Medicines: high competition fines; limitation of preference policy; security of supply

In 2021 already, numerous developments occurred in the field of (costly) medicines. Both the European Commission and national competition authorities imposed heavy fines on pharmaceutical companies. At the same time, legislation is in the pipeline in Brussels that aims to ensure that consumers have easier access to generic medicines and biosimilars. The limits that apply to use of a preference policy for medicines became apparent in court. The security of supply of medicines became an even greater issue during the corona crisis, which also gave rise to agreements between hospitals and healthcare insurers regarding the procurement of costly medicines. All these developments are addressed in this blog.

Excessive prices and pay-for-delay for medicines

In March 2021, the European Commission (the “Commission”) announced that it had launched a formal investigation into possible abuse of power by Teva. Teva produces the Copaxone medicine for patients suffering from MS. Teva’s patent for the Copaxone drug expired in 2015 and Teva subsequently allegedly artificially extended Copaxone’s market exclusivity, according to the Commission. The Commission is investigating whether this approach constitutes abuse of a dominant position. It previously imposed fines of more than EUR 60 million on Teva and Cephalon for violating the cartel prohibition. Teva paid Cephalon to prevent it from marketing its cheaper variant of the Modafinil medicine (pay-for-delay). It has been known for some time already that pay-for-delay agreements may be in breach of the cartel prohibition. In March 2021, the European Court of Justice confirmed in the Lundbeck case that settlement agreements between pharmaceutical producers may be in breach of competition law. In the Court of Justice’s opinion, that is the case if there is no logical explanation for a reverse payment from one pharmaceutical company to another, other than the restriction of competition, and if the settlement agreement in question has no proven pro-competitive effects. In February 2021, the Commission declared certain commitments given by pharmaceutical producer Aspen to be legally binding. That is the outcome of an investigation launched by the Commission in 2017 to establish whether Aspen charged excessive prices for a number of cancer drugs. Aspen has now promised the Commission to reduce the prices of these drugs in the European Union by an average of 73% over the next ten years. The Commission will monitor whether Aspen keeps its promises. If Aspen fails to do so, it risks a (high) fine from the Commission.

Not only the Commission but also national competition authorities are keeping a close eye on pharmaceutical companies. In the summer of 2021, for instance, after years of investigation, the Netherlands Authority for Consumers and Markets (“ACM”) imposed a fine for the first time on a pharmaceutical company (Leadiant) for abuse of a dominant position. Leadiant had allegedly increased the price of its CDCA drug by a factor of 500, which was excessive and unfair in ACM’s opinion. ACM therefore fined Leadiant more than EUR 19 million. Leadiant has announced an appeal. The British CMA recently fined Advanz roughly GBP 100 million for abuse of a dominant position. Advanz produced the Liothyronine medicine for patients with thyroid disorders. It increased its prices so sharply that the NHS was no longer able to help every patient who needed the medicine in question. Advanz abused its dominant position by acting in that manner, according to the CMA. In 2016, the CMA imposed a record fine on Pfizer and Flynn for charging excessive prices. The CMA was later reined in by the court in 2020. After reopening the investigation in June 2020, the CMA published its preliminary opinion on 5 August 2021 that Pfizer and Flynn were indeed abusing their dominant position by charging excessive prices. In February 2021, the Spanish Competition Authority furthermore fined Novartis and Curium EUR 5.7 million for a cartel violation. According to the Spanish competition authority, Novartis and Curium were guilty of market sharing.

Affordability of costly medicines: calculators, new legislation and review of killer acquisitions

The affordability of costly medicines is under increasing pressure. This subject has been on the agenda for some time; see here and here. The AIM (International Association of Mutual Benefit Societies) recently published a calculator that can be used to assess and compare medicine prices. Zorginstituut Nederland (the Dutch National Healthcare Institute) has also introduced a calculator to establish realistic prices for old medicines that are reintroduced on the market as registered medicines. In the Pharmaceutical Strategy for Europe Communication, the Commission also addresses the pricing and reimbursement of medicines. It reports that the pharmaceutical sector is faced with competition problems. The Commission has therefore launched a revision of the pharmaceutical legislation, which focuses, among other things, on improving patient access to generic medicines and biosimilars. The Commission expects to present a new legislative proposal in the fourth quarter of 2022. At the same time, the Commission has reported that it will continue to carefully scrutinise mergers within the pharmaceutical sector. We previously explained in that regard how the Commission successfully requested the national competition authorities to refer “killer acquisitions” for review, also in the medicines sector.

Healthcare insurers’ preference policy limited by case law

There have also been relevant developments in recent months regarding the use of a preference policy. Healthcare insurers use a preference policy to reduce the purchase price of medicines. They designate a preferred medicine for that purpose within a group of medicines that contain the same active ingredient. Healthcare insurers then reimburse only the preferred medicine (usually the cheapest medicine), unless a doctor declares that another medicine is medically necessary. Also in 2021, the use of a preference policy gave rise to conflicts that were settled in court. The Minister of Health, Welfare and Sport (the “Minister”), for instance, had included five strengths of the Cholecalciferol medicine in the basic health insurance package. Menzis subsequently designated only two strengths as eligible for reimbursement by Menzis. Producer Goodlife Fertility believed that Menzis should reimburse not two but all of the strengths that the Minister had included in the basic health insurance package. The Court and the Court of Appeal found in favour of Goodlife. The Supreme Court ruled differently: healthcare insurers may opt to reimburse only one or a few of the various strengths, but if a doctor prescribes a different dosage for medical reasons, the healthcare insurer must reimburse that dosage. Earlier in 2021, the Court of Gelderland answered the question whether healthcare insurer VGZ was allowed to designate a certain dosage form of a medicine (in this case capsules) as preferred. Manufacturer Laboratoires believed it was not, because various patients are unable to use capsules due to medical reasons. The court found that healthcare insurers may, in principle, designate a certain dosage form as preferred. If a doctor considers another form of administration medically necessary, that alternative form may be prescribed. The court noted, however, that doctors should use this possibility only in exceptional situations. If a healthcare insurer should reasonably foresee that a large group of patients will be unable to make use of a certain dosage form, the exclusion of alternative dosage forms may be unlawful. Laboratoires was successful and VGZ had to change its preference policy. The Court of Gelderland issued a similar ruling in a dispute between Leo Pharma and VGZ.

Security of supply of medicines

In addition to affordability, the security of supply of medicines is also increasingly on the agenda. The reason for this is that medicine shortages are becoming increasingly common. The necessity of security of supply was recently underscored when it emerged that, to the frustration of many healthcare providers, pharmaceutical companies were not producing the desired reduced doses for tapering off antidepressants. The corona crisis also exposed vulnerabilities in the distribution chain of vaccines, for example. The Lower House of the Dutch Parliament called on the government to investigate whether having a production location (for example within Europe) could be included in the medicines procurement criteria. The outgoing Minister of Medical Care announced that he would investigate with parties in the field (including pharmaceutical wholesalers) how their procurement policy could contribute to the security of supply of medicines. The Minister expected to present her findings in October 2021.

Corona and costly medicines

Costly medicines are placing an increasing burden on overall healthcare expenditure. In light of the corona crisis, the Association of Dutch Health Insurers (“ZN”), the Dutch Federation of University Medical Centres (“NFU”) and the Netherlands Association of Hospitals (“NVZ”) wished to make agreements in 2021 regarding the reimbursement of corona-related medical specialist care, which includes the reimbursement of costly medicines. ACM has observed that the purchasing margins on costly medicines form an integral part of hospitals’ revenues and are not directly related to the care provided in respect of COVID-19. The ZN, NFU and NVZ have nevertheless made an agreement regarding costly medicines that guarantees hospitals the same margin in 2021 as in 2020. On the basis of its market investigation, ACM has concluded that that agreement does not have a significant negative impact on the incentives for hospitals to actively and competitively procure costly medicines in the interest of patients and insured persons. But for that purpose it is important that the agreement, which due to corona relates to an exceptional year, is limited to 2021, according to ACM.

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