Stampa

DRUG PRICE SETTING (Advisory opinion)


PRESS RELEASE



The Italian Competition Authority submitted to the Speakers of the Senate and Chamber of Deputies, the Prime Minister and the Minister of Health an advisory opinion concerning the distortions on competition deriving from the enforcement of Section 36, subsection 12, of Law no. 449/97, stating provisions on drug price-setting and the public drug assistance budget.

The subsection sets out that the Minister of Health shall take measures aimed at impeding unjustified price increases of drugs to be paid for entirely by consumers (class 'C' drugs). In addition, possible price increases will only be authorized annually starting from their notification to the Minister of Health and the Interdepartmental Committee for Economic Planning. This provision has been introduced following price increases of a number of class 'C' drugs, which are not refundable by the public health service system. 50 per cent of these drugs (except for over-the-counter drugs) recorded price increases from November 1995 to August 1997 as it emerged from the fact-finding investigation into the pharmaceutical sector, which was concluded recently by the Authority. The median value of these increases was of 17.4 per cent. Further, price increases have shown the same trend in different markets.
The complete price liberalization, which took place in November 1995, was not a sufficient condition for promoting effective competition, even if it was the first necessary step to open pharmaceutical markets to competition.

The Authority examined the grounds for this situation and distinguished between the consequences of firms' behaviors and those deriving from an incomplete process of deregulation.
With respect to the first point, on February 26th, 1998, the Authority started three investigations against eight drug producers.
As far as deregulation is concerned, the price liberalization occurred without removing other legal obstacles, which tie up firms' behaviors in such a way as to limit their competitive strategies and to ease collusion.
The Authority therefore proposed measures aimed to completing the liberalization process and amending the current regulation of pharmaceutical sector, as: the removal of the fixed price all over the national territory for drugs whose price is set by firms; the removal of  the obligation on wholesalers to hold at least 90% of commercial drugs; the introduction of effective conditions to spread generic prescription drugs.

According to the Authority, attaining full liberalization is a necessary step to develop the level of efficiency of the market of drugs to be paid for entirely by consumers, so as pricing policies would be determined by effective market mechanisms.

The provision of Section 36, subsection 12, of Law no. 449/97, concerning the actions of the Minister of Health aimed to regulating prices, would come into conflict not only with the legal initiatives already taken in order to liberalize the sector, but also with the process of opening pharmaceutical markets to competition, which has been started in the main European countries. In fact, the Minister of Health is vested with the right to evaluate whether price increases are unjustified. However, it is clear that judging criteria could be rather discretionary if competition rules are not taken into account.

Indeed, a recent agreement signed between the Minister of Health, the National Association of Pharmaceutical Industry and the National Association of Over-the-Counter Drugs Manufacturers provided a self-regulation code in order for firms to set price of class 'C' drugs. This need to control over prices, also considering the absence of assessing criteria being consistent with competition principles, would be likely to violate the requirements of Section 41 of the Constitution, which protects and guarantees the right of free enterprise. Add to that, the presence of regulatory guidelines could facilitate firms to persist in being engaged in their coordinated behaviors (for instance, if and when maximum thresholds of increases in prices would be imposed, firms could easily align their prices with them). In fact, the prior notification to the Minister of Health and the Interdepartmental Committee for Economic Planning is likely in itself to encourage the possible adoption of coordinated pricing policies between firms.