Regulation of pharmacists: a comparative law and economics analysis.

• Author: Philipsen, Niels J.
• Position: Special issue on: "The comparative economics of regulated professions" - Report

1. Introduction

   The pharmaceutical profession is highly regulated, especially when compared to other professions such as accountants, architects, engineers and lawyers. (1) Some regulation of entry, conduct and price is needed in order to ensure a minimum quality of and adequate access to pharmaceutical services. However, such regulation should not restrict competition more than necessary, especially when it serves private interests rather than the public interest. In other words: regulation should both be justified and proportional. (2) The economic theory of regulation, which focuses on regulation as a means to correct for certain market failures, has provided an excellent theoretical framework for regulators and competition authorities worldwide. (3) Indeed, questions about regulatory reform and deregulation in the professions have received much attention, particularly over the last decade or so. This immediately becomes clear from the long list of academic literature, policy reports, conferences and workshops, and competition cases on professional regulation.

   Where overly restrictive entry and conduct regulation exists in self-regulation it can be assessed by competition authorities directly. For example, the European Commission in 2004 imposed a fine of 100,000 [euro] on the Belgian Architects' Association for adopting and making available a scale of recommended minimum fees. (4) This is diffferent when it concerns (self-regulation that follows from) public regulation. In the well-known Wouters case from 2002, which dealt with a ban on multidisciplinary partnerships between lawyers and accountants, the European Court of Justice decided that the regulation concerned did not infringe European competition rules, because it "could have reasonably been considered necessary for the proper practice of the legal profession as organised in the Netherlands". (5) In 2009 two similar judgements appeared, this time on ownership regulations of pharmacies as laid down in German and Italian law (to be discussed in section 4.3 below). The result of these cases is that competition authorities--notably the European Commission's Competition DG--have to resort to other strategies like competition advocacy or cooperation with other authorities. (6)

   It should be noted at the outset that the aim of this paper is not to give a general introduction into the economic analysis of different types of entry and conduct regulation to be found in the professions. There already is an extensive literature on that topic (including many of my own contributions), to which I refer in footnotes where appropriate. Also, the aim is not to give an in-depth description of each and every restriction to competition that might exist with regard to pharmacists. The objective is rather to present a comparative overview of the most common forms of regulation of pharmacists that are found today and their effect on competition, and to investigate whether there is an economic rationale for these rules.

   In the next section I will briefly present the changes that have taken place over the last decades in the market for pharmaceutical services. There is now a strong focus on 'pharmaceutical care', in addition to the traditional tasks in the field of drug distribution. Sections 3 and 4 address, respectively, entry and conduct (including price) regulation in the market for pharmaceutical services. There I will present and analyse--from an economic perspective--the most common forms of regulation found in the EU, with occasional references to other jurisdictions such as Canada, the United States and China. In section 5 the results of a recent ECORYS study into the effects of regulation on performance are presented, this being the first comprehensive empirical study of efficiency of regulation in pharmaceutical services markets. (7) Section 6 concludes.

2. The Market For Pharmaceutical Services

   The pharmaceutical profession has been subject to many changes since the middle of the last century. While in the 1950s the tasks of a community pharmacist consisted merely of the compounding and dispensing of drugs (medicines), nowadays pharmacists are considered to be the experts in the field of pharmacotherapy. They not only have a role in the distribution of (now mostly industrially prepared) drugs, but also in the provision of 'pharmaceutical care'. These changes have occurred gradually, under the influence of the rise of the pharmaceutical industry and the constantly increasing complexity of pharmacotherapy. (8) Important tasks of a pharmacist today include medication control (checking for possible interactions between drugs taken by a patient), monitoring of therapy (primarily double-checking the prescription from the general practitioner or medical specialist), giving advice to patients, supporting local health groups such as lung and diabetes associations, and providing pharmacotherapeutic information and advice to drug prescribers. The first two or three of these tasks are sometimes performed by pharmacists' assistants (technicians), under the supervision of the pharmacist. In some countries pharmacists are also allowed to substitute branded drugs by less expensive generic drugs, under strict conditions such as consent of the patient and physician. (9)

   However, the core business of pharmacists--excluding those who work for the pharmaceutical industry, the government, universities, etc--remains the distribution of drugs. There are two channels for the delivery of prescription drugs to patients: via community pharmacies and via hospitals or health clinics. In some countries, general practitioners in remote areas are also allowed to dispense drugs. Furthermore, in some countries selected prescription drugs can be sold in a drugstore (chemist store) or in supermarkets, provided there is a special department supervised by a pharmacist. In other countries, community pharmacies have a monopoly on the sale of all drugs, including not only prescription drugs but also over-the-counter (OTC) drugs. Finally, the sale of medicines via the Internet has increased considerably in recent years. (10)

3. Licensing and other entry barriers (11)

   Professional licensing can be defined as the set of regulations that limit service provision to individuals who meet certain government-established criteria. (12) These criteria generally include educational requirements (university diploma), practical experience, and registration in a public register. There is a clear tension between competition law and professional licensing. The former promotes competition, whereas the latter restricts it by creating a 'professional monopoly', an example of which is the monopoly for pharmacists to dispense certain categories of drugs. In addition to licensing, entry into the pharmaceutical profession may also be regulated via establishment restrictions (a minimum number of patients or prescriptions) or mandatory membership of a professional association. These restrictions can only be justified if there are wider public policy benefits, e.g. if they really lead to an improvement in the quality of or access to pharmaceutical services.

   In section 3.1 the economic theory of regulation will be applied to the market for pharmaceutical services, focusing on licensing and certification. After that, I will present an overview of the actual licensing regimes and additional entry regulation to be found in the EU, Canada, the United States and China.

   3.1 Application of theory

   From a public interest perspective (13), licensing can be supported if it is used to cure market failures caused by information asymmetry and negative externalities. Indeed, information asymmetry between pharmacists and consumers might result in quality degradation of pharmaceutical services. This is the well-known problem of adverse selection. (14) While consumers may be able to switch pharmacies in case they are looking for additional services not provided by their current pharmacy (a consultation room, home delivery, etc), it is more difficult for them to judge the quality of the advice they receive. Moreover, consumers generally cannot judge the quality of services such as medication control and monitoring of therapy. Although nowadays these services are performed electronically (by checking in a computer system whether there are interactions with other drugs), something can go seriously wrong if mistakes are made in the dispensing of drugs or if pharmacists fail to notice mistakes in the prescriptions by physicians. In addition, pharmacists should be able to function as an expert of medicines in their relationship with physicans, health insurers and the government. Some regulation of entry (licensing) is therefore warranted to prevent that insufficiently trained pharmacists are active on the market and that the problem of adverse selection occurs.

   In some professional services markets, information asymmetry can also lead to the moral hazard problem of demand generation. This problem is however not likely to occur in the market for pharmaceutical services. (15) The demand for prescription drugs is (indirectly) determined by general practitioners and specialists and not by pharmacists. Moreover, because of the way pharmacists are paid--in most countries their income is related to the number of prescription drugs sold--they do not have any economic incentives to sell 'extra' services. On the contrary, the supply of services such as drug advice might be too low if these are not paid for. (16)

   Negative externalities may appear if the quality of pharmaceutical services is extremely poor. If the drug advice given to patients is incorrect or the wrong drug is dispensed, a contagious disease may spread to other patients or a patient may ultimately die, both of which obviously affects third parties. Regulation of quality is needed to the extent that liabillity rules alone do not have sufficient deterrent effect to prevent these...