Tuesday, April 26, 2016

Why European Pharmacy Markets Are Less Efficient Than the U.S. Market

The Pharmaceutical Group of the European Union (PGEU), a trade association that represents community pharmacies throughout the EU, recently released its 2015 Annual Report. (Free download) The report is filled with loads of interesting data about the EU pharmacy industry, which shares many issues with the U.S. market.

One significant difference, however, is the greater efficiency of the U.S. pharmacy market.

Below, I crunch the PGEU data and compare the five biggest EU countries with the United States. As you can see, the U.S. has a much more competitive marketplace.

Extensive regulatory barriers may make the EU look like a paradise for independent pharmacies. Alas, such protections inconvenience consumers and raise drug costs. C’est la vie!

THE HEIGHT OF THE GRASS

The EU has many more pharmacies per capita compared with the U.S.—even though the total population of the five major EU countries is roughly comparable to the U.S. population. In the EU, however, there were almost 97,000 pharmacies compared with about 64,000 pharmacies in the U.S.

The chart below shows the total number of pharmacies in each of the five major EU countries. The figures range from 14,000 pharmacies in the United Kingdom to 22,455 in France.

[Click to Enlarge]

The chart also quantifies the per capita difference by country. In France, there are 34 pharmacies per 100,000 people, while Spain has 46 pharmacies per 100,000 people. I compute that there are only 20 pharmacies per 100,000 people in the United States. Put another way, the U.S. industry is much more efficient in serving its populace.

Fun fact: The perennially inefficient Greece (not included above) has a whopping 84 pharmacies per 100,000 people.

THE PROMISED LAND?

Regulatory issues provide a plausible explanation for the differences highlighted above. In many EU countries, severe regulatory restrictions reduce pharmacy competition. These prevent the pharmacy industry from consolidating and becoming more efficient.

Here are four key examples:
  • Many EU countries require pharmacist ownership and prohibit pharmacy chains. Corporate-owned pharmacies are not permitted in France, Germany, Greece, Italy, and Spain. Most EU countries further restrict the number of pharmacies under common ownership, or limit ownership to minority stakes beyond the first pharmacy.

    For example, Italy prohibits the ownership of more than one pharmacy, while France limits chain size to five pharmacies. In Germany, a pharmacist may own one main pharmacy and up to three subsidiaries. Only a few countries—the UK, Ireland, and Norway—do not limit pharmacy chains. Note that the number of UK pharmacies per 100,000 inhabitants is closest to the U.S. figure.
  • Many EU governments restrict new pharmacy openings. Some countries establish strict demographic and geographic requirements for a new pharmacy location. These countries use such criteria as a minimum number of customers or a minimum distance between pharmacies. In Italian towns with more than 12,500 inhabitants, for example, a regional authority awards only one pharmacy license for every 4,000 inhabitants. By contrast, Germany has no demographic or geographic criteria for establishing a pharmacy.
  • Dispensing from non-community pharmacy formats is prohibited or severely restricted. There are no pharmacies in supermarkets or mass merchant retailers within most EU countries. (Again, the UK is a notable exception.) Mail pharmacy utilization is rare or not permitted.
  • Pharmacy profit margins are often regulated, usually based on the drug price or a fixed service fee. Pharmacies are often paid via regulated mark-ups on prescription prices. This practice has historically created disincentives for generic substitution, but some countries have updated their rules over the past few years. France, for example, now guarantees that a generic prescription’s mark-up will be comparable with the brand’s mark-up.

    Note that the Centers for Medicaid & Medicare Services (CMS) wants the U.S. to become more like Europe. Read my comments about the introduction of a “professional dispensing fee” and acquisition cost reimbursement in Seven Pharmacy and Channel Implications of the New AMP Final Rule.

Here are two useful resources for learning about more these and other restrictions: (1) the PGEU Guide to Pharmacy Ownership and Establishment (no link; explanation below) and (2) and the European Commission Study of regulatory restrictions in the field of pharmacies.

Pharmacy owners in the U.S. constantly complain about third-party payers and PBMs. But perhaps there really is no place like home.

* The Institute for Local Self-Reliance, which hosted the PGEU document, requested that I remove the link to the PGEU guide.

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