WEBINAR ON "Impact of Competition law on Pharmaceutical & Healthcare Sectors in India" |

WEBINAR ON “Impact of Competition law on Pharmaceutical & Healthcare Sectors in India”

india pharma industry

In October 2018, The Competition Commission of India (CCI) issued a Policy Note on the Pharmacy and Healthcare sector outlining the state of competition in these crucial sectors. The Policy Note highlights, amongst others, the specific Issue of “Vertical arrangements in the Healthcare services and lack of transparency” .

BACKGROUND

Instances of private /Super Specialty hospitals overcharging admitted patients are not uncommon and are often reported in media. The private hospitals invariably have their in-house pharmacy in the hospital premises. It is common to see the treating doctors in the hospital recommending compulsory purchase of consumables such as medicines, syringes etc. from the in-house pharmacy in the hospital. The relatives of the patients are not allowed to buy the consumables on pretext of quality concerns from outside shops even though the same product may be available at cheaper rates in outside chemists’ shops.

In the Policy Note issued by CCI, it has been observed :

“In India, around 60% of the inpatient services are provided by the private sector. The issues of information asymmetry and lack of agency do not allow consumers to make informed choice of service providers and also that of various services such as diagnostics, procedures etc. provided by the hospitals while undergoing in-patient treatments. Hospitals often have exclusive arrangements with in-house pharmacies, diagnostic labs etc. Multiple services are also commonly provided in a bundle or a package. Such arrangements driven purely by efficiencies are reasonable but when guided by the private interests of the healthcare providers, they result in vitiating the market dynamics. Moreover, in most cases there is complete lack of transparency, which makes it difficult to understand the rationale of a particular prescription, procedure or pricing and to identify or question any irrational care or profiteering.”

In the above context, the CCI has highlighted three core issues (i) Doctor-hospital nexus , (ii) Compulsory tying of consumables and (iii) Compulsory tying of diagnostic services .CCI has made specific recommendations on each of these three issues , which will be discussed and debated during the webinar .

Further, in the context of issue no.(ii), CCI vide order dated 31.08.2018 in the case of Max Hospital Ltd, is inquiring into a matter for alleged violation of provisions of Section 3 and 4 of Competition Act,2002 (the Act) relating to imposition of unfair prices by private super-specialty hospitals in Delhi . Earlier, finding a prima facie contravention of the provisions of the Act, the Commission referred the matter to the Director General (DG) for investigation. Pursuant to the said order of the Commission, the DG submitted the investigation report. After perusing the material on record, the Commission noted that huge profit margins are being earned by sale of products to the locked-in in-patients to the detriment of such patients. Considering the mandate given to the Commission to eliminate the practices having adverse effect on competition and to protect the interest of consumers, the Commission decided to widen the scope of investigation to cover the practices going on in all private/ super specialty hospitals across Delhi in respect of healthcare products and services provided to their in-patients.

DG’s Investigation will now focus on the products sold by the super specialty hospitals to their in-patients which are not required on an urgent basis for any medical procedure / intervention or which do not involve any high degree of quality issue from the medical procedure point of view and for the purchase of which the patients have the time and scope to exercise their rational choice to purchase such products from open market where such products may be available at lower rates. The Commission has directed the DG to complete investigation expeditiously. By broadening the scope of investigation in the matter, the Commission aims to prevent practices having adverse effect on competition in the tertiary healthcare sector. It will be very interesting to see the future course of action for all these hospitals from the competition law perspective.

WHY CCI IS INVESTIGATING INTO PHARMA SECTOR?

There is a history . In the first Webinar on Pharmaceutical sector conducted on 13^th May 2016 (the first webinar) , by Vaish Associates Advocates (“VA”) , the practice of mandatory “No Objection Certificate” (NOC) by the Chemists and Druggists Associations before appointment of stockists by the pharmaceutical companies and the penalties imposed on both the Chemists Associations as well as on the pharmaceuticals companies by CCI was discussed.

Continuing the said trend, CCI by way of an order dated 12 July 2018 imposed penalty on the Federation of Gujarat State Chemists and Druggists Association, Amdavad Chemist Association , Surat Chemists and Druggists Association and the Chemists and Druggists Association of Baroda (collectively ‘chemists and druggist associations’) as well as three pharmaceutical companies namely Glenmark Pharmaceutical Limited (and its C & F agent), Hetero Healthcare Ltd and Divine Saviour (collectively ‘pharmaceutical companies’) for violating provisions of the Competition Act, 2002 (‘Act’). Penalties were also imposed on the individual office bearers of the chemists and druggists’ associations and managing directors and concerned employees of the three pharma companies. The said order has been challenged by the affected parties in appeals which are pending before the National Company Law Appellate Tribunal (NCLAT).

During the first webinar, it was also discussed that CCI was contemplating to undertake a Baseline Study/ Survey in the pharmaceutical sector and healthcare delivery systems/services in Delhi & NCR Region to collect evidence on competition issues by way of online questionnaire, field study etc. The survey was to uncover issues such as non-availability of essential medicines, increasing price of drugs, nexus between pharmaceutical companies and pharmacists, nexus between pharmacists and doctors, nexus between doctors and pathological laboratories, nexus between doctors and pharmaceutical companies, and nexus between hospitals and insurance companies etc.

The Policy Note issued by CCI in October 2018 is a result of the above survey and should be a cause of concern for the pharmaceutical and healthcare sectors in India. The major issues highlighted in the said Policy Note are as under:

Issue 1 – The Role of Intermediaries in the Drug Price Build-Up

Issue 2 – Quality Perceptions Behind Proliferation of “Branded” Generics

Issue 3 – Vertical Arrangements in Healthcare Services and Lack of Transparency

Issue 4 – Regulation of Pharmaceutical Sector and Competition

Vaish Associates Advocates (VA) are planning to hold the second Webinar in January 2020, in the series of webinars on the Impact of Competition law on Pharmaceutical & Healthcare Sectors in India. The webinar will focus on Issue No. 3 in detail, though other issues may also be discussed subject to extent of participation by the Industry.

Based on response from the Industry, the Webinar can be conducted from our offices in Delhi or Mumbai, tentatively, in January, 2020.

PARTICIPATION: General Counsels / Legal Heads from the Industry have been invited to join Mr MM Sharma as co-speakers in this webinar to give the Industry perspective. This is a pro bono event as a part of our advocacy initiative to sensitize the Industry on competition issues in the Pharma and Healthcare sector.

For more information, kindly contact mmsharma@vaishlaw.com

About the author

M M SHARMA

 Comdt. (Retd.) M. M. Sharma heads the Competition Law & Policy team in VA since 2009 and has over 30 years’ experience as an Advocate of Delhi High Court and holds a Post Graduate Diploma in Economics of Competition Law from Kings College, London. He has worked in the Competition Commission of India (CCI) as Additional Registrar during 2006-2008 and was responsible for drafting the Implementing Regulations under the Competition Act, 2002. He has experience of working as Head-Legal /In-house Counsel for a large Corporate Group in the Steel and Power sector before joining VA in 2009. He has represented clients as an independent arguing Counsel in landmark cases decided by CCI, the Competition Appellate Tribunal (COMPAT) , High Courts and the Supreme Court. As a prolific writer, he contributes articles and is regularly quoted on competition issues in National Newspapers and interviewed by TV Channels. He also teaches as a visiting faculty in various Universities and Institutions and is widely regarded as a subject expert in various Committees of Apex Business Chambers, such as FICCI, CII, ASSOCHAM and PHD CCI.  Mr. Sharma has been mentioned as a “Notable Practitioner” in the “Competition/Antitrust” category of Chambers & Partners (Asia Pacific) Ranking of Leading Lawyers for Business in India for the year 2012 and 2013. VA’s competition law and policy team has also been awarded the Law Firm of the Year Award for “Competition/Antitrust Law” for 2013 by the Indian Business Law Journal. Included as a ‘Recognised Practitioner’ in Individual Lawyers’ranking by Chamber’s Asia Pacific Guide 2020 for Antitrust/Competition Law.