23. februar 2010
SUMMARY AND CONCLUSIONS
The pharmacy sector is, like other parts of the health care sector, subject to a comprehensive public regulation. The pharmacy regulation is designed to protect public safety, quality regarding medicine distribution and to ensure easy access to medicine for citizens nationwide. The State pays a part of the costs for medicine, approved for reimbursement, as applies to other health care services. Therefore, the regulation should also consider the need of controlling public expenditure on health care.
The pharmacy sector is also regulated in other countries. In several countries, including Ireland, the Netherlands, Norway, Sweden and the UK, however, the regulation is less restrictive than in Denmark.
The main factors of the Danish pharmacy regulation are based on control of entry regulation, ownership restrictions, equalization scheme between the pharmacies and control of the pharmacies’ profit and retail prices.
Control of entry is regulated through a concession scheme. One must have a concession to set up and run a pharmacy in Denmark. The number of concessions is limited and earmarked for a specific location. Thus, the State determines the number of pharmacies and branches of pharmacies, including their location. Only qualified pharmacists can apply for a concession. A pharmacist may hold four concessions as a maximum. Since a concession is personal, a pharmacy can only be run as a one-man business.
The equalization scheme implies that pharmacies with relatively large turnovers pay a part of their turnovers to pharmacies with low turnovers. Control of profit and prices implies a fixed gross profit for the pharmacies as a whole and fixed retail prices on pharmacy only medicine.
In addition, the pharmacies’ product range and opening hours are regulated. The pharmacies are subject to a substitution scheme, which implies that the pharmacies are obliged to offer the cheapest medicinal product within the same ATZ substitution group.
The Danish pharmacy regulation is anti-competitive by restraining the entrance to the market, by excluding price competition and by not providing incentives for the pharmacies to compete on service(s).
The lack of competition is reflected in relatively long waiting times for consumers, especially in urban areas. Additionally there is a large dispersion of profits between pharmacies. In 2007 many pharmacies in urban areas generated an annual profit of more than 1.5 million DKK or approximately 200,000 EUR per pharmacy which is considerably higher than the average net profit of about 900,000 DKK or approximately 120,000 EUR. This is mirrored by many inefficient pharmacies with earnings below average in rural areas.
The competition problems are mainly due to the current control of entry regulation and the equalization scheme between the pharmacies, cf. box 1
Box 1: Main conclusions on competition concerns:
- The Danish pharmacy regulation leads to lack of competition between pharmacies.
- Access to the market is reduced by entry regulation that prevents an in-flow of pharmacies in urban areas, where consumers experience long waiting times and where many pharmacies have earnings above average.
- The lack of access to the market implies that the existing pharmacies are not encouraged to improve and renew, including minimize the costs and improve competition on services in order to survive in the market.
- There are more inhabitants per pharmacy in Denmark than in other EU countries.
- The equalization scheme distorts business location as it keeps pharmacies that are not economically viable alive. In addition, it reduces the pharmacies’ incentives to expand their sales and thereby achieve cost savings through economies of scale.
- In 2007, nearly 30 per cent of the pharmacies had earnings below 300,000 DKK or approximately 40,000 EUR before equalization and remuneration of the pharmacists. Pharmacies with small turnovers are, in particular, situated in rural areas.
- At the same time nearly 25 per cent of the pharmacies had earnings over 1.5 million DKK or approximately 200,000 EUR before equalization, and 14 per cent of the pharmacies had earnings over 2 million DKK or approximately 267,000 EUR. The average earning was about 900,000 DKK or approximately 120,000 EUR per pharmacy.
- Fixed retail prices on prescription and pharmacy only medicines exclude any price competition between the pharmacies.
It is the assessment of the Danish Competition Authority that it is possible to deregulate the pharmacy sector and thereby enhance competition and efficiency without compromising quality, safety and accessibility, cf. box 2. The main elements of such a deregulation will be elimination of the equalization scheme and a freer entry to the market, obtained e.g. by repealing the ownership restrictions and the requirement that the manager must be a qualified pharmacist.
Thus, it is possible to maintain the same level of quality and safety as today. Also any concern regarding the pharmacies’ independence may be included in the revised requirements for setting up and running a pharmacy.
It is the assessment of the Danish Competition Authority that it is possible to obtain good accessibility to pharmacies for people living in rural areas without the entry regulation and the equalization scheme. Good accessibility it is not necessarily a pharmacy within a radius of 15 km for the individual consumer, as prescribed in the present regulation. Accessibility in rural areas can be set up otherwise, e.g. by creating incentives for the pharmacies to offer delivery services and/or incentives for the pharmacies to create sales outlets in existing convenience stores.
A freer entry to the market and cessation of the equalization scheme will lead to greater efficiency and hence lower the overall costs of the pharmacies. This will, ceteris paribus, lead to lower prices and better services.
Boks 2: Main conclusions on deregulation
- Cessation of the equalization scheme and a freer access to the market will create more competition.
- More liberal rules for the product range and opening hours of the pharmacies will support such a development.
- A freer entry to the market is obtained by repealing the ownership restrictions requiring that the manager is a qualified pharmacist. The same level of quality and safety can be assured.
- Cessation of the equalization scheme among the pharmacies and a freer entry to the market can be combined with schemes that create incentives for the pharmacies to offer delivery services and/or to create pharmacy outlets. This can ensure easy access to medicine also in rural areas.
The complexity of the pharmacy regulation requires a careful assessment of the consequences of adjusting the regulation. The assessment must take into account both competition and considerations on health-policy and effects on public expenditures.
Therefore, the Danish Competition Authority recommends further investigations with a view to deregulate the pharmacy sector in order to create social benefits by incentives to enhance competition between pharmacies especially by cessation of the equalization scheme and a freer access to the market.