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Existing Regulation impedes Price Competition in Medicine Market

On 1 February 2011, the Competition Council of Latvia (CC) published its conclusions of the Sector Inquiry into the pricing system in medicine market in Latvia. In its report, the CC draws attention to the existing problems in this market and explores opportunities to reduce prices by means of competition and appropriate regulation.

The main recommendations made by the CC are the following:

  • Instead of referring to product names, prescriptions should only refer to the active ingredients of the particular medicine. Price competition between producers could therefore be strengthened and the medicine distributors' competition for the doctors' choice (that might not be motivated by the price of equivalent medicine) could be eliminated
  • To eliminate the situation where it is more profitable to sell more expensive medicines, the system of markup calculation that is regulated by government should be reviewed: it should not be based on the producers' price, but rather on fixed expenses e.g. expenses for storage and delivery of the medicines concerned
  • Restrictions to parallel imports and to the distribution of generic medicines should be removed as they benefit producers of more expensive drugs
  • Discounts at the level of producers or wholesalers that can not be included in the markup calculation (e.g. volume discounts) should be prohibited
  • As the upper limit of permissible markup is fixed both at the wholesale and retail level, undertakings which own medicine wholesale companies and pharmacies should use different methods for the calculation of mark-up and not include expenses that do not exist in such vertically integrated structures
  • Situations where pharmacies purchase medicines directly from producers should be encouraged thus diminishing the market power of wholesale companies
  • The existing restrictions regarding the opening of new pharmacies should also be revised, eliminating those who impede free competition between pharmacies in areas where it is advisable, e.g. in larger cities