Free trade in medicines: a fixed price for the whole of Europe?
By prof. dr. Walter Van Dyck (Associate Professor Technology & Innovation Management at Vlerick Business School / Vlerick Healthcare Management Centre) and prof. dr. Leo Neels (Chairman of the Advisory Board of the Vlerick Healthcare Management Centre)
Medicines are certainly not a trivial product - that’s something everyone can agree on. They have to be approved, include an information leaflet and are exclusively available via the pharmacy, mostly by prescription only. They are also monitored in terms of both their efficacy and their safety. In fact, they are very specific products with a formal, recognised health claim in the field of evidence-based medicine.
In one particular aspect, they are regarded as a trivial product: just like wood screws, roof tiles or bicycle bells, they are subject to the principle of free circulation in the European Union, as part of the single market. Member states cannot stop medicines at their national borders. They can be imported and exported freely. The aim of free trade is that European consumers have access to all products that are available somewhere in Europe and that price differences are eliminated as a result of importing and exporting. That is a very noble objective.
Naturally, those principles do not work in spheres in which the national states still have a reserved right and are able to act autonomously. This is the case with health insurance and social affairs, which are financed and organised nationally. There are (more and more) rules imposed on this, however, because the European Union also uses its powers in relation to free circulation on one hand and competition on the other hand to reduce the member states’ room for manoeuvre. So there is free circulation of medicines. In competition law, that freedom of “parallel”, often non-regular, trade is the acid test of that free circulation.
With medicines, this leads to a problem. The 28 European member states autonomously set the price of the medicines in their health insurance. And, as is the case for levels of wealth, the health insurance systems differ radically from one another. In many cases, there are 28 national, administratively imposed prices for one medicine. Then free circulation of medicines makes no sense, since it surely cannot have any impact on the mandatory prices? And that’s where things go awry: for the purposes of free trade, medicines are regarded as a trivial product. So an exporter can buy them in a country with lower prices and then go and sell them in a country with higher prices, and pocket the profit. After all, in the country with higher prices, the local health insurance has to pay the locally imposed higher price. Parallel trade reaps the profits. In the country with lower prices, there is unavailability and the patients can no longer find their medicine. The patients in those countries gain nothing and the tariff price of their medicine doesn’t change.
Sounds absurd? This is a daily reality, even in Belgium. Medicine shortages are increasing (see De Standaard from 7 February 2014: “Hundreds of medicines unavailable”). Because of the previously low price for innovative medicines in Belgium, they are disappearing from the market. That is a major concern for the pharmaceutical sector, pharmacists, doctors and hospitals. Pharmaceutical companies face some major issues in their supply chains: packaging and stocking obligations in accordance with local regulations, and always the risk that their available stocks will disappear into the parallel circuits. Because of the sacrosanct principle of free circulation of goods, they are powerless to prevent these situations from occurring. This leaves the patient out in the cold. Good policy principles are being poorly applied and the firmness of principle is taking precedence over healthcare.
In fact, the complexity is even greater. First of all, they are expensive products, specially conditioned and packaged for one local market - the packaging and the language of the information leaflet are regulated nationally - with suitable expiry dates. Only limited “extra” stocks can be built up, with all the consequences that this entails. Secondly, the price differences might seem odd, but this is the way in which the pharmaceutical sector in European countries with a very low level of wealth tries to allow access to new therapies. That differentiation is a result of the income disparity between member states. The effective price is adjusted according to that factor.
There is room for improvement in this area. This is typically a multi-stakeholder issue. The European Commission, pharmaceutical companies, and economic and health authorities must tackle this together. It is a classic case where the parties involved focus too much on what separates them and fail to see the things they have in common.