Insights

In November 2001, the Council of State (High Administrative Court), further to an application of the Hellenic Association of Pharmaceutical Companies (SFEE), ruled that the legal provision according to which the prices for medicinal products in Greece should not exceed the lowest corresponding price for the same products in Europe.

The Court based its decision on the lack of legislative authorisation of the Minister to issue such regulation.

However, the competent authority intentionally disregarded the decision of the Council of State and issued two price bulletins in late November 2001, and late December of the same year on the basis of the already annulled by the Court regulation concerning the lowest European price.

Following this new development, SFEE initiated a new legal action before the Council of State for the annulment of the above mentioned price bulletins.

In April 2003, the Court ruled that the regulation fixing prices of medicinal products with reference to the lowest price in Europe was unconstitutional.

The ruling in question must be forwarded to the plenary session of the Council of State which will have to issue its final decision by autumn 2003.

It is most likely that the plenary session of the Council of State will ratify the decision of April 2003.

In that case the government will be obliged either to apply the former system for determination of the prices of the medicinal products (average of the three lowest European prices), or to establish a new system.

In view of this new legislative environment, which may be reinforced by Recommendation VI of the so called "G 10 forum" the authorities will be required to find a new system for determining the prices of medicinal products which will not have as a consequence any significant increase of the state expenditure for the health sector.

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Recent Developments in German Public Healthcare

^{Ann-Kristin Laschner, Esq., Ehlers, Ehlers & Partner, Munich, Germany}

Germany has been famous for its modern, efficient and generous healthcare system, which has served as a model for other countries for a long time. But with staggering costs and a soaring federal deficit, the government introduced legislation which is intended to drastically cut back the services covered by the country’s public health funds. German Social Minister Ulla Schmidt said that the philosophy of this new bill was better quality, more efficiency and more transparency. A massive overhaul of public health care was necessary to ensure the future existence of Germany’s national healthcare system. According to Ulla Schmidt the basic elements of the German healthcare reform are security and affordability.

Most of the elements in the official bill require approval from Germany’s upper legislative chamber, where the opposition formed by the Christian Democrats hold a solid majority. Therefore both the Social Democrats and the Christian Democrats have pledged to work together in the coming weeks to forge a common position that would survive an upper chamber vote. Experts are certain that the new bill will come into force on 1 January 2004.

Christian and Social Democrats seem to agree on the deregulation of the German drug market. Plans are being made to amend price regulations on pharmaceuticals, to lift a ban on owning more than one pharmacy, and to allow the sale of pharmaceuticals by mail or internet order. Furthermore, the parties seem to agree on the idea to cut down the influence of the Federal Association of health service doctors and to establish individual contracts – at least in the area of the integrated health care. On the other hand, there seems to be a discussion to establish a „Center for Quality in Medicine“, which would particularly determine which medical procedures and medications should be covered by public health funds. Furthermore, there seems to be no majority for the implementation of a list which enumerates all drugs which may possibly be prescribed by doctors at the expense of the Federal sickness fund.

At present, however, it is not clear which of the currently discussed issues will actually become part of the legislation.

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New measure in order to decrease the costs in the health care system of Switzerland

^{Peter Bratschi, Lawyer & Ursula Eggenberger
Stöckli, Lawyer and Pharmacist, Bratschi Emch & Partner, Berne, Switzerland}

As everywhere, the costs of the Swiss health care system are going up and up. The Swiss Parliament has now decided on a measure that had already been discussed earlier, but not decided on, because of a considerable opposition, especially by the physicians and the socialists. This measure is the so called easing of the pressure for health insurances to conclude contracts with every physician who is willing to. This pressure means that the health insurances are forced to reimburse the physicians' efforts within the social health insurance.

What is it about then?

Every habitant in Switzerland is obliged to contract a health insurance. This basic and social health insurance covers the costs of the necessary medical treatment. There is no need to contract an additional insurance with regard to a sufficient medical treatment in case of any disease. Most of the people in Switzerland do not have an additional health insurance. All services, which are rendered in the context of this basic social insurance, have to be reimbursed by the health insurances. The prices for the different services are based on tariffs that are fixed in advance in so called tariff-contracts. The contracting parties of these tariff-contracts are a health insurance on the one hand and a physician or most often an association of physicians on the other hand. Every physician who wants to is allowed to join the contract. The result of this joining is that the health insurance has to reimburse all his services. Up to now, the health insurances didn't have any choice to object to a physician. This is the so called pressure to contract ("Vertragszwang") with every physician who is willing to conclude such a contract with the insurer(s).

This system of pressure to contract with every physician has been discussed as one of the reasons for the increase of costs. Since the physicians are more or less free to decide on the treatment of their patient, they are also able to increase (or decrease) the number of services without any real effective control. The health insurances may refuse payment of the services only in cases where the rendered services go obviously and far beyond the sufficient services for an ordinary treatment.

The Swiss Parliament now wants to modify this system. The health insurances shall no longer be obliged to contract with every physician, but only with a certain number of physicians. This number will be fixed by the cantons in order to guarantee a sufficient provision for health care. It goes without saying, that this number will - especially in areas of dense population - not be as high as the number of physicians rendering their services today. It is expected, that the costs will decrease, because there will be less physicians and because the health insurances will be free to choose those physicians who have been cost-conscious in the past.

As far as the patients are concerned, the easing of this pressure to contract with every physician means, that the patient has to make sure, that his physician has a contract with his health insurance. Otherwise, the patient has to change either his health insurance or his physician.

This easing of the pressure to contract with every physician has been decided in the Swiss Parliament end of June, 2003. As usual in Switzerland, the opponents have already introduced certain exceptions, for instance for chronically ill, long-term and elderly patients, who will be allowed to stay with their physician. Another exception requests that the health insurances have to hold up a contract for four years. At the moment, it is not clear, if there will be a referendum (with the signature of at least 50'000 citizens) and this modification has to undergo a plebiscite. The majority of the physicians are against this new regulation and they have a very strong lobby. Furthermore, it is not yet clear, if the expected decrease in costs will take place and in what extent.

In every case, it is remarkable, that the Swiss Parliament has decided on a privilege of the physicians that has been regarded as untouchable for a long time.

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The amendment of the reference pricing system tHrough the “Ley de cohesión y calidad del sistema nacional de salud”

^{Héctor Jausàs, Esq. Jausàs,}^Barcelona^,^Spain

As we already mentioned in earlier editions of Insights, with the intention of combating the gradual cost increase which drug financing implies for Public Health, a reference price system was established. The working of this system is detailed in the “Royal Decree regulating the System of Reference Prices in the Financing of Medicines with Funds of the Social Security or with Public Funds Affected the Health System", adopted on the 18th of June 1999 (published in the Official Gazette of 29 June 1999).

As a consequence of the low effectiveness of the system as with regard to diminish the public costs for drugs, the “Law on cohesion and quality of the National Health System”, which entered into force last May 30th, has reformed, by way of modifying Law 25/1990 on Medicines, the reference price system, that is to say, the system that determines the quantity of homogeneous groups.

With this reform some important and quarrelsome innovations are introduced in the system of determination of the homogeneous groups, the price reference calculation, and the dispatch conditions by pharmacy’s offices of the financed specialties:

(i) The specialties including each of the homogeneous groups no longer need to be bioequivalent. They are only required to contain the same principal active substance. Only the innovating pharmaceutical forms are excluded from the groups.

(ii) The reference price for each homogeneous group shall be the arithmetic average of the following three: costs/treatment/days lower of the presentation of the pharmaceutical specialties included in it, grouped in each administration route and calculated according to the daily dose defined.

(iii) In the event that a pharmaceutical specialty forming part of a homogeneous group were prescribed, with a price superior to the reference price, the pharmacy would provide instead the cheaper generic drug of the same homogeneous group. In the absence of the aforementioned cheaper generic drug, the pharmacist shall dispatch the prescribed specialty at reference price and the laboratory will have to pay the difference with the reference price.

Awaiting the enactment of the norm developing this prescript, the sector is greatly worried about the heavy repercussions it may carry, estimates have shown that these measures may provoke a diminution of reference prices of between 20 and 30%.

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Advocate General’s Opinion in Bayer/Adalat Appeal

^{Mikaela Lassborn and
Sasha Lewis, White & Case incorporating Forrester & Sutton,}^Brussels^,^Belgium

The mystery of what measures pharmaceutical companies are allowed to take to prevent parallel trade may have come one step closer to a solution. Advocate General Tizzano’s Opinion in the Bayer/Adalat appeal, published on 22 May 2003, recommends that the European Court of Justice (“ECJ”) should uphold the ruling by the Court of First Instance (“CFI”) which annulled the Commission Decision condemning Bayer for anti-competitive practices in breach or Article 81 of the EC Treaty.

The Commission Decision condemned Bayer AG for commercial policies which had the effect of hindering parallel exports of the medicinal product Adalat from Spain and France into the UK. The Commission found that there was a violation of the competition rules because Bayer AG had “agreed” with its wholesalers that parallel trade should be prevented. Bayer had refused or reduced orders from individual wholesalers, with a view to denying excess supplies which were liable to be exported to higher-price countries. The wholesalers, by maintaining continuous commercial relations with Bayer, were seen as “agreeing” with this policy. According to the Commission this “agreement” had the purpose and effect of limiting competition, and had a significant effect on trade between Member States, contrary to Article 81 of the EC Treaty.

Bayer appealed to the CFI. On October 26, 2000, the CFI annulled the Commission Decision, holding in particular that the Commission had assessed the facts incorrectly and failed to prove that there was an agreement between the parties to limit exports. The CFI pointed out that, in order to establish an agreement that could be caught by Article 81(1) of the EC Treaty, there must be

“concurrence of wills between economic operators and the implementation of a policy, the pursuit of an objective or the adoption of a given line of conduct on the market” (paragraph 173).

Advocate General Tizzano’s Opinion tries to clarify further the line between when an agreement does or does not exist. In paragraphs 58 to 61, AG Tizzano first distinguishes Bayer from the Sandoz judgment. An implicit agreement between Sandoz and its wholesalers was found to exist, as Sandoz had sought the cooperation of wholesalers in reducing parallel trade by indicating on its invoices that export was forbidden. AG Tizzano stressed that for an implicit agreement to exist, there must always be a request or requirement by one party to the other to act in a certain way. “Bayer did not request or require any action on behalf of the wholesalers in respect of the final destination of the products supplied, but developed a method making it possible for the company unilaterally to achieve the result of eliminating or reducing parallel imports without the need to cooperate with the wholesalers.”

To come to an agreement which can be tacitly accepted, there must be an offer or request to enter into an agreement. AG Tizzano points out that unless at least a tacit offer is required, “an absurd conclusion would be reached whereby such an agreement would be considered to have been concluded even through the implicit acceptance of an offer which was never (even tacitly) made!” (paragraph 61)

AG Tizzano goes on to distinguish the relationship of Bayer and its wholesalers from those examined in the judgments in AEG, Ford, and Bayerishe Motorenwerke. In these cases the factual situation was different, because distribution agreements already existed with the wholesalers to which the actions of the parties could be related. For Bayer however, there were no earlier distribution agreements but supplies were made on the basis of individual sales contracts. AG Tizzano stated:

“…where no distribution agreement exists to which the actions of the producer may be imputed, an agreement on these measures can only be considered to exist when it is shown that there is a common intention of the parties (however expressed).” (paragraph 76)

Thus, the AG Tizzano agreed with the CFI that, in the absence of a concurrence of wills, there is no agreement and thus no jurisdictional reach of Article 81 of the EC Treaty. Very simply, for Article 81 to apply, there must be an offer and its acceptance. Bayer did not make any offer. It simply adjusted its supplies unilaterally to local demand.

The ECJ is not bound to follow the AG’s Opinion. Historically it has done so in about 80% of the cases. If it does agree, the result will be a major victory for pharmaceutical companies, which will be able to pursue their business in the way they choose. The Opinion upholds the freedom of companies to make what they regard as appropriate commercial decisions, and to refuse to supply if they so choose, even if this has the effect of hindering parallel trade in prescription medicines.

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Disclaimer:

This Newsletter is intended to provide general information on the members of conférence bleue and on recent developments of relevance to the pharmaceutical sector. The information and opinions which it contains are not intended to provide legal advice, and should not be treated as a substitute for specific advice concerning particular situations.

Editor

Kathleen M. Dwyer

Managing Director

conférence bleue

conférence bleue members

Austria: Schönherr Rechtsanwälte, Tuchlauben 17, P.O. Box 41, A-1014 Vienna, www.schoenherr.at

Belgium: White & Case LL.P. incorporating Forrester & Sutton, 62, rue de la Loi, B-1040 Brussels, www.whitecase.com

Denmark: Jonas Bruun, Bredgade 38, DK-1260 Copenhagen K, www.jonasbruun.dk

Finland: Castrén & Snellman, Attorneys at Law, Erottajankatu 5A, FIN-00130 Helsinki, www.castren.fi

France: Bird & Bird, Centre d'Affaires Edouard VII, 6 Rue de Caumartin, Paris 75009, www.twobirds.com

Germany: Ehlers, Ehlers & Partner, Rechtsanwaltssocietät, Widenmayerstrasse 29, D-80538 Munich, www.eep-law.de

Greece: M. & P. Bernitsas Law Offices, 5, Lykavittou Street, GR-106 72 Athens, www.bernitsaslawoffices.gr

Hungary: S.B.G.&K. PATENT AND LAW OFFICES, Andrássy ÚT 113, H-1062 Budapest, Mailing address: P.O. Box 360, H-1369, www.sbgk.hu

Ireland: Matheson Ormsby Prentice, 30 Herbert Street, Dublin 2, www.mop.ie

Italy: Avvocati Associati Franzosi Dal Negro Pensato Setti, Via Brera 5, I-20121 Milan, www.franzosi.com

Netherlands: Stibbe, Strawinskylaan 2001, NL-1077 ZZ Amsterdam, www.stibbe.com

Norway: Advokatfirmaet Haavind Vislie DA, Raadhusgaten 27, P.O. Box 359, N-0101 Oslo, www.haavind.no

Portugal: Carlos de Sousa e Brito & Associados Advogados, Rua Castilho, ◦712◦ Dto., P-1250-068 Lisbon, www.csbadvogados.pt

Spain: Jausàs, Advocats, Avda. Diagonal, 407 bis, E-08008 Barcelona, www.jnv.com

Sweden: RydinCarlsten, Advokatbyra AB, Norrmalmstorg 14, P.O. Box 1766, SE-11187 Stockholm, www.rydincarlsten.se

Switzerland: Bratschi Emch & Partner, Advokaturbureau, Bollwerk 15, P.O. Box 5576, CH-3001 Bern and Bahnhofstrasse 106, 8023 Zürich, www.bep.ch

United Kingdom: Arnold & Porter, Tower 42, 25 Old Broad Street, London EC2N 1 HQ, www.arnoldporter.com

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