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​Deficiencies in the system and cooperation among market participants limit availability of reimbursed medicines

During market study on distribution of reimbursed medicines, the Competition Council of Latvia (the CC) discovered, that there are systemic problems both in the process of distribution and allocation of medicines, thus affecting availability of medicines to consumers.

The data obtained during the consumer survey carried out by the CC in the spring of 2018 shows, that 87% of respondents have had difficulties with receiving reimbursed medicines at pharmacies, which in correlation to other conclusions made during the market study shows that consumers in Latvia have problems with physical availability of medicines. 

The research carried out by the CC leads to a conclusion that market concentration increases in the wholesale of medicines – 83% of the market are occupied by four largest wholesalers, which causes high competition risks. Also at both levels of medicine distribution – manufacturers and wholesalers – there are circumstances, which impede availability of reimbursed medicines to consumers. At the level of manufacturers, these are for example difficulties to plan amounts of supplies, which is influenced by non-accessibility of information on actual demand of medicines in the country, stocks of wholesalers and export implemented by wholesalers; whereas at the level of wholesalers – non-existence of transparent system for allocation of medicines. Consequently, such circumstances prevent supervisors to control efficiently, whether medicines are supplied to pharmacies within 24 hours and whether the competing pharmacies are not discriminated.

After comparing amounts of supply to amounts of compensation, the CC concludes, that the 12 medicines analyzed in annual terms were supplied to wholesalers at sufficient amounts. Deficiency of medicines at pharmacies have short-term nature and the reasons for such a situation is not failure by manufacturers, but rather insufficient stocks of wholesalers. Under such conditions, medicine stocks of wholesalers are essential and, in the opinion of the CC, wholesalers should maintain higher level of medicine stocks to ensure availability of medicines to local consumers.

During the conducted market study, the CC concluded, that the vertical integration of wholesalers and retailers strengthens the market power of wholesalers over competitors and may create advantages in terms of direct supply contracts with manufacturers. This gives competition advantages for receipt and supply of medicines to their pharmacies. Advantages arise also from discounts granted by manufacturers to wholesalers under separate supply contracts, which significantly reduces the actual purchase price for wholesalers and which prima facie shall be considered as not related to efficiency savings. These discounts are not further transferred to consumers, thus giving the wholesalers a possibility to increase their profit.

The CC holds a view, that it is unacceptable, that reimbursed medicines, which distribution is authorized and payment is ensured by the state, can be used as a source for gaining groundless profit through withholding the discount granted by the medicine manufacturer. The CC indicates, that while agreeing with manufacturers on the price of reimbursed medicines the responsible institutions should take into consideration discounts that the manufacturer plans to grant in wholesale. 

The conclusions from the market study highlight systemic problems of distribution and allocation of state reimbursed medicines, especially those included in the List B, which are usually unique and irreplaceable. From the point of view of the CC, the responsible institutions should consider possibilities of creating a register, where medicine wholesalers and pharmacies would have to provide information on their medicine stocks. Such a solution not only would enable control of the medicine stock and export proportion, but also would allow more efficient response to complaints of various level market participants and consumers concerning short-term unavailability of medicines. This system could be integrated into an already existing system and would provide a possibility to verify, whether distribution of medicines is non-discriminative.

The market study involved assessment of possible competition restrictions in distribution of List B reimbursed medicines at the wholesale level, taking into consideration, that medicines included in this list are irreplaceable. The obtained information covers the period from the year 2014 to 2016.