Latvian Competition Council [Konkurences padome] has completed its third pharma sector inquiry in a decade. This time the authority addressed the manufacturer–wholesaler and wholesaler–retailer relationships. The report signals serious concerns about the market power of the leading wholesalers.
The sector inquiry was based on data about 12 reimbursable medicines which do not have substitutes on the reimbursement list. Patients, pharmacies, wholesalers and manufacturers were surveyed about the availability and pricing of these products.
Manufacturers appear to have largely escaped the authority’s ire. Imports are generally adequate, any shortages can be explained by insufficient stocks of wholesalers, contractual clauses on minimum order size are justified by efficiencies of scale, and export prohibitions are generally acceptable.
The two issues which the authority does raise with regard to manufacturers are “de facto exclusive supply” and insufficient cooperation with second–tier, i.e., smaller wholesalers. Supply to only one wholesaler is said to be potentially problematic in view of the fact that the distribution market is highly concentrated and that the leading wholesaler has a market share above 30%, although it is not suggested that “de facto exclusivity” could fall foul of the law. As concerns the second–tier wholesalers, the authority “recommends manufacturers / representative offices to contemplate provision of more comprehensive information about the opportunities of cooperation, and an increase in the number of cooperation partners.” Yet, the authority gives no indication that refusal to supply could be assessed as abuse of dominant position, even if the product at issue has no therapeutic substitutes.
By contrast, wholesalers are the addressees of numerous qualms. First and foremost, the authority faults them for distorting the reimbursement system. The law provides for a maximum statutory mark–up that may be earned by a wholesaler when dealing with reimbursable medicines. However, while wholesaler’s mark–up is calculated on the basis of manufacturer’s list price, the wholesaler also obtains discounts, rebates and bonuses which reduce the effective purchase price. According to the Competition Council, the savings are not passed on because the wholesalers enjoy a high level of downstream market power. Second, the authority suspects the vertically integrated pharma distributors of privileging their own retail businesses at the expense of stability and predictability of supplies to non–affiliated pharmacies. Third, wholesalers are reproached for irresponsible stocking and parallel export policies which result in sporadic shortages, lasting a month or so.
Competition Council’s principal recommendation is the introduction of electronic tracking of reimbursable medicines at wholesale level; the objectives include the pre–emption of shortages, detection of discriminatory supplies to pharmacies, and prevention of excessive re–exports.