Date of publication: 19 April 2017
Irina Kirichenko, Patent Attorney of Ukraine
Valeriia Gudiy, Attorney at Law
In winter we are dying for warmth and at night — for light: on New Year’s Eve when the Ukrainian citizens warmed themselves with just thinking of the European tariffs for the utilities and cut costs even at the festive table, our Government revealed its generosity by taking care of millions of Ukrainian patients — with heart diseases, diabetes and asthma.
The Government of Ukraine undertook to ensure the affordability of medicinal products to patients by way of implementing the maximum allowable wholesale and retail prices and maximum markups for medicines to treat cardiovascular diseases, type II diabetes and bronchial asthma. Moreover, the Cabinet of Ministers promised that since April 1 of this year the reimbursement mechanism for these treatments shall come into force. The CMU Resolutions of November 09, 2016, No. 862 and No. 863 envisage exactly these steps for ensuring the affordability of medicinal products. However, there are rumors among those close to the Government that the reimbursement shall be adjourned until the second half of the year.
The maximum allowable prices were to be enforced since February 1, 2017. Although on February 1, 2017, during its regular session the Government decided to postpone the implementation of the Resolution No. 862 until April 1 — the public regulation of prices shall commence together with the program for medicinal products’ costs reimbursement. At the same time, the Ministry of Health together with the Ministry of Economic Development and Trade shall urgently revise the calculation of maximum allowable wholesale and retail prices based on reference prices aimed at their compliance with economically viable prices, and submit the new procedures for the CMU approval.
The state sets the price controls for goods as means of direct influence on the general rate and dynamics of prices, as well as of the critical importance for the society.
The law defines the goods as the products, works, services, materials and equipment, property and non-property rights subject to sale, in other words the finished goods that include the medicinal products as one of the types thereof.
The state may set the fixed or maximum allowable prices; may implement the maximum allowable levels of markups and profitability, amounts of logistics rewards, additional payments and discounts (reduction factors). These issues are regulated by the provisions of special Law of Ukraine “On Prices and Pricing” (hereinafter — the Law) being one of the main legal regulations in the public pricing sector.
Pursuant to the Article 13 of the Law there are 2 methods of price regulation by the state, in particular: • Setting of prices obligatory for business entities; • Implementation of the procedure for price change and/or registration declaration.
The Law does not provide for any other methods of public regulation of prices but for the abovementioned.
The main regulatory authority responsible for the implementation of public pricing policy and state regulation of prices is the Cabinet of Ministers of Ukraine. The Resolution No. 862 “On State Regulation of Prices for Medicinal Products” envisaged the state regulation of maximum allowable prices by implementing the reference prices for medicinal products by the Ministry of Health. Within the framework of these prices the wholesale and retail prices are determined for the whole range of International Non-proprietary Names (INN) for medicinal products.
The Resolution No. 863 “On the Implementation of the Reimbursement of Medicinal Products Costs” intends to implement the reimbursement mechanism, i.e. the reimbursement of medicines costs that are subject to state regulation.
The experts agree on the conclusion that it is impossible to implement the prices for medicinal products according to the “new” procedure. And it can hardly be argued.
The CMU’s Pricing Policy
The Cabinet of Ministers inseparably relates the establishment of maximum allowable wholesale and retail prices for medicinal products for treating cardio-vascular diseases, type II diabetes and bronchial asthma with the level of reference prices. However, the regulator did not take the trouble to provide the definition of “the reference price” along with the use of this term. The absence of “the reference price” definition in the Law and in the Resolution No. 862 caused different interpretations of their provisions, and this was reflected in the Order of the Ministry of Health No. 53 of January 23, 2017 “On the Approval of the Register of Maximum Allowable Wholesale and Retail Prices for Medicinal Products”.
The CMU approved the list of countries the prices whereat should be used by the Ministry of Health for the establishment of maximum allowable prices for medicinal products. At a first glance at this list one may see different categories of prices for medicinal products that should be considered by the Ministry of Health when establishing the reference price. For instance, in Czech Republic — the manufacturer’s price, and in Latvia — the reference price.
The application of different price categories for the establishment of reference price, within which, according to the CMU, the maximum allowable wholesale and retail price should be developed, may lead to inaccurate calculations and form the basis for the economically unjustified price that conflicts with the Article 12 of the Law. According to this Article the state regulated prices should be economically justified (ensuring the compliance of the product’s price with the expenses for its production, sale, and the revenue for its sale).
Consideration on the CMU Resolution No. 863. Having envisaged the implementation of the “new” price regulation for medicinal product neither the CMU, nor the Ministry of Health as for February 01, 2017, developed the procedures for the reimbursement of medicinal products prices.
The Resolution No. 863 approves the List of INN for medicinal products with the price subject to the reimbursement. However, pursuant to the Law the establishment of maximum allowable prices is possible for the finished products, and the governmental regulations deal with the active substances of medicinal products, which are not the finished products even according to the Law.
Also, please pay your attention to the fact that the CMU Resolution No. 862 does not contain any provisions regarding the reimbursement of the difference between the established regulated price for the product and the economically justified price.
The Article 9 of the Law sets forth the guarantees for the business entities in the process of state regulation of prices. If the state regulated prices for products are established at the level lower than the economically justified prices, the regulator (authority establishing the regulated prices) should reimburse the difference between such prices to the business entity at the expense of the corresponding budgets.
It is worth to note that the legal regulation should define the source for the reimbursement to the business entities of the difference between the regulated and economically justified prices. The absence of reference to the source forms the basis for its appealing in the court.
You Are Guilty Only Because You Would Like To Work Here
Based on the analysis of the price regulation of certain pharma market segments being implemented by the CMU, working in new conditions and not attracting the excessive attention of state controllers, who constantly care for the wallets and health of the Ukrainian patients, “are able not only all – only a few will manage” (с).
Nevertheless, the absence of the clear mechanism of price regulation and the awaited implementation of the expected foggy mechanism of reimbursement enables the pharma market operators to use the delay in reference prices implementation in order to create their own mechanism of their interests’ protection against the potential abuse of power by the regulatory authorities and the mitigation of unforeseen losses.
Legal actions are always the last resort. No matter what we say about our courts not being the best in the world — unfortunately, the quality of court proceedings varies in reverse proportion to the reforms conducted in this area. As the issue of courts’ operations improvement is being globally resolved at the moment, one should not hesitate applying to the court prior to complete reformation of our court system.
As mentioned above in the analysis of legal regulations concerning the medicines price regulation, there are more than enough grounds for challenging the legitimacy of the CMU Resolutions no. 862 and No. 863 and the accompanying Orders of the Ministry of Health of Ukraine of January 23, 2017 No. 53 and of December 29, 2016 No. 1423 (they contradict with the norms of the legal regulations of higher legal force).
Therewith, it shall be viable for the pharma market players to apply to the court with the administrative claim as the right of appeal against the legal regulation belongs to the entities to which this regulation applies, as well as those being the parties to legal relations, which are regulated by this act.
It should be noted that the Article 71 (2) of the Code of Administrative Court Procedure sets forth the so called presumption of guilt of the authorities — the proof of the legitimacy of the decisions, actions and omissions should be provided by the respondent: “in administrative matters regarding the unlawfulness of the decisions, actions and inactions of the power entity, the burden of proof concerning the legitimacy of the decisions, actions and inactions shall be imposed on the respondent in case he/she denies the administrative claim”.
There may be three main “targets” regarding the subject of the claim. Consistent approach and consolidated actions of the whole pharma “society” against “the charity” at the expense of others (that the CMU Resolutions No. 862 and No. 863 represent), it is required to appeal against these legal regulations in whole (or in part) by filing a claim against the Cabinet of Ministers of Ukraine (as in the context of the Article 71 (2) of the Code of Administrative Court Procedure these are the decisions adopted by this authority).
The petitioners in this dispute may be represented by the pharmaceutical companies on their own and by their associations.
In case the interests of a small group of market operators are violated (for instance, when unjustified price for a specific INN was illegally established) and if the backgrounds for the “class struggle” are absent, on the whole the separate provisions of the Orders of the Ministry of Health of Ukraine No. 53 and No. 1423 may represent the subject of claim, and the respondent in such case shall be the Ministry of Health that issued these Orders.
Special attention should be paid to the fact that by applying with the abovementioned administrative claims to the court the petitioner(s) may request the court to apply the provisional remedies — the termination of the abovementioned legal regulations until the merits of the case are considered and the respective judgment comes into the effect.
Therefore, the termination of the CMU Resolutions No. 862 and No. 863, the Orders of the Ministry of Health No. 53 and No. 1423 (or their separate provisions) by the court within the framework or provisional remedies shall provide all interested market players with the opportunities to freely conduct their business until the merits of the claim are considered by the administrative courts.
If the provisional remedies are not requested, it should be realized that until the disputed provisions of the CMU Resolutions No. 862 and No. 863 and the Ministry of Health Orders are in effect (not terminated) there is the risk that the regulatory authorities may deem the following cases as the violation of the procedures for state regulated prices:
• Sale by the manufacturer/distributor of the medicinal product for the wholesale and retail price being higher that the established by the Ministry of Health in the Ceiling Prices Register (exceeding the maximum supply-sale markups); • Sale by the pharmacy chain of the medicinal product exceeding the maximum markups.
Considering the application of the “new pricing rules” the following should be noted.
The State Food Safety and Consumer Protection Service of Ukraine (hereinafter – the Service) monitors (controls) the compliance with the requirements to the development, establishment and application of state regulated prices.
The Service also controls the reliability of the information indicated in the documents on the development, establishment and application of state regulated prices.
The violation of the procedures for state regulated prices’ development, establishment and application forms the grounds for the application of the following business and administrative sanctions:
• Seizure of the unjustifiably collected proceeds that amount to the positive difference between the actual sales proceeds and the proceeds at the prices formed according to the implemented regulation method, and • Penalty in the amount of 100% of the unjustifiably collected proceeds.
The territorial department of the Service adopts the decision on the application of business and administrative sanctions for the violation of the requirements to the development, establishment and application of state regulated prices.
In this case there is the risk of business and administrative prosecution for the violation of the procedures for the development, establishment and application of state regulated prices.
However, the Service’s decision on the application of individual sanctions may also form the subject of appeal in court (individual claim) may be denied.
In addition, one more “weakness” of the opposing parties — the power entities — the decisions they adopt are initially subjective, as the rules of adoption of different decisions are not usually provided in the institutional legal regulations, and making this decision the authority may exceed the scope of its powers — therefore they are called discretional (a sort of “freedom of will” of that or another official).
And here we should refer to the binding upon our courts practice of the European Court of Human Rights (ECHR), for example, the judgment in Olsson v. Sweden case of March 24, 1988. Considering this case the ECHR found that a norm cannot be regarded as a “law” unless it is formulated with sufficient precision to enable the citizen – if need be, with appropriate advice – to foresee, to a degree that is reasonable in the circumstances, the consequences which a given action may entail. The phrase “in accordance with the law” does not merely refer back to domestic law but also relates to the quality of the law, requiring it to be compatible with the rule of law; it thus implies that there must be a measure of protection in domestic law against arbitrary interferences by public authorities with the rights safeguarded by, inter alia, paragraph 1 of Article 8. A law which confers a discretion is not in itself inconsistent with requirement of foreseeability, provided that the scope of the discretion and the manner of its exercise are indicated with sufficient clarity, having regard to the legitimate aim of the measure in question, to give the individual adequate protection against arbitrary interference.
And according to the paragraph 65 of the abovementioned court judgment, the interference should be stipulated by the legitimate aim.
The guarantee of the correct implementation of discretional powers is the high level of legal culture of state officials. The scope of such official’s authorities should be strictly limited. The authority’s decision should be recognized as illegal if the significant breach of procedure led to its inaccuracy. In this case the court should restore the violated right by obliging the authority to adopt a specific decision on the provision of opportunity if the refusal is recognized as unlawful.
The times cannot be chosen — to live and work at own time and own country laying the revenues, and not the losses, into the price of the goods to be sold — one should be capable of fighting for own interests, and not playing by someone else’s rules, which has not been written yet.
It is hoped that during the revision of the provisions of “pricing” Resolutions of CMU and adjustment of the Regulations for their implementation the Ministry of Health together with the Ministry of Economy shall rely on the fundamental economics laws not trying to fulfill here the revolution of honor by “rewriting” the theory of surplus value.
We live here and now, and with this purpose only. We are spread over the epoch, just as the butter over the bread, and the butter should not try spreading itself over the bread, which has not been baked yet, and God knows whether it will be baked or not. (Viktor Pelevin “Mafusail’s Lamp Or The Most Recent Battle Of Chekists With Masons”).