Saving the pharma sector from bankruptcy – draft law on payment exemption
In recent months, our team, together with Mr. Alexandru Nicolae from the Bucharest Bar Association, has been involved day after day in a collective action mandated by more than 700 companies operating in the pharmaceutical sector, all of them strongly impacted by the chaos created, accepted and allegedly revealed by state institutions. The chaos we describe has impacted all pharmacies, especially independent pharmacies, which do not have the financial backing of a pharmaceutical chain, a main distributor, etc.
Empirically, the pharmaceutical industry is presented as a highly profitable industry, but the general public is not made aware of the mechanisms that drive the financial resources generated by this industry, nor what the distribution chain of a drug consists of. In fact, the interface of this distribution chain – the pharmacy – receives a tiny profit compared to the general perception that it earns. Neither at the European level nor in Romania can pharmacies set their mark-ups in a discretionary way, severely limited by European and national regulations in this respect.
In 2016, following the audit carried out by the Court of Auditors at the National Health Insurance House, the results of which were analyzed in the Audit Report concluded following the mission “Financial audit of the annual budget execution account of the Single National Health Insurance Fund for 2015 at the National Health Insurance House”, the Court of Auditors issued Decision no. 8/2016 which ordered, inter alia, the recalculation by each county health insurance fund of the maximum retail prices of medicines, in order to quantify the possible damage resulting from the settlements made from the National Health Insurance Fund (FNUASS) above the price margins established by order of the Ministry of Health No. 75/2009 for the approval of the Rules on the calculation of prices of medicines for human use. The decision of the Court of Accounts of Romania was based on a novel interpretation of the WHO 75/2009, considering that the CNAS has settled for prescription drugs amounts above the price resulting from the application of the commercial mark-up provided for in this normative act, thus considering that the UNFASS was prejudiced, the argument being that the pharmacies did not include the commercial discounts received to reduce the settlement price.
At that time, in the pharmaceutical market or the press, there were no echoes of this Court of Auditors’ Decision, as it seemed that a dispute would follow, which would delay the implementation of the Decision. The institutions with the power to regulate and manage drug prices and settlements from the national fund, namely the CNAS and the Ministry of Health, have constantly endorsed the correctness of the settlements made from the FNUASS as being within legally established price margins. Moreover, also at that time, after the Court of Auditors’ decision, CNAS provided a press release confirming that clarifications were required only at the institutional level between the Ministry of Health, CNAS, and the Court of Auditors, which rightly led to medicine suppliers not feeling the possible effects of an interpretation given by the Court of Auditors to the MS Order No 75/2009, in the sense that the settlements received from the health houses would have damaged part of the state budget.
Moreover, in practice, individual pharmacies or even chain pharmacies could not even obtain discounts within limits other than those accepted by CNAS because they are operated by computer programs verified and approved by state institutions so that no drug supplier could anticipate that it would have benefited from any unjustified settlement of drug prices or that it would be guilty of such a settlement.
In recent years, following Decision No. 8/2016 of the Court of Accounts of Romania, the litigation represented by the challenge of the Decision by CNAS, where the Ministry of Health, several companies and professional bodies of pharmacists (ASSOCIATION OF DISTRIBUTORS AND RETAILERS OF PHARMACEUTICALS IN ROMANIA, FEDERATION OF PATRONATELOR OF PHARMACEUTICALS IN ROMANIA, COLLEGE OF PHARMACEUTICALS IN ROMANIA, ASSOCIATION OF INDEPENDENT PHARMACEUTICALS “ETHICA”, APOTHEKE LOTUS S.R.L., LIBRO PHARMA S.R.L., ALFA PHARM S.R.L., MEDICA FARM S.R.L., EXQUISIT S.R.L., FARMA MYOSYS S.R.L., FARMACEUTICA ARCATIM S.A., REMEDIUM FARM S.R.L., DERYYFARM 200 S.R.L., SANTAL PHARM S.R.L, POPINA PRODIMPEX S.R.L., ASLA FARM S.R.L., CRISTI GRUP S.R.L., IRIS FARM S.R.L., FARMACIA VÂȚĂ S.R.L., FARMACIA JASMINUM S.R.L., BIOFARM FARMEC S.R.L., TIMOL-EUROFARM S.R.L., ADONIS FARM S.R.L. (FARMACIA DALIVEST), ARGEFARM S.R.L., LARIFARM S.R.L., QUINTA ESSENTIA FARMACIE S.R.L., JASMINE-PHARM S.R.L., MIRAFARM S.R.L., CRESCENS S.R.L., Despite the breadth of CNAS’s defenses supported by third parties, by Civil Judgment no. 2174/08.06.2017 of the Bucharest Court of Appeal – Administrative and Fiscal Litigation Section VIII, delivered in case no. 7244/2/2016*, CNAS’s action was dismissed as unfounded, a solution confirmed by the ICCJ by Civil Decision no. 2858/19.05.2022.
The solution pronounced on appeal by the ICCJ is not yet drafted. Still, immediately after the High Court’s ruling, i.e., on 31.05.2022, the CNAS issued a control methodology with the imposition of a self-monitoring model on pharmacies internally. The health houses started operational controls on thousands of pharmaceutical entities, imposed practically by the Court of Auditors in 2016, taking into account the address issued by the CNAS in 31.05.2022 on the specific control methodology of this control, having as subject matter the verification of compliance by suppliers of medicines with and without personal contribution with the regulatory provisions on the establishment of sales prices of medicines that have been reported and settled by the C.A.S in the period 2015 – date of the control.
According to the individual contracts concluded between the suppliers of medicines and the health insurance companies, but also according to the CNAS Order 1012/2013 for the approval of the Methodological Norms on the activity of the control structures within the social health insurance system, the former has an obligation to provide the health insurance companies with all the financial-accounting documents concerning the purchase of medicines and their settlement. The impact on the pharmaceutical market has, therefore, rightly been huge, generated by the need to prepare hundreds of thousands of records over seven years. Moreover, as is visible, many of the companies that owned pharmacies have disposed of their goodwill or have gone bankrupt, so those still operating in the form of 2015 were justifiably questioning how fair treatment would be given to those who were still verifiable compared to those whose documents could no longer be verified for various reasons, or to those who owned pharmacies that had gone bankrupt. Furthermore, the question was raised as to how a fair calculation and verification of the alleged damages could be ensured when it was known that some pharmacies did not have commercial discounts visible on their invoices or that there were discounts in the form of natural rebates.
It was and still is certain that the CNAS and the health insurance companies were in a position where they could not legally refuse to establish the damages claimed by the Court of Auditors in 2016, given the provisions of Art. 64 Law 94/1992 on the organization and functioning of the Court of Auditors, and the suppliers of medicines found themselves in the position where they could not refuse the controls, as they would have risked severe sanctions with an impact on their ability to continue to market medicines paid for by the State and to remain in a contractual relationship with the health centers. Still, they were not yet in a procedure where they could invoke their own defenses, including obvious prescriptions.
Moreover, the collective frustration in the pharmaceutical market was given by the fact that after the date of the decision of the High Court of Cassation and Justice, no institution or public authority seemed to be concerned about the impact of the Court of Auditors’ Decision no. 8/2016, the need to carry out thousands of controls by the control structures of the health houses, or the need to engage human resources by private parties in a short period of time in which representatives of Romanian pharmacies were required to summarize information from at least hundreds of thousands of financial-accounting documents. It was legitimately expected that the State, through its institutions, would intervene through constitutional mechanisms, given that medicine suppliers operated in a uniform manner criticized by the Court of Auditors without any warning from the Ministry of Health or the CNAS. Therefore there were no isolated cases of misapplication of the WHO 75/2009. Moreover, the Bucharest Court of Appeal ruled in Civil Judgment no. 2174/08.06.2017: “The Court considers that the claimant (CNAS) cannot be exonerated from the measure in para. II 4 of Decision no. 8/15.07.2016 issued by the defendant (Court of Auditors), as there is a liability of both the applicant and the Ministry of Health in causing the related damage“. However, the damage was to be recovered and borne strictly by the pharmacies.
Then, an intervention from the State institutions was legitimately expected, given that although there are contractual relations of a civil nature between the suppliers of medicines and the health houses, they were nevertheless exposed to being asked to quantify the amounts settled in the last 7 years, beyond what the Court of Accounts of Romania considered to be required, even though each supplier had submitted in the past to any control by the health houses and had never been pointed out that they had received amounts from the FNUASS without right. In addition, most pharmacy owners, especially individual pharmacies, were telling the market that they would be bankrupted, unable to afford to cover unintentional losses, on which the Court of Auditors wanted additional interest and legal penalties to be calculated.
At the same time, despite the public perception of the potential revenues of pharmacies, by reference to what the Court of Auditors has ruled and the ICCJ has confirmed, pharmaceutical entities have found themselves in the position of having their individually negotiated commercial discounts with distributors confiscated by the State. These negotiations have been supported by years of private collaboration. In order to obtain commercial discounts on the purchase of medicines, each representative of a pharmacy knows that he is required to purchase a quantity greater than necessary or to make payments for that purchase long before the price of the medicines is settled by the health insurance companies. It is even customary for medicines suppliers to take out loans to cover the financial shortfall until such time as health insurance companies settle the price of medicines. Among pharmacists, it is already customary for months of delay in the settlements made by the health insurance companies, during which time employees and distributors still have to be paid. It is, therefore, only natural that the outrage of someone who has supported the health system for years by making available his own finances, the knowledge he has acquired, the expertise he has accumulated, and the sustained efforts to draw attention to the lack of medicines in certain specific situations, all in favor of the patient, should be major, at a time when he is being denied, by the interpretation given by the Court of Auditors of Romania, any commercial gain derived from a commercial relationship he has built up individually and in stages.
Our team was requested by the pharmaceutical entities in Romania, where a surprising cohesion was born even for the pharmacists’ guild, to formulate amendments to Order 1012/2013 and later to provide benchmarks to be taken into account in the actual controls, to attack the methodology adopted internally by CNAS and to request amendments to the current Order of the Ministry of Health regulating the same aspects of maximum prices as WHO 75/2009. Thus, over the past months, we have worked daily to provide our clients with both collective and individual responses on the approach to each health insurance control, we have identified flaws in the procedure followed by CNAS in adopting that control methodology, and we have built an approach whose aim has been to delay the effective moment of establishing the calculated damage for each pharmacy, with the hope that our latest approach will be successful.
Initially, as mentioned above, we submitted to CNAS a memo containing comments on the proposed amendments to Order 1012/2013 published by CNAS at the end of June 2022. The main problem that this draft contained was closely related to the control actions to follow, because it allowed the control bodies of the health houses to make only an estimate of the alleged damage created by the suppliers of medicines and not only, practically allowed a new reassessment and verification, affecting the predictability of the rule and exposing the supplier of medical services, medicines, medical devices, and sanitary materials to double requests for the submission of supporting documents and implicitly to repeated controls on the same issue. It is also understandable that the CNAS at the time was in the position of having to manage thousands of checks on amounts settled over 7 years, which empirically speaking leaves room for human error, so it was hoped that later there would be a legal framework to return with the same control, in practice. At the same time as the proposals made by our team representing more than 700 pharmaceutical entities, we also asked for a public debate to be organized, as it was obvious that the subject of future control actions was of major interest compared to any other subject previously raised by CNAS. Subsequently, this public debate was organized, where we had the mandate of our clients to expose in dialogue with the CNAS representatives the criticisms made to the draft amendment of CNAS Order 1012/2013. The result of this approach materialized at the end of August 2022, the phase of damage estimation being abandoned by CNAS, and the controls started up to that moment would be subject anyway to the applicable provisions of the Order in force at the time of the start of the control.
Further, we criticized, in the representation of the pharmaceutical entities, the fact that they are required to draw up self-monitoring models, a request based on a simple internal CNAS address of 31.05.2022, without such documents being established by a regulatory action or in the individual contract concluded by the provider of medical services, medicines, medical devices, and sanitary materials. Also, at the collective level, because it was understood that what generated the issuance of Decision no. 8/2016 of the Court of Auditors is likely to subsist in terms of interpretation and under the umbrella of the application of the Order of the Ministry of Health no. 368/2017, we formulated proposals submitted to the Ministry of Health to amend this normative act, in order to adapt the allowable addition rates in pharmacies for the discounted medicines to the market realities and the role that the Romanian State must recognize pharmacies.
Also, precisely because we have received many requests on the effective approach to the controls initiated by the health insurance companies, in order to provide concrete support to the pharmacies that have requested our support, we have developed a guide on every aspect of the control, from the verification of the documents to be submitted by the control team of the health insurance company, to the procedures for challenging the acts issued by these bodies. In addition, we have prepared a draft widely used by pharmacies to request legal clarifications on how they are required to draw up mock-ups of amounts from their accounting documents on the subject of control and on the extension of the deadlines for submitting documents.
At the end of the steps taken in support of the pharmacies, we have drafted a proposal for a draft regulatory act containing provisions exempting from the payment the alleged damages created by the mechanism retained by the Court of Auditors in 2016, with legal explanations and arguments imposed by the pharmaceutical market, which we have submitted in a memorandum to the bodies that could offer their constitutional assistance for implementation, as trustees of the pharmaceutical entities involved in this collective approach. This approach was materialized in September 2022, and subsequently, the decision-makers at the level of the Romanian Senate found viable the option in which the exemption from payment requested by us to be transposed into what was the Draft Law on the approval of Government Ordinance no. 14/2022 for the amendment and completion of Law no. 95/2006 on health reform. In October 2022, the draft reached the Chamber of Deputies, which was the decision-making chamber, and as a result of our amendments requesting that the exemption should cover both amounts settled under the Ministry of Health Order no. 75/2009 and the Ministry of Health Order no. 368/2017, the form sent to the President of Romania for promulgation contained all the aspects we requested namely both exemption from payment for amounts unlawfully settled by CNAS according to the opinion of the Court of Accounts of Romania, and the application of this exemption for the entire period from 2015-2022.
Finally, our efforts and the trust of our customers have been translated into a real success with the publication in the Official Gazette of Law 308/2022 on the approval of Government Ordinance No. 14/2022 amending and supplementing Law No. 95/2006 on health care reform, which includes all the required aspects.
We are delighted with the experience of making a sustained effort on such a large scale. Still, even more so with every contact we have had with the representatives of the pharmacies and the public institutions involved, without whom our ideas for building a successful tactic would not have been born and would not have been crowned with the success we can celebrate today, with all of us.