Nova workboard

a blog from young economists at Nova SBE

Abusive taxes and over-regulation as promoters of illegal exportation

Lately an increase in universal taxes has occurred due to the aggravation of the economic situation. This has been accompanied by enhancement of regulation and monitoring by Infarmed and regulatory authorities in Portugal. Recently we have witnessed incapacity in pharmacies to regulate drug[1] prices and the overregulation of the Pharmaceutical Industry.

What is the output of these concrete measures on the Pharmaceutical Industry and what are the reactions of the agents involved and affected by such measures?

In our classes we have studied cases of pharmacies and the recent campaign of ‘farmácias de luto’ and its impact on the Portuguese pharmaceutical market, in addition to that it is also important to analyze the externalities provoked such as the incentives in other directions (corruption) such as the outside market (export).

Today it is possible to evaluate the increase of the export of pharmaceutical goods[2] – which is usually a good sign for the economy – but what if the increase is caused by failure in  supply to meet internal demand?

Infarmed (national pharmaceutical authority) is responsible for the legislation and regulation of the sector and any drug-related export must be previously communicated (authorization letter that grants the permission for the lab to export) to Infarmed. Infarmed has strict measures (fines can reach 45.000 € or even suspension of the activity in case of illegal activities) to regulate it but lack of tools to monitor the market (only 15 inspectors)

Before the market price is applied in pharmacies, drugs will pass through wholesalers that perform the national distribution for the Pharmaceutical Industry and they operate by taking small margins of the total flow. But if the margins are being dropped in the market and prices in other countries are usually higher than in Portugal, there is an incentive for wholesalers and pharmacies-groups to export at higher margins.

This action is not illegal when it is performed not harming the national flow of prescription drugs and in key areas such as oncology; AIDS among others and that is the reason laying in the regulation of Infarmed when it respects to exportations.

The problem is becoming bigger in the last couple of years and we can see regularly on the news or in a casual visit to pharmacies that 1 out of 5 products is not available[3].

Wholesalers look at the foreign market with analytical precision and when the difference in the reference price for similar product in other countries is superior to 14% they prefer to have superior margins (in some cases 8 times more than in the national market).

These hidden interests are caused by the asphyxia of internal market and the existence of huge differences in price legislation across EU countries. This is becoming more usual due to successive decrease on prices and consequent margins as they are pulling incentives for exportation to profit-seeking agents that rather prefer to export illegally rather than satisfying internal demand.

This practice is increasing and despite the fact that there is no exact data-tracking on this matter, it is important to refer that Deloitte’s last study shows that this year it has already passed 73M € and 3,5 % of products export represent for them 20,2% of the final profits. The weight of the numbers highlight the importance of the exports to wholesalers.

The values demonstrated should be taken as a sample values to what occurs in the whole national pharmaceutical market and could also be considered as a source of investment for Infarmed to tackle this practice now:

–          By not applying higher fines, but increasing the number of inspectors – an increase in tools and personnel would increase logically the number of illegalities detected and thus the revenues for the system. This would also help to keep our NHS safe and ultimately block this negative tendency of neglecting national interest.

 

Sources:

–          Sapo Online – 11 of August – 58 pharmacies caught exporting drugs illegally

–          Público – 10 of February – Half a million euros on fines for illegal exportation of drugs

–          RCMpharma – 10 of February – 380 cases of stock rupture due to illegal exportation of drugs

–          RCMpharma – 7 of April – Infarmed denounces illegal exportation of drugs

–          Deloitte report – 9 of October – Study promoted by Apifarma attributes failure of medicines to parallel exportation

–          Diário de notícias – 7 of December – Illegal exportation of drugs threatens “stocks”

–          Jornal de notícias – 10 of October – Black market deprives patients of drugs

 


[1] For a matter of precision of this article I will leave aside all non-prescription drugs and other sources of financing of Pharmacies.

[2] Germany, the Netherlands, UK and Scandinavian countries mainly where average prices are twice bigger

[3] Due to the crisis the majority of Portuguese pharmacies are cutting on stocking costs so they buy only when prescription appears but I will focus only in the case where the non-availability of items is caused by stock rupture due to (illegal) exportations.

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Author: studentnovasbe

Master student in Nova Sbe

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