Biennial Report XXII of the Monopolies Commission under § 44(1) ARC, 3 July 2018

In Germany the services of pharmacists and wholesalers for pharmaceuticals are extensively regulated. While existing regulation does not entirely disable the mechanisms of the market, it does alter the competition taking place significantly. In this context, an important part of the regulation is the fixing of pharmacy sales prices of medicines which are supplied at the expense of statutory health insurance. Medicines to which a uniform pharmacy sales price applies are mostly those which are only available on prescription (also referred to as Rx drugs). In the Medicines Price Regulation, the legislator specifies the margins for wholesalers and pharmacies on the basis of a cost calculation. The calculation of fixed prices on this basis has an impact on the results in the market, such as the geographic allocation of pharmacies and the financial expenses for patients and for the health insurance system.

It must be observed with regard to the pharmaceutical sector that regulation can in principle be especially justified due to the enormous health risks of incorrect medication. However, this can only justify such regulation of medicines which serves to adequately contain these risks in a proportionate manner. Otherwise, there is a risk of inefficient or distorted prices and performances. Due to various developments, the question whether the restriction of price competition is appropriate in its existing form has recently become the focus of discussion. First of all, a judgment from the Court of Justice of the European Union (CJEU) of autumn 2016 enabled foreign mail-order pharmacies to grant discounts to German customers on orders of Rx drugs and thus to deviate from the German price regulation. In addition, in the following year the Federal Court of Justice confirmed that the full amount of wholesale surcharges stipulated under German price regulation can be subject to discounts. Lastly, especially in connection with the discussions around the ruling of the CJEU, a debate concerning the system of remuneration in the distribution of medicines arose as well. This discussion has been extended to the question of securing the nationwide supply of pharmacy services and maintaining the mail order business for Rx drugs.

Arguments in favour of price regulation and even a ban on mail order are in particular the effects on the quality of advice and the nationwide supply. However, in spite of these arguments, the present analysis comes to the conclusion that the continuation of the existing system under the Medicines Price Regulation and the fixing of prices on the basis of a cost calculation without competition cannot be recommended. Instead, the structure of the remuneration system should be changed in such a way that that part of the remuneration for pharmacies will stay fixed, which concerns only the advisory service. That part must be financed and, if necessary, negotiated by the statutory health insurance. The remaining part of the remuneration relates to other services (for pharmacies, for example, very short distances on the basis of their location, the number of staff in order to achieve short waiting times, the pharmacy newspaper, office equipment, etc.). The level of remuneration for such services, which is to be paid by the patient, is part of the competitive process and should be individually determined by pharmacies.

In order to restructure the remuneration system, pharmacies should, as a first step, be allowed to grant discounts on the surcharge which patients with statutory health insurance pay for Rx drugs. Due to the increased competitive pressure in metropolitan areas in which many pharmacies are active, it is to be expected that discounts will be granted especially in these regions. In this way, the remuneration system would also contribute to the regional allocation of pharmacies. In comparison to metropolitan areas, rural areas would benefit more than in the current system. If the supply of established pharmacies in rural areas were to be supported beyond that, specific measures compatible with competition law should be taken. However, the ban on the mail order of Rx drugs provided for in the coalition agreement should not be implemented, as mail order is an important component of the supply structure. It should be examined whether the further reduction of supply restrictions in the mail order business (ban on pick-up points and vending machines) can enable this business to contribute to the sustainable improvement in nationwide supply.

Download this chapter of the Biennial Report XXII (in German language only)