This paper, which can be found here, argues that antitrust enforcement against excessive pricing by medicines runs against democratic choices reflected in the dense and intricate regulatory network that applies to the pharmaceutical sector.
The paper is structured as follows:
The paper begins with a quick overview of excessive pricing cases in the EU.
There have only been a handful of excessive pricing cases in the EU. The rare cases that have been brought have fallen into rather specific categories: (i) cases involving copyright management societies in the EU, with de jure or de facto unregulated monopoly positions in each national territory; (ii) parallel trade or market integration cases, where the excessive price was a tool to discourage or prevent parallel trade; and (iii) cases where the main issue was exclusionary conduct, and the further concerns about pricing were really the corollary of other abusive practices. In fact, under EU law there has never been a truly standalone finding of excessive pricing, and Commission practice and guidelines were thought to pose significant challenges to the bringing of successful excessive pricing claims.
However, the author identifies a resurgence of excessive pricing cases in the last couple of years. The author refers in particular to the Italian Aspen decision, the European Commission investigation of the same company, and the UK’s Pfizer/Flynn decision. Mention is also made of the Latvian Copyright case, where the CJEU had the first real opportunity to deal with excessive pricing since its seminal judgment in United Brands in the 1970s.
Section 3 discusses the political economy of pharmaceutical markets.
Pharmaceutical products are subject to unique levels of regulation, both pre- and post-marketing. Direct and indirect forms of State-sanctioned price and/or profit controls and caps are the norm. Regulation does not simply apply at the manufacturer level: most Member States also have regulated margins for wholesalers and pharmacies as regards reimbursable medicines.
In practice, the person who decides what prescription drug is used – the clinician – does not pay for or dispense the drug in question. Clinicians and, very often, patients may be agnostic as to the economic consequences of making a particular choice, absent mechanisms for reflecting on them the cost of using the drug (e.g. co-payments for patients or prescription guidelines for clinicians). The State, in its various forms, is normally the sole ultimate end-purchaser of a number of pharmaceutical products. The fact that the State in the EU is the ultimate payor, and in most cases also the regulator, may vest various forms of buyer power in it.
In general, EU Member States impose the most onerous forms of regulation on patented drugs, and often leave generic drug pricing to the market. However, the practical reality is more complex than this. Some Member States have price controls for generic medicines as well. Other Member States have statutory or non-statutory powers to regulate the price of generic medicines, if it is felt that competition is not working well. Complexities also arise because in many countries the pricing of generic medicines has a direct effect, under the relevant statutory scheme or other price control measures, on the pricing of patented products.
Section 4 discusses the democratic issues raised by competition enforcement against excessive pricing in pharmaceutical markets.
Public health remains an area of exclusive national competence under EU law, i.e. it is not a competence held by the EU institutions or even shared with them. Acting on their exclusive competence in public health matters, EU Member States have decided to regulate pharmaceutical pricing in extraordinarily detailed ways. The details of the different regulatory schemes vary enormously since how much an EU Member State is able, and wishes, to spend, first, on healthcare and, second, on funding prescription medicines is ultimately a political question, which answer will depend in part on how rich that country is, what its healthcare needs are, and on other competing political priorities.
The basic legal predicate of abusive conduct is that market conduct was not “normal.” i.e. the company competed “through recourse to methods different from those governing normal competition in products or services”. More specifically, an excessive price under EU competition law is defined as one that is significantly and persistently above a normally competitive price or, put another way, as a price not obtainable in a normal and effectively competitive market.
Given this, the author makes the following points:
- the European Commission effectively re-evaluating decisions regarding pharmaceutical regulation – including decisions not to regulate particular prices or to do so in one way but not another – raises important constitutional issues to do with the division of power between the EU and its Member States.
- the endemic nature of price and related forms of regulation for pharmaceutical products at a national level in the EU makes it impossible to apply to regulated pharmaceutical products the central concepts of: (a) “normal competition” (for abuse generally); (b) ‘a price that is significantly and persistently above a normally competitive price’ (for excessive pricing specifically).
- the regulation of pharmaceutical price is inherently a political decision by each EU Member State. Such a decision depends on a myriad of complex social, political, economic and other factors particular to that country. The essential questions of how much a Member State wishes to pay for healthcare services/products, and how much of that it wishes to allocate to prescription medicines, is a domestic political question. The notion of that decision being subcontracted to generalist antitrust authorities – whether at the EU or national levels – is a dubious one. It seems highly unlikely that the antitrust-based notion of a “fair” price – even assuming (heroically) that there is such a thing – has any necessary connection with the multifarious political and other non-economic objectives sought to be achieved as respects healthcare in that country.
In short, ‘there is a compelling policy and legal argument that the political economy of pharmaceutical pricing in the EU is such that it is simply inappropriate to use the antitrust laws on unilateral excessive pricing as a response to pharmaceutical pricing concerns.’
Section 5 addresses potential counter-arguments.
The author identifies two main straw men that must be addressed. First: ‘the above approach is not some paean for a “do nothing” approach as respects pharmaceutical pricing. The point made here is that the decision on how much to pay for pharmaceutical products is one of the most fundamental, and complex, expressions of democratic decision-making, will, and sovereignty. If a Member State wishes to regulate pharmaceutical prices it should use its existing pharmaceutical regulations or, if there is a lacuna and sufficient democratic and political support, adopt new regulatory laws.’
The second potential objection is that one can find strands of case law from the EU Courts which dismiss “regulatory distortion”-type arguments against competition enforcement:
- A first strand seems to refuse to treat the distortive features of pharmaceutical regulation as an “exempting” feature that renders the laws on abuse of dominance inapplicable. The author argues that the CJEU accepts that the distortive pricing features of regulation can affect the application of the antitrust laws to unilateral conduct. Furthermore, his thesis is not for a total “exemption” of pharmaceutical pricing from competition law. Rather, it is a narrower point that if the benchmark of excessive pricing is the normally competitive market, then there is no such benchmark where prices are regulated and therefore distorted, i.e. the market is made abnormal through regulation. So, on their own terms, the laws on abuse of dominance cannot be applied in a coherent manner in these circumstances.
- A second strand of case law concerns rules on free movement of goods. The author dismisses this as not being relevant for competition enforcement.
- A third strand concerns telecommunication cases. This case law had held that the adoption of decisions by national regulatory authorities (“NRAs”) created under EU secondary legislation cannot prevent the Commission from taking action for abuse of dominance in respect of regulated pricing, even if the NRAs have applied EU law on abuse of dominance in their decisions. This line of case law is said not to undermine the points made above. For one thing, the regulation of telecommunications is an EU competence, which is partly shared with the EU Member States via the creation of NRAs under the so-called Common Regulatory Framework for communications. Public health, by contrast, is an exclusive competence of the EU Member States. Furthermore, the gravamen of these cases is that the NRAs were lazy, captured, or misapplied EU law on abuse of dominance – which were not the reasons underpinning intervention against excessive pricing in pharmaceuticals.
- A last strand of case law concerns instances where there is a State action defence to the application of EU antitrust law. This line of reasoning is not applicable to the point the author is making, because at no point has it been argued that regulation compelled the pharmaceutical manufacturers to act anti-competitively, such that the laws on abuse of dominance should not sanction the resulting price. Rather, the point is that, assuming EU law on abuse of dominance can in principle apply, it is nonetheless logically impossible to apply the basic benchmarks for identifying excessive pricing in pharmaceuticals – notably “normal competition” and a price that is excessively benchmarked against a normal effectively competitive pharmaceutical market – because competition is not normal due to pervasive and deep regulation.
This interesting piece touches on deep issues concerning the relationship between competition enforcement and regulation, and the suitability of applying competition law in the absence of clear legal benchmarks.
I am broadly sympathetic to the author’s arguments, even if I think that he makes a bit too much of how exceptional pure excessive pricing cases are in Europe. This may be true at the EU level, but there are many instances of enforcement against excessive pricing at the national level, as is clear from the contributions to the OECD’s 2011 Excessive Pricing roundtables. I was also struck by the emphasis placed on the (otherwise persuasive) arguments related to EU enforcement, given that national authorities have adopted most excessive pricing cases in pharmaceuticals.
Another question that occurred to me while reading this piece was that many of its arguments could extend to competition interventions in any regulated sector. I acknowledge that the author emphasises repeatedly that his argument is solely about the suitability of bringing pure excessive pricing cases as regards pharmaceuticals. However, the argument would seem to also apply to other instances where competition law and regulated sectors overlap – e.g. where companies can be said to comply with IP rules, or to take advantage of out-of-court settlements which promote the interests of (the effectiveness of the) justice (system), or were telecommunication pricing is at stake, etc. I do not have a definite opinion regarding the validity of these arguments, but I was not fully convinced by the author’s attempts to address some potential straw men – because I think there may be sophisticated versions of those straw men that carry significant weight.
A last point is that it is not clear to me that the relevant market is as distorted as the author claims, and that therefore there are no benchmarks as a result of market regulation. After all, all excessive pricing cases concerned generics; and generics are not normally subject to price regulation because there is an expectation that competition will keep prices close to a competitive level. While in all excessive pricing cases as regards pharmaceuticals there was no effective competition in the relevant market, that does not mean that the relevant benchmark must therefore be the regulated price. In the absence of competition, it may be indeed be difficult to identify the relevant benchmark to determine whether a price is excessive. However, this is not necessarily a consequence of the market having been distorted by regulation.
This feeds into a wider debate concerning a trend towards the adoption of regulatory benchmarks when appropriate benchmarks are otherwise absent, not only in pharma but also in other areas – the Pfizer/Flynn case’s recourse to the regulatory PPRS benchmark is a case in point, but so are calls to rely on data protection rules to set benchmark for non-price abuses. I have raised the point before, and I think it merits more attention – but this is a matter that is, understandably, outside the scope of this thought-provoking piece.