In 2023, the Competition Authority focused on the analysis of the consequences of the pharmacy reform. With the reform that came into force in 2020, the right to establish a pharmacy was linked to a restriction of ownership, and general pharmacies previously owned by wholesalers of medicinal products became pharmacies operated by pharmacists. By April 2020, the pharmacy licences had to be brought into line with the conditions that pharmacies must be owned by pharmacists and the wholesalers of medicinal products must have no shareholding or dominant influence in pharmacies. These changes were intended to ensure the separation of retailers and wholesalers of medicinal products, which were previously closely vertically integrated. An analysis published by the Competition Authority in early 2024 shows that the market has not become dominated by independent pharmacies. On the contrary, through pharmacy franchises a strong vertical link with the main wholesaler of medicinal products has been maintained. At the same time, competition in the wholesale market for medicinal products has declined even more. Thus, the main objectives of the pharmacy reform have not been realised.
The analysis included a description of the economic situation based on public data, a random survey of pharmacy operators regarding vertical market relations and an analysis of contracts concluded between market participants. The Authority requested additional information from other market participants. The analysis provides an overview of the limits of a franchise in the framework of competition law, deals with the concept of dominant influence in the meaning of competition law and the procedure set out in the Medicinal Products Act to ensure the independence of pharmacies. The relationship with the price regulation of retail and wholesale of medicinal products is highlighted separately. The conclusions section offers possible solutions on how to correct the situation that has arisen.
There are two major wholesalers (Magnum Medical OÜ, Tamro Eesti OÜ) on the wholesale market of medicinal products, whose market shares together account for approximately 80% of the market. Compared to 2019, the third largest wholesaler has left the market, and the shares of market leaders have increased by 18% and 4%, respectively. Four franchises operate on the pharmacy market (Apotheka, Benu, Südameapteek and Euroapteek). 444 out of 476 pharmacies are associated with franchises, of which Apotheka makes up 34%, Benu 28%, Südameapteek 16% and Euroapteek 15% of the share.
The analysis shows that the instrument of dominant influence has not ensured the independence of pharmacies operated by pharmacists from the vertical market relationship. The identification of dominant influence in competition law depends on the existence or absence of a control capability. Even if the owner of the pharmacy has de jure dominant influence, its market behaviour can be influenced by the contractual framework through franchise obligations, the right to use the pharmacy premises, as well as loan obligations, especially in the case of pharmacies which became independent following the reform. In the situation described, the control of dominant influence as set out in the 32 Medicinal Products Act is not an appropriate instrument. Instead, the law should provide for a separate set of rules, with particular regard to contractual relations developed in the pharmacy sector following the reform.
The Competition Authority proposed to consider additional measures to end the situation where the right to use the commercial space used to operate an independent pharmacy is controlled by the franchisor. In addition to the sublease of premises, it also concerns other important resources such as IT systems, personnel service, etc. In order to achieve effective state supervision, it is necessary to ensure that complete information is available to the competent authorities. The introduction of more precise rules, especially regarding the independence of pharmacies, would also allow greater clarity on what information and to whom an undertaking must provide in the licence proceedings. Additional competition law instruments are also worth considering.
In ensuring the economic independence of pharmacies, it is important to bear in mind economic reality, in particular as regards regulated mark-ups and repayment practices. The Competition Authority has previously expressed the view that the existing model of price regulation for medicinal products does not work. What’s more, the regulation that has not worked so far does not support competition, but the continued involvement of pharmacies with the main wholesaler and franchisor. In conditions of limited mark-ups, the selling prices of medicinal products have become more harmonised, and pharmacies do not have the economic incentive to choose between different wholesalers. Although the prices of medicinal products are agreed upon between the manufacturer and the state, and wholesale and retail mark-ups are regulated, a random analysis of settlements between manufacturers and wholesale traders carried out by the Competition Authority in 2020 showed that manufacturers in turn give wholesale traders significant discounts on the nationally agreed price. To ensure that manufacturers’ discounts to wholesalers of medicinal products reach the retail level and from there the consumers, it is necessary to develop effective regulation and implement measures to stimulate price competition between wholesale traders.
The Competition Authority proposed to consider introducing additional requirements for pharmacy ordering systems. It is necessary to revive the price competition between wholesalers through the operation of pharmacies. To do this, it is possible to ensure that each pharmacy, regardless of franchise, using automatic ordering, can choose goods not on the basis of the wholesaler, but on the basis of the best offer, for example, based on price and delivery conditions.