The Finnish Competition and Consumer Authority (FCCA) has published an extensive study on the pharmacy market. The study produced a list of proposals that can reduce the pharmaceutical costs for consumers and society and improve access to medicines.
The profits generated by pharmacies for their owners have repeatedly been found to be relatively high, which is reflected in the pharmaceutical costs of consumers and society. Pharmacies operate in a growing market of approximately EUR 2.5 billion, which is heavily regulated. Pharmaceutical safety sets its own restrictions on how the sale of medicines can be organised. Nevertheless, customers and society could buy their medicines safely and probably more easily and at more affordable prices than today if pharmacy regulation were developed.
The FCCA ‘s extensive study produced guidelines on how pharmacy regulation should be developed. Some of the proposed measures could be implemented under current conditions, while others would require longer-term structural reforms.
Lowered prices for medicines and facilitating the establishment of pharmacies
The FCCA proposes that the pharmaceutical tariff determining the price of medicines be reduced. Alternatively, the pharmacy tax could be raised or extended to all sales made by pharmacies. As a rule, pharmacies currently pay pharmacy tax only on pharmaceutical sales, even though they sell a wider variety of products. Changes in the pharmaceutical tariff or the pharmacy tax can directly affect the profitability of pharmacy operations, the prices of medicines and the costs of pharmaceuticals for consumers and the health insurance system.
In addition, the establishment of pharmacies should be made easier so that pharmacies could better place themselves according to the needs of their customers. The FCCA proposes that instead of basing the pharmacy licence on the means-testing by authorities, the licence could be obtained by meeting certain minimum criteria meant to ensure safe distribution of medicines. At the same time, the regulation on the location of pharmacies would be amended. Changing the pharmacy licence process would also reduce the problems caused by complaints about pharmacy licences, such as the possibility of slowing down the establishment of competing pharmacies.
If the granting of pharmacy licences were facilitated, attention must be paid to the access to medicines in sparsely populated areas. Currently, regulation limits the growth of online pharmacy activities and the opportunities to improve access to medicines through online sales. The FCCA proposes that pharmacies that operate only online would be also allowed. However, if the regulation of pharmacy locations were liberalised, it is possible that a separate subsidy system would be needed to secure access to medicines throughout the country. Targeted pharmacy subsidies would be a better option for the national economy than supporting all pharmacies with price regulation by means of prices set at an excessively high level.
Increasing the effectiveness of pharmacy activities and limited price competition
The ownership of pharmacies is currently restricted to pharmacists only. Pharmacists with a pharmacy license can only engage in pharmacy activities as private entrepreneurs. In addition, the number of places of business for pharmacies is limited. Such strict rules limit the development of the market. For example, pharmacy chains that might take advantage of the economies of scale are prohibited. Ownership regulation could be deregulated. However, it is not possible to fully give up ownership regulation, to ensure, for example, equal access to medicines. Therefore, the regulation should mainly exclude problematic ownership relationships rather than limiting the ownership to an exclusive right of a certain profession. Pharmaceutical expertise can also be secured with other, less limiting restrictions.
Price competition in medicines could take place, for example, in such a manner that a price cap is set for over-the-counter (OTC) medicines instead of a fixed price and that price competition in prescription medicines is allowed with the pharmacy handling fee. Furthermore, taxpayers would benefit if pharmacies had a stricter obligation to guide customers to buy the cheapest medicines when there are interchangeable products available.
In addition, the FCCA proposes that the sale of selected OTC medicines should be allowed at locations other than pharmacies when the pharmaceutical authority considers it safe. This is the practice in almost all other Nordic countries. The sale outside of pharmacies would only cover a limited number of products. The pack sizes on sale and the display of products would be regulated more strictly than in pharmacies.
A combination of measures to enable a more functional pharmacy market for the benefit of consumers
The FCCA underscores that the reform proposals are interlinked, and an individual measure may not necessarily reduce the costs of medicines for consumers and society or improve access to medicines.
“For example, facilitating the establishment of pharmacies alone is not enough because the prices of medicines are regulated. In other words, the prices of medicines should be adjusted at the same time. On the other hand, adjusting the prices of medicines alone will not make the market work more efficiently and thus bring benefits to customers,” says Tuulia Hakola-Uusitalo, Head of Research at FCCA.
With a combination of measures proposed by the FCCA it would be possible to improve the position of those buying pharmaceuticals and to save on pharmaceutical costs paid by society. The guidelines presented in the study still require further development, which the FCCA will continue in its future analyses.
- Study (in Finnish): Apteekkimarkkinoiden kehittäminen, KKV:n selvityksiä 5/2020 (PDF)
- Background material (in Finnish): Apteekkimarkkinoiden kehittäminen (PDF)
Tuulia Hakola-Uusitalo, Research Director, tel. +358 29 505 3011
Antti Saastamoinen, Principal Economist, tel. +358 29 505 3264