Select Committee on Delegated Powers and Deregulation Seventh Report

Supplementary Memorandum by the Department of Health

Profit and price controls and european community law

1.  Provided profit and price controls comply with the conditions referred to below they will be compatible with European Community law.

201.  Article 30 of the EC Treaty prohibits quantitative restrictions on imports and measure of equivalent effect and price and profit controls have the potential to breach this Article. To avoid a breach of this Article, any maximum price must be set at a level which allows companies a fair and reasonable profit and which reflects the cost of importation so does not deter imports.

202.  In 1982 there was a challenge on the basis of this Article to a black list of pharmaceutical products in the Netherlands (ie. a list of certain products which may not be supplied to persons under the Dutch national health scheme or may only be supplied if certain conditions are satisfied). In its judgement in this case in 1984, the European Court of Justice laid down the conditions that needed to be satisfied for measures to be compatible with Article 30, namely that the determination of the excluded products involves no discrimination regarding the origin of the products and is carried out on the basis of objective and verifiable criteria, such as the existence on the market of other, less expensive, products having the same therapeutic effect, the fact that the preparations in questions are freely marketed without the need for a prescription or are products excluded for reasons of a pharmaco-therapeutic nature justified on health grounds and provided it is possible to amend the lists as necessary.

203.  Following this case, the Community adopted Directive 89/105/EEC relating to the Transparency of measures regulating the prices of medicinal products for human use and their inclusion in the scope of national health insurance systems. This includes requirements that have to be observed in the case of price and profit controls with the intention ensuring that all concerned can verify that the national measures do not constitute quantitative restrictions on imports or exports or measures of equivalent effect.

204.  With regard to profit controls, member states are required to publish in an appropriate publication and notify the Commission of the following:-

    (a)  the method or methods used in the Member State concerned to define profitability: return on sales and/or return on capital;

    (b)  the range of target profit currently permitted to persons responsible for placing medicinal products on the market in the member state concerned;

    (c)  the criteria according to which target rates of profit are accorded to an individual responsible for placing medicinal products on the market, together with the criteria according to which they will be allowed to retain profits above their given targets in the Member State concerned;

    (d)  the maximum percentage profit which any person responsible for placing medicinal products on the market is allowed to retain above his target in the Member State concerned.

205.  The Directive also contains provisions regarding requirements for the price increases to be approved and governing the imposition of price freezes. Where price increases on individual products are only permitted following approval from the authorities, which could be the case, if Regulations were made under the power envisaged in clause 27, or under the statutory scheme, decisions must be made within 90 days. In this case it is necessary to give reasons, based on objective and verifiable criteria, if an application is refused. The applicant should be advised of the remedies available to him. These conditions would have to be incorporated in any secondary legislation made under this power. In the case of a freeze on prices, there shall be periodic reviews and the opportunity for anyone marketing a product to apply for a derogation. The authorities must make a decision on such an application within 90 days.

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