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Medicines supply & competition: AFCA publishes third interim report on its Sector Inquiry Health on the supply of medicines from a competition perspective

The Austrian Federal Competition Authority (AFCA) has been looking into the Austrian healthcare market since 2017, so far publishing interim reports on “The Austrian Pharmacy Market” and “Healthcare in Rural Areas”. It has now published its third interim report, on “The Supply of Medicines from a Competition Perspective”.

The goal of these inquiries is to identify potential competition issues and to show possible remedial options. Competition makes markets more innovative and improves market conditions for companies, resulting in better offerings and prices for consumers.

Third interim report: The Supply of Medicines from a Competition Perspective

The third interim report examines medicines supply in Austria, with significant challenges having existed in this part of the market for some years now. The COVID pandemic has further highlighted how important the secure supply of medicines is in Austria. The inquiry was conducted between March 2020 and December 2020.

The Sector Inquiry is based on information obtained from market participants, academic literature, relevant publications and in-depth discussions with companies, interest groups, institutions engaged in the healthcare market, ministries and the health spokespersons of political parties.

The inquiry dealt with the following topics:

  • Risk of medicine shortages
  • Medicine expenditures in Austria
  • Pricing of medicines
  • Company takeovers in the pharmaceutical sector
  • Ownership structures in community pharmacies.

These topics were analysed taking account of Austrian and European legislation, as well as of current developments in market conditions.

Results of the sector inquiry

The sector inquiry yielded the following results in relation to securing the supply of medicines:

  • Increased risk of medicine shortages in Austria

Medicine shortages increased twentyfold in the European Union between 2000 and 2018. As at 14 May 2021, the Austrian Federal Office for Safety in Health Care (BASG) had 356 medicines listed in its Medicine Shortages Catalogue. About 85% of these products were listed as being “Out of stock” or “Partially available” on that date. The shortages specifically concerned medicines for the treatment of the nervous and cardiovascular systems.

The reasons for shortages are varied: capacity bottlenecks, delays in the production of medicines or shortfalls in the required agents, or increased levels of demand, to cite just a few.

The inquiry also looked into the potential impact of the coronavirus pandemic on the supply of medicines. However, the many discussions held did not provide any concrete evidence of supplies of medicines being limited because of the pandemic. This might change at any time, of course, and therefore needs to be evaluated on a regular basis.

  • Medicine expenditures in Austria

At 600 euro per capita, medicine costs in Austria are relatively high by international standards, even when considering countries’ different price levels. In a comparison of 16 countries, Austria is ranked fourth highest for costs.

  • Pricing of medicines and parallel trading

Due to different rules from one country to another, pricing within Europe differs greatly, with differences of as much as 300% between countries in some cases.

Owing to these large price differences, medicine wholesalers are inclined to make parallel exports and to focus on selling medicinal products in countries where the prices are higher. This might lead to an insufficient availability of medicines in countries with low prices, such as in Austria. Parallel trading can therefore be a possible driver for medicine shortages. Pharmacies and the pharmaceutical industry cite the low price level and the low attractiveness of the location as reasons for increasing supply bottlenecks.

  • Company takeovers in the pharmaceutical sector

Company takeovers and the resulting increasing concentration in the pharmaceutical market might impact negatively on medicines supply, for example because of supply bottlenecks. Companies might gain market power and consequently raise prices for medicines while at the same time cutting back their research and development. In general, the pharmaceutical market is becoming ever more concentrated. Over the last 30 years, the number of companies has declined from 110 to about 30.

  • Shareholdings of medicine wholesalers in community pharmacies

The inquiry found wholesalers to have a strategic interest in acquiring stakes in community pharmacies, for instance to generate higher margins. Due to the high logistics costs involved, community pharmacies meet on average 50 to 90% of their total demand from one single medicine wholesaler. From the point of view of competition, shareholdings can be problematic as they enable medicine wholesalers to influence community pharmacies’ turnover and prices. Shareholdings in community pharmacies have risen steadily since 2013.

The concentration in the pharmaceutical market is a matter of concern to us. This concentration of knowledge can lead to higher medicine prices and fewer medicinal products, and can also dampen innovation. Companies have less incentive to spend on research or to serve niche markets. This has disadvantages for consumers, as fewer products are offered, and products are offered at higher prices,“ explains Director General Theodor Thanner.

AFCA’s recommendations to secure the supply of medicines

Drawing on the results of the sector inquiry, the AFCA compiled nine recommendations to create a more competition-friendly environment and thus to avoid medicine shortages:

  • Evaluation of the price components of medicines, specifically in relation to the statutory mark-ups (wholesale and pharmacy mark-ups).
  • Apart from classic location policy measures, such as promoting e-health applications and digitalisation or improving medical infrastructures, other measures should also be taken, such as offering financial incentives permitted under European law, e.g. reimbursing the cost of medicines or agents that are proven to have been produced in the European Union. Conformity with good manufacturing practice (GMP), environmental protection standards and fair working conditions should also be considered in this regard.
  • Preparation of a transparent catalogue of criteria for indispensable medicines or agents; location policy should particularly focus on incentives to manufacture them within the European Union.
  • Dependence on individual suppliers should be reduced in general, and purchases made from several suppliers. More competition in this area will ultimately result in greater security of supply. An evaluation of the effectiveness of merger notifications to the AFCA based on exceeded transaction thresholds, which should specifically help to protect innovation potential and innovation-based competition in connection with start-up businesses being taken over, may be useful for more ambitious legal policy considerations.
  • Better coordination and harmonisation of the parallel export rules in the Member States.
  • Amendments to legislation, e.g. in relation to the expansion of the group of those entities entitled to notify medicine shortages under the Austrian Regulation on ensuring the supply of medicinal products, the simplification of the European Falsified Medicines Directive and the harmonisation of the certification criteria.
  • More transparency in relation to producers’ country-specific medicine quotas, which should be based on a catalogue of criteria.
  • Ongoing focus on existing initiatives concerned with the supply of medicines, such as those taken by various task forces at national and European level.
  • Setting a limit on the maximum equity stakes that medicine wholesalers are permitted to hold in community pharmacies.

Further reports about the Sector Inquiry Health are due to follow.

Third interim report Sector Inquiry Health on the supply of medicines from a competition perspective