After conducted sector inquiry, the Competition Council of Latvia (the CC) has concluded – even when manufacturers in Latvia set lower prices for medicines than in Lithuania or Estonia, medicines may be more expensive for Latvian consumers due to the existing pricing mechanism. Therefore, the CC encourages the responsible institutions to develop a new mechanism, which would make reimbursable and non-reimbursable medicines financially more accessible for Latvian consumers.
The final prices of medicines are formed by the manufacturer price, wholesale markup, pharmacy markup and value added tax (VAT). The most significant differences in the price structure in the Baltic states are created by wholesale and pharmacy markups, as well as VAT, which equals 12 % in Latvia, 9 % in Estonia and 5 % in Lithuania for medicines. Markup in Latvia is formed by wholesalers applying increased percentage markup to the manufacturer price, and pharmacies – to the wholesale price.
In Lithuania and Estonia, the so-called ceiling is set for these both markups. The markup ceiling in Latvia is set only for pharmacies and regarding state reimbursed medicines. Namely, the pharmacy markup remains constant – 6.05 euros – starting from wholesale price 71.14 euros.
Comparing approximately 20 most frequently acquired medicines in the Baltic states, the CC detected that in most cases manufacturers had set a lower price for Latvian wholesalers. However, it did not reflect in the final price as a result of markups. Consequently, manufacturers had set a lower price for approx. 80 % of these medicines in Latvia, compared to Lithuania and Estonia, but only approx. 40 % of these medicines are cheaper to Latvian consumers.
During the sector inquiry, the CC carried out a detailed assessment of differences in the pricing mechanisms for medicines among the Baltic states and their impact on the final price of reimbursable and non-reimbursable medicines. After comparison of pricing regulatory frameworks in Latvia, Lithuania and Estonia, the CC concluded that Latvia has the most unfavourable pricing mechanism.
The pricing mechanism in Latvia stipulates that upon increasing of the manufacturer price the markup applied by wholesalers and pharmacies decreases in terms of percentage, but increases in monetary terms.
The CC made calculations, comparing the price differences of non-reimbursable medicines in the Baltic states depending on the national regulatory framework. The data shows that consumers in Latvia most frequently acquire reimbursable and non-reimbursable medicines that cost up to 50 euros. For example, the maximum wholesale markup for packaging of medicines, for which manufacturers have set a price of 20 euros, may constitute 2.84 euros in Latvia, whereas in Lithuania 1 euro, and in Estonia 0.60 euros. By the manufacturer price continuing to increase, the difference between wholesale markup in Latvia and neighbouring states increases.
The calculations indicate to the likelihood that the pricing mechanism for medicines of Latvia is particularly favourable for wholesalers, as it gives a possibility to set relatively high maximum markups.
Similar conclusions were made regarding pharmacy markups in Latvia. For example, a pharmacy markup for a medicines packaging with the manufacturer price at 20 euros may reach up to 4.92 euros in Latvia, whereas in Lithuania 3.57 euros, and in Estonia 3.09 euros. By the manufacturer price increasing, the percentage of pharmacy markup increases in Latvia, whereas pharmacy markups in Lithuania and Estonia for non-reimbursable medicines remain constant after reaching a specific purchase price threshold. In Lithuania, the pharmacy markup is equal to 17.38 euros starting from the purchase price of 144.82 euros, whereas in Estonia – 5.11 euros starting from 44.74 euros respectively.
When comparing wholesale and pharmacy markups in the Baltic states in general, Latvia does not have the highest markup for the cheapest medicines that cost up to 3.50 euros in pharmacies only. When the price increases, the overall markup difference also increases in Latvia.
The pricing mechanism for reimbursable medicines in Latvia is slightly different, incl. markup ceiling set for pharmacies.
The wholesale markup for state-funded medicines in Latvia is formed by percentage increase of the manufacturer price. For medicines with the manufacturer price up to 7 euros, wholesale markups in Latvia are lower than in Lithuania or Estonia, but are mostly higher above this threshold. The markup for 20 euros worth medicines packaging in Latvia may be up to 1.20 euros, in Lithuania 0.51 euros, and in Estonia 0.60 euros. A more dramatic difference in wholesale markups can be observed for medicines with a price over 500 euros, where Latvia has the highest markup among the Baltic states.
Markups in the group of manufacturer prices up to 200 euros are stipulated higher for pharmacies than for wholesalers in Latvia. The markup ceiling is determined for pharmacies for medicines with a price over 200 euros, whereas there is no such a restriction for wholesalers. This shows that the distribution of markups in Latvia at the level of wholesalers and pharmacies is disproportionate, increasing the dependence of pharmacies on wholesalers.
Latvia has mostly the highest pharmacy markup among the Baltic states for medicines with the manufacturer price up to 25 euros. For example, the pharmacy markup for a medicines with the manufacturer price equal to 20 euros may be 3.40 euros in Latvia, in Lithuania 1 euro, and in Estonia 3.09 euros. In cases with more expensive medicines, higher markups may occur both in Lithuania and Estonia.
In general, the highest wholesale and pharmacy markups for reimbursable medicines in Latvia are observed for medicines that can be acquired in a pharmacy at a price up to approx. 35 euros.
The CC indicates that markets of the Baltic states are relatively similar, and prices of medicines should not differ significantly. The CC holds a view that it is necessary to revise the pricing mechanism for medicines in Latvia, analysing, at which levels and due to what reasons the system allows the potential overpayment. The CC calls to consider the possibility for wholesalers and pharmacies to introduce a fixed price for each sold packaging of medicines, and to provide for markup distribution, which would mitigate dependence of pharmacies no wholesalers. The CC has also prepared several other proposals, including encouragement to equalise the pricing mechanism both for reimbursable and non-reimbursable medicines.