The single market in pharmaceuticals

Under this proposal, the Commission plans to study operation of the single market in pharmaceuticals and explore ways to complete the market.

ACT

Communication from the Commission of 25 November 1998 on the single market in pharmaceuticals.

SUMMARY

Completion of the single market in pharmaceuticals is essential in order to protect the health of patients, to ensure rapid access to the market and to encourage innovation in therapies. Both the European Parliament and the Council stressed this in their resolutions of 16 and 23 April 1996 respectively.
The pharmaceutical industry in the European Union is still marked by considerable fragmentation of the national markets, leading to extra costs to the industry and to patients and public health systems alike. This communication studies operation of the single market in pharmaceuticals and measures which could help to improve it.

According to the Commission, completion of the single market in pharmaceuticals should serve two separate purposes:

to give patients access to the medicines they need at affordable prices;
to create incentives for innovation and industrial development.

At the same time, a balance must be struck between these priorities and the Member States' objective of containing their health care expenditure.

Integration of the pharmaceuticals markets is complicated not only by the diverse interests involved but also by the unique nature of this sector, which is a research-based industry, where the functions of demand are split between the patient, the prescribing doctor and social security bodies, with little private market provision and where consumers expect access to the benefits of medical progress at affordable prices. There are also big differences between the national markets in pharmaceuticals, whether in terms of disease incidence or from the point of view of standard of living, demand for and consumption of pharmaceuticals, distribution costs, health care systems, etc.

However, this communication stresses that these features are no reason to exempt pharmaceuticals from the single market rules.

Certain steps have been taken towards creating a single market in pharmaceuticals (notably adoption of a Community legal framework for licensing medicinal products and measures to protect intellectual property), but a number of key issues remain to be resolved. Several of these, including funding, management and organisation of the health care systems, are the responsibility of the Member States.

One measure identified by the Commission as requiring particular attention is the divergence between the mechanisms used by the Member States to secure the financial viability of their health care systems, particularly the extent to which they resort to price control as the principal means of containing public health expenditure. Price controls can hamper the free movement of pharmaceuticals, unless parallel trade is able to exert a dynamic effect on prices.

The Frankfurt Round Tables on the completion of the single market in pharmaceuticals, which have been bringing together the Member States, the industry and the Commission since 1996, have also highlighted the benefits which parallel trade can bring for consumers and health care systems by helping to keep prices down. They have also drawn attention to the growing pressures on the pharmaceutical industry, notably:

the efforts made by the Member States to cut expenditure on public health;
the lack of effective mechanisms for setting the price of new pharmaceuticals;
the delays before new products reach some parts of the European market;
the returns (for the industry) and the costs (to the Member States) generated by new, patented products;
the enlargement of the Union to countries with relatively low per capita incomes.

In this communication the Commission considers three possible approaches to the imperfections in operation of the single market in pharmaceuticals:

status quo;
full integration;
a middle way consisting of staged introduction of normal market mechanisms in the subsectors ready for convergence (non-prescription, out-of-patent and in-patent products) wherever possible without compromising patients' access to medicines at an affordable cost or the Member States' public health expenditure objectives.

According to the Commission, the first solution (status quo) would not be enough to integrate the markets or sufficiently restore the competitiveness of the European pharmaceutical industry, while the second (full integration) would raise the problem of setting an appropriate price level across the Community. Consequently, the last solution (staged integration of the markets) would be preferable.

Such staged integration of the markets could be achieved by a combination of measures:

Relaxing price controls and developing effective competition:
The remaining price controls on non-prescription pharmaceuticals (products which may be sold without a prescription and for which, normally, no reimbursement is given) and, under certain conditions, out-of-patent products (products no longer protected by a patent) could be removed. In the in-patent products subsector, by contrast, the level of liberalisation would depend on the alternative treatments available, since in sectors where manufacturers are in a strong position liberalisation could result in higher prices for patients and public health care systems. Measures should therefore be taken to bring greater competition to this market.
Replacing the unilateral price-fixing mechanism by a contractual policy:
Establishment of a dialogue between the companies and the public authorities could strike a balance between price liberalisation and cost containment in the health care sector.
Profit control:
This mechanism would also be based on negotiations between the Member States and companies, this time on a profit margin allowing reasonable prices, competitive development and sustainable research.
Exemption from reimbursement or increasing patients' contribution to the cost of pharmaceuticals for treating minor illnesses:
This measure will only yield savings in the Member States' reimbursement budgets if doctors follow the prescription instructions and refrain from prescribing more expensive products to treat the same condition.
Setting ceilings or reimbursement levels by product category (reference pricing).
Encouraging use of generic products and stimulating competition in this subsector.
Involving prescribers in containing health care expenditure:
Measures such as prescription budgets and awareness-raising campaigns on the comparative costs of products would help to instil greater responsibility on the part of prescribers.
Speeding up access to the market:
A review of the European licensing system for generic medicines is planned in 2000.
Greater transparency on the market:
The Committee set up by the Directive relating to the transparency of measures regulating the prices of medicinal products could provide a forum for a campaign to promote greater price transparency. Improvements must also be made to the arrangements for supplying and exchanging information on the relative effectiveness of pharmaceuticals.

Other issues raised in this communication include:

Distance selling of pharmaceuticals and, in particular, the development of electronic commerce:
Electronic commerce would affect wholesaling and sales of pharmaceuticals direct to patients. These and the related issue of direct-to-consumer advertising will have to be addressed, without forgetting the wider context.
Enlargement of the Union to the Central and Eastern European countries:
The Commission is planning a conference to debate the consequences of the applicant countries' lower purchasing power for pharmaceuticals.

The annexes to the communication set out key figures on the pharmaceuticals market in the EU, applicant and OECD countries (health expenditure and pharmaceutical expenditure, imports and exports of pharmaceuticals, production and employment trends, pattern of demand, price structures, etc.).

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
COM(1998)588 final	-	-	-

Last updated: 1.9.2006