatory amendments, with full cooperation of the health authorities and the legislative power.

2.1. Encouraging proper analysis of innovative medicines in collaboration with academic institutions and experts

One of the first points addressed by the CNMC is the need for reforms on the studies and analysis conducted by the health authorities. For example, it is suggested that, instead of a pure economic analysis on the financing and pricing decisions for innovative medicines, a pharmaco-economic one should be followed. Such analysis would try to determine which drugs are more efficient, weighing the health outcomes of the medicines and resources invested. On this regard, the CNMC recommends that the long term’s therapeutic and economic evaluation of the innovative medicines should be done in collaboration with academic institutions and independent experts, also taking into account a more prominent role of emerging technologies and big data.

The CNMC has further highlighted the need for a formal position of the health authorities regarding the interchangeability between current medicines and biological and biosimilar ones. In this regard, conducting an analysis and a review of the clinical evidence would be an important step to give more assurance to all the players involved with these medicines. This would likely result in more competition on the market.

2.2. Amendments in the current price system and increasing freedom of choice for the dispense of medicines

The current reference price system requires that the price of certain drugs must be notified to the competent administrative body, together with the applicable rules for the dispensing of medicines. The Study concludes that this makes the laboratories’ incentives for implementing voluntary price reductions very low, or even non-existent. According to the CNMC, the situation effectively eliminates competition on price.

In addition, Spanish regulations require pharmacies to dispense the lowest-pricing medicine in its homogeneous group when the prescription is made by an active ingredient. In the CNMC’s opinion this may result in a temporal monopoly of the medicine with the lowest price or to an alignment of prices.

In practice, this leads to a system of maximum prices (through the reference price) with limited incentives to lower prices, which leaves no room for competition. It also leaves the consumer with only a minimal margin of decision since they are only dispensed the lowest-priced drug without being given the option to choose another.

In this regard, the CNMC considers that some modifications in the regulation of the implemented price system and dispensing of medicines are necessary in order to promote real competition between the original and generics medicines. The aim would be to increase the variety of medicines dispensed.

Moreover, information and health educations programmes regarding the benefits of original and generic medicines should also be developed to allow consumers to make better-informed choices.

2.3. Modifications in the distribution chain

On another note, the Study analyses the distribution chain, pointing out two issues that may restrict competition:

1. the system applied to determine margins is inefficient as the current remuneration obtained by wholesalers and pharmacies does not take into account the quality of the services provided and the costs incurred; and
2. the National Health System (“NHS”) and final consumers of the medicines do not benefit from the existing discounts in the distribution chain.

In relation to the first issue, the CNMC suggests the introduction of a mixed remuneration system with the combination of a flat rate together with a variable rate that would also take into account other services (to be defined by the health authorities) which are important to the population’s health (e.g., the distribution in remote and depopulated areas or the distribution with certain logistics needs, like cold storage boxes).

Concerning the second topic, it should be noticed that each drug financed by the NHS has a unique maximum industrial price (i.e., price applied by the pharmaceutical laboratories) and a single retail price. However, different commercial conditions may be applied by the laboratories to the wholesalers or from wholesalers to pharmacies (e.g., discounts for prompt payment, management costs, etc.). This means that the price applied throughout the distribution chain may substantially vary while the retail price remains unaltered. In this regard, the CNMC’s recommendation is the establishment of a “clawback mechanism”, whereby part of the discounts offered to distributors and pharmacies in the distribution chain on financed medicines would result in a lower final sale price, thereby reducing the public cost of pharmaceutics provision, freeing up resources for the financing of other treatments and benefitting consumers in general.

THE CNMC’S STUDY IS AVAILABLE HERE (IN SPANISH)