Mail order pharmacies in other EU states may disregard fixed pricing, says European Court of Justice

The European Court of Justice ruled in a judgement of 19 October 2016 (Case C-148/15) that a system of fixed prices for prescription-only medicinal products laid down by national law is contrary to EU law, since it constitutes an unjustified restriction of the free movement of goods. The implications are that foreign mail order pharmacies are no longer obliged to sell prescription medicinal products to Swedish customers at the fixed prices set according to the Swedish Pharmaceutical Benefits Act.

Background
The German self-help organisation for patients suffering from Parkinson’s disease, DVP, informed its members by letter of July 2009 of a bonus system under which various bonuses would be provided to members when purchasing prescription-only medicinal products for Parkinson’s disease, available only from pharmacies, from the Dutch mail order pharmacy DocMorris. The Centre for Protection Against Unfair Competition, ZBUW, took the view that the bonus system was in breach of German legislation, which provides for a system of fixed prices for the supply by pharmacies of prescription-only medicinal products. The Higher Regional Court of Düsseldorf requested in the proceedings a preliminary ruling by the European Court of Justice concerning the interpretation of Articles 34 and 36 of the Treaty on the Functioning of the European Union (TFEU), being unsure whether the fixed-price system could be contrary to the EU rules on free movement of goods.

Judgement of the Court
In its judgement of 19 October 2016 (Case C-148/15), the Court pointed out that the free movement of goods is a fundamental principle of the TFEU, and that the prohibition, laid down in Article 34 TFEU, of measures having equivalent effect to quantitative restrictions covers any measure of the Member States capable of hindering, directly or indirectly, actually or potentially, imports between Member States.

The system of fixed prices does not discriminate between pharmacies established in Germany and those in other Member States, and thus does not directly hinder imports. However, the Court argued, mail order pharmacies can neither provide patients with individually tailored advice given by their staff nor ensure a supply of medicinal products in cases of emergency. In that regard, price is a more important competitive factor for mail order pharmacies than for traditional pharmacies. Consequently, a system of fixed sales prices for prescription-only medicinal products indirectly has a greater impact on pharmacies established outside of Germany than on those established within German territory. Such a system constitutes a measure having equivalent effect to a quantitative restriction on imports within the meaning of Article 34 TFEU.

At the same time, Article 36 TFEU allows for exceptions from Article 34 when it is justified for the protection of the health and life of humans. The Court stressed in its judgement that the health and life of humans rank foremost among the interests protected by TFEU.

On that note, the Swedish and German governments argued in an observation submitted to the Court that a system of fixed prices, which applies to mail order sales of prescription-only medicinal products, is justified in order to ensure a safe and high-quality supply of medicinal products. The Court agreed that ensuring the country has reliable supplies for essential medical purposes may justify a barrier to trade if the objective is protecting the health and life of humans. However, such a measure is only justified if it is appropriate for securing the attainment of that objective and does not go beyond what is necessary in order to attain it, said the Court.

The Court then stated that it had not seen satisfactory evidence confirming the claim that it is necessary to ensure a uniform supply of prescription-only medicinal products for essential medical purposes. On the contrary, the Court suggested that increased price competition would promote a uniform supply of medicinal products, since pharmacies would be encouraged to establish business in rural or underpopulated areas where the scarcity of pharmacies would allow for higher pricing. Additionally, traditional pharmacies could stay competitive by offering on-site services, producing prescription medicinal products or maintaining a given stock and selection of medicinal products. The Court concluded by noting that price competition could be capable of benefiting the patients in so far as it would allow for prescription-only medicinal products to be offered at more attractive prices.

Having regard to these considerations, the Court found that national legislation, which provides for a system of fixed prices for the sale by pharmacies of prescription-only medicinal products for human use, cannot be justified on grounds of the protection of the health and life of humans, and is consequently not allowed.

Implications
It remains to be seen exactly how the European Court of Justice decision will be interpreted by the German legislator and what changes will be introduced to the German law on medicinal products. Still, this much seems certain: the decision is likely to have a huge impact on the pricing of prescription drugs. Since a ruling from the European Court of Justice is binding on all Member States, the implications will not solely affect Germany. All Member States in which fixed prices for medicinal products are applied will need to adopt less intrusive forms of price regulation, considering that the system of fixed prices for prescription medicines may no longer be upheld, at least not for foreign mail order pharmacies.

Prescription-only medicinal products are as a rule sold at a fixed price by pharmacies in Sweden. The Court ruling could mean that mail order pharmacies in other Member States are no longer obliged to sell these products to customers in Sweden at the fixed price set by the Dental and Pharmaceutical Benefits Agency (TLV) under the Pharmaceutical Benefits Act (Lag 2002:160 om läkemedelsförmåner m.m.). However, pharmacies established within Sweden selling products to Swedish customers would still be bound by the fixed price, while Swedish mail order pharmacies would not be bound by fixed pricing in other Member States.

This development appears to create opportunities for internet pharmacies in the EU to deliver medicinal products to customers in other Member States and to compete using discounts and bonuses, for example.

We believe that the Swedish legislator will need to review the rules on fixed pricing in order to be in compliance withEU law. Less intrusive forms of price regulation could include setting maximum prices, something previously discussed both by the Inquiry on the re-regulation of the pharmacy market (SOU 2008:4) and by the government in the bill (2008/09:145) on the re-regulation of the pharmacy market, or setting maximum retail margins. Another option that can be expected to be considered by the legislator is a ban on distance sales of prescription medicines, justified on the grounds that it would ensure that Swedish pharmacies can discharge their obligation to serve all Swedish customers. The option with completely unregulated prices on prescription medicines is something we consider unlikely. We will follow developments closely.