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Breaking free

Liberating the supply of medicines

A sheet of glass smashed with a hammerFrom the time of the Renaissance, the general rule in Europe was that only pharmacists owned pharmacies, and this was limited to the one in which they worked full time. The situation was vigorously defended by the profession on the grounds that the public had a right to personal accountability which derived from proprietor ownership. This, it was argued, kept pharmacy out of the hands of those who would be investing for profit, not for service.

Even up to the late 1990s only Belgium, Ireland, Netherlands, Switzerland, Sweden and the UK did not follow the one pharmacist-owned/one pharmacy rule, largely because these countries had never had specific legislation in place covering ownership.

In Sweden all pharmacies have been part of the Apoteksbolaget (now Apoteket) chain since the 1970s and all pharmacists are state employees. In the UK if you walk into the average high street pharmacy and ask for the pharmacist, the chances are you will find yourself talking to the manager or a locum, and not the actual owner. Company-owned pharmacies have become increasingly common there. In 1994, two-thirds of premises were either single pharmacist-owned or in groups of fewer than five, but by 2007 this share had fallen to just over 40 per cent. Boots, whose first branch opened in Nottingham 130 years ago, might well have been the pioneer of pharmacy chains. Today's Alliance Boots operates over 2,350 UK pharmacies, 18 per cent of the UK's total, but outlets of Boots or other pharmacy multiples are not found everywhere in Europe, because many EU countries do not allow them.

Most countries also had demographic and/or geographic restrictions impacting on where new pharmacies could open. These restrictions limit excessive competition in urban areas and so help provide a minimum level of profitability to existing players, but they are also designed to prevent pharmacy shortages in rural and economically less attractive regions.

Increasing competition
For generations the practice of community pharmacy in Europe rested on a monopoly on the sale and supply of all medicines, together with controls on ownership and establishment. Cracks began to appear in these three pillars in the 1980s and change has accelerated over the past decade as part of the global trend towards deregulation of service industries such as utilities and telecommunications. Controlling entry restrictions in any market can result in higher prices, lower levels of innovation and poorer quality of service.

Deregulation of pharmacies was expected to increase competition and lower, or at least contain, public expenditure while maintaining or improving accessibility to high quality services.

Pressure from national competition authorities and other free market exponents has resulted in reforms to pharmacy rules and liberalisation of medicines' supply in a number of European countries.

Spain still sticks by old rules but does allow non-pharmacists a 25 per cent stake in outlets.

A German pharmacist can now own one main pharmacy and three branch ones in the same or neighbouring administrative districts. A limit of four pharmacies per owner (individual or corporate) is also allowed in Bulgaria and Portugal. A new centre-right alliance government in Sweden has decided that Apoteket's monopoly must end. The most radical changes, however, have occurred in Iceland (1996), Norway (2001) and Hungary (2007) where almost all restrictions on ownership and establishment of new pharmacies have been swept away.

At least some self-medication products for common conditions can be purchased from non-pharmacy retailers in most countries today, with three member states (Italy, Portugal and Romania) even abolishing the intermediate 'pharmacy only' class for the more potent OTCs, including recent prescription-to-OTC switches. Online options for purchasing medicines can now be found more widely too, particularly in the Czech Republic, Denmark, Germany, the Netherlands, Poland, Portugal, Sweden, Switzerland and the UK.

Latvia has bucked the trend, with tougher pharmacy ownership regulations pending. Poland is also considering reintroducing control of entry provisions following concerns that too many pharmacies were becoming financially insolvent leading to instability in supply.

Regardless of whether pharmacies need to be owned by pharmacists or not, it has consistently been the case that the physical presence of a pharmacist (as owner or employee) is necessary during opening hours for a pharmacy to operate. Now, with technology available to allow remote supervision, even this position is being challenged in the UK. The government is proposing to replace 'personal control' by the concept of the 'responsible pharmacist' who, in exceptional circumstances, could control more than one pharmacy.   

European Commission action
Beginning in 2005, a series of complaints from parties claiming there were barriers preventing them from entering the pharmacy business provoked the attention of the European Commission's Directorate General for Internal Market and Services. The identities of the complainants have never been revealed and pharmacists have pointed out there was no public clamour for reform. After making preliminary enquiries, and no doubt encouraged by its victory in the European Court of Justice (ECJ) against Greek rules on ownership of opticians, the Commission initiated infringement proceedings. These proceedings now cover seven member states (Austria, Bulgaria, France, Germany, Italy, Portugal and Spain) and potentially impact 57 per cent of the continent's total of more than 160,000 community pharmacies. Several other countries are also 'at risk' of EC action.

It is alleged that national provisions on pharmacy ownership and/or control of entry are in breach of Article 43 EC (freedom of establishment) and/or Article 56 EC (free movement of capital). The member states concerned and their national pharmacy associations are united in opposing change, and consider the Commission's actions unnecessary, disproportionate and an attack on national sovereignty in healthcare.

One case, relating to Italy, had its oral hearing at the ECJ in September, together with a similar complaint in Germany's Saarland concerning the controversial Celesio-owned DocMorris pharmacy there. Many member states that were not directly involved in either case decided to intervene and present their views to the Court, either in favour of greater liberalisation of pharmacy ownership – The Netherlands and Poland – or against – Austria, Finland, France, Germany, Greece, Latvia and Spain. The latter group saw the issue almost as a battle over control of healthcare provision between Brussels and member states. The Advocate General is to give his opinion on both cases in December 2008, with final judgement handed down before the end of 2009. Rather than await the outcome, the Commission has indicated it is to press ahead with its other complaints.

Strong chains
The countries that did not have ownership regulations or that have abolished them have witnessed the emergence of powerful pharmacy chains, often vertically integrated with wholesalers. Europe's big three wholesalers are Alliance Boots, Celesio and Phoenix – with OPG of the Netherlands also prominent. They already own and/or operate chains totalling about 6,600 pharmacies, representing 12 per cent of pharmacies across 11 countries. They will be eagerly anticipating new, much larger opportunities in Germany and France.

Iceland has almost all of its pharmacies held as part of multiple groups in private hands. Norway's are held by the 'big three.' Lithuania apart, other countries still have large independent sectors, though 20 per cent of municipal pharmacies in Italy are managed by wholesalers and many independents elsewhere are part of wholesaler-aligned 'virtual chains.'

Any move towards allowing company ownership will clearly impact community pharmacists, the end suppliers of most of industry's output. Should the Commission and DocMorris win their arguments at the ECJ the effect will be felt much more widely. It will also be of great significance to patients, wholesalers, manufacturers and payers. Suppliers will have to get used to dealing with head office buyers and not individual pharmacists. As is evidenced from food retailing, large groups are tough negotiators because of the  high selling power they wield. OTC manufacturers are certain to feel the squeeze, with smaller ones likely to find it increasingly difficult to compete with 'own brands' from the chains.

Especially with multisource prescription products (generics and parallel imports), the evidence from deregulated markets suggests there is a risk that lower acquisition prices will not be passed on to the payer in the form of lower reimbursement prices. Instead they could be retained within the chain and apportioned in a non-transparent way between pharmacies and their wholesaler parent.

In markets with a mix of large chains and small independents – such as the UK, the Netherlands and Ireland – the failure by payers to recover unearned discounts from pharmacies via an equitable 'clawback' mechanism has led to the introduction of extreme interventionist measures. such as 'Category M' generic reimbursement in the UK and the preferential policy in the Netherlands. Manufacturers in other countries, that could soon be facing pharmacy deregulation, should take note.

The Author:
Donald Macarthur is an independent consultant, and author of 'Pharmacy Liberalisation in Europe: Prospects and Implications'

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6th November 2008


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