The pharmacy reform has not increased competition on the pharmaceutical sales market

30.01.2024 | 11:21

The Competition Authority’s analysis shows that the pharmacy reform, which came into force in 2020, has not achieved its goal: there has been no new competition on the pharmaceutical wholesale market, and pharmacies are still strongly tied to the wholesale traders that previously owned them.
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According to Evelin Pärn-Lee, Director General of the Estonian Competition Authority, a random survey conducted as part of the analysis shows that the pharmacies are owned by pharmacists, but continue to be linked to the wholesale traders that previously owned them through supply, franchise, underlease, and other agreements. "According to Estonian State Agency of Medicines, one pharmacy not linked to pharmacy franchises (through a franchise or cooperation agreement) has been opened after April 1, 2020, and it is owned by a pharmacist who also owned pharmacies before the pharmacy reform," Pärn-Lee said.

In addition, a survey carried out by the Competition Authority confirmed that, with a few exceptions, pharmacies operate in leased premises rented from a franchisor or a company of the same group. In terms of customer numbers, franchised pharmacies operate in good commercial premises, such as hospitals or shopping centres, and their independence is contractually limited. The Competition Authority proposes to consider additional measures to end the situation where the right to use the commercial space used to operate an independent pharmacy is controlled by the franchisor. 

The market shares of the two major wholesale traders have also increased in recent years, and together they already own more than 80% of the market. The market share of Magnum Medical AS is already close to 50%, significantly exceeding the 40% threshold for dominance on the market. At the same time, the market share of the competitor Tamro Eesti OÜ has also slightly increased.  

The Competition Authority has previously expressed the view that the existing model of price regulation for medicines does not work. Although the prices of medicines are agreed upon between the manufacturer and the state, and wholesale and retail mark-ups are regulated, a random analysis of settlements between manufacturers and wholesale traders carried out by the Competition Authority in 2020 showed that manufacturers in turn give wholesale traders significant discounts on the nationally agreed price. To ensure that manufacturers' discounts to wholesale traders reach the retail level and from there the consumers, it is necessary to develop effective regulation and implement measures to stimulate price competition between wholesale traders. 

Further, the Competition Authority proposes to consider introducing additional requirements for pharmacy ordering systems. "As a result of such requirements, ordering systems should be open to all wholesale traders and should be easy to set up so that the system automatically selects the cheapest supplier (or the best offer based on some other relevant characteristic, such as delivery time)," Pärn-Lee said.

The Competition Authority’s ex-post analysis of the pharmacy reform focused primarily on the competitive situation and the independence of pharmacies – how this is manifested in the post-reform situation and whether there are enabling or constraining factors. In the context of the analysis, the Competition Authority surveyed 42 pharmacies. 

By April 2020, the date of the entry into force of the pharmacy reform, pharmacy licences had to be brought into line with the conditions that pharmacies must be owned by pharmacists and the wholesale traders must have no shareholding or controlling influence in pharmacies. These changes were intended to ensure the separation of retail and wholesale pharmaceutical companies, which were previously closely vertically integrated. 

The Competition Authority exercises state supervision over competition, electricity, natural gas, district heating, mail, public water supply and sewerage, as well as railways, aviation and ports.

Eike Kingsepp