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Veterinary medicines monopoly slammed

PRESCRIPTION ONLY veterinary medicines were slammed as a monopoly by the Competition Commission after their year-long investigation into the supply of such medication within the veterinary profession at the behest of The Secretary of State for Trade and Industry, Patricia Hewitt. The aim of the investigation was to ascertain whether vets had a monopoly on the supply of POMs, when high street pharmacies could provide the same or similar medication at a competitive cost.

The Commission’s report stated that as most POMs are supplied by manufacturers to veterinary surgeries via veterinary wholesalers, and sold by veterinary surgeons to animal owners, the Commission focused on this chain of supply, and on the ability of pharmacies to compete with veterinary surgeons at the retail level.

The report states that the Commission found one scale, and three complex, monopoly situations within the meaning of the Fair Trading Act 1973 (FTA), these being:

- National Veterinary Services Ltd (NVS), a wholly owned subsidiary of Dechra Pharmaceuticals PLC (Dechra), supplies more than one-quarter of all POMs at the wholesale level and so meets the definition of a scale monopoly.

- The first complex monopoly situation involves veterinary surgeons engaged
in one or more of the following conducts:

(a) failure to inform animal owners that they can ask for prescriptions, or discouraging requests for prescriptions, or declining to provide prescriptions on request;

(b) failure to inform clients of the price of POMs prior to dispensing them, or to provide itemised bills; and

(c) pricing of POMs which does not reflect their cost of supply, including:

(i) mark-ups on manufacturers' list prices that take no account of the discounts and rebates they receive from wholesalers and manufacturers, or do not reflect variations in those discounts and rebates; and
(ii) pricing POMs to subsidise, to a greater or lesser extent, professional fees.
The report continues, outlining the second complex monopoly situation as arising from the failure of eight named manufacturers to enable pharmacies to obtain supplies of POMs on terms which would enable them to compete with veterinary surgeons.

- The third complex monopoly situation arises from the failure of all the veterinary wholesalers to take reasonable steps to market to pharmacies and supply them with POMs, so that they can compete with veterinary surgeons.
The Commissions says: "We found these conducts, which have the effect of preventing, restricting or distorting competition, to be interconnected in ways that are important for a proper understanding of the lack of competition in this market:

- First, through interconnections of effect, in that conducts at the different levels combine to raise barriers to entry and expansion by pharmacies.

- Second, through interconnections of relationship: the manufacturers, wholesalers and veterinary surgeons each maintain direct relationships with the others.

- Third, through interconnections of justification, in that certain conducts at one level in the supply chain provide a rationale for those at other levels to maintain their conducts.

- Fourth, through interconnections of benefit, in that each of those engaged
in the conducts benefits from the conducts of the others through their combined effects.

- Fifth, through interconnections of dependence, in that certain conducts at one level of the supply chain depend upon conducts at others.

Markets, competition and prices."

The report scathingly targets the UK as the "relevant geographic location" for the manufacturer-level markets for the supply of POMs and identified 30 separate product markets under five broad headings: "Of the five veterinary wholesalers in the UK, three operate in most regions of Great Britain; one operates in Scotland, Wales and northern England; and one, only in Northern Ireland. Competition between veterinary practices is local.

An examination of all three levels in the supply chain led us to conclude that competition in the supply of POMs is weakest at the retail level and that pharmacies provide only minimal competition for veterinary surgeons."

The Commission also ascertained that POM prices in the UK are hardly competitive when compared with other European countries:

"Comparison of the UK prices of some commonly-used POMs with those in other European countries showed that, for the veterinary medicines studied:

(a) Most best-selling POMs in the UK are substantially more expensive, ex-manufacturer, than in all the European countries in our study.

(b) The difference in price between the UK and other European countries is greater for POMs, ex manufacturer, than for other veterinary medicines, and countries where pharmacies play a larger role in their supply have the lowest ex-manufacturer prices.

(c) Retail prices for POMs (excluding VAT) are never lower and are generally substantially higher in Great Britain.

(d) For those POMs for which it was possible to make a comparison of retail prices after adjusting for differences in ex-manufacturer prices, prices in Great Britain are still higher in the majority of cases."

Interestingly, the Commission admitted that the scale monopoly situation did not, in itself, "raise issues for the public interest", but that the conduct of the manufacturers’ ‘cartel’ did "have effects detrimental to the public interest in that they lead to a lack of choice of supplier for animal owners and to the prices of POMs being higher than they would otherwise be."

The report continues: "We were not persuaded by arguments that the behaviours over which we have raised competition concerns serve a wider public interest in the protection of public safety and animal welfare, and that any attempt to introduce greater competition into the supply of POMs would be damaging. We take the view that continuation of the anti-competitive conducts we identified is not necessary to deliver public safety and animal welfare, nor that these conducts self-evidently provide the most economic and effective route for securing such wider benefits."


As to any recommendations to alleviate the situation to make the situation better in some way for the pet owning public, the Commission suggest that effective competition in the retail supply of POMs depends on a number of factors, namely:

"- on alternative sources of supply able to offer effective competition to
the veterinary surgeon who made the diagnosis and recommended the POM: under current regulations this competition can come only from pharmacies, as one veterinary surgeon may not supply POMs prescribed by another;

- on the ready availability of prescriptions from veterinary surgeons;
- on pharmacies being able to supply POMs-which, in turn, means that they must be able to obtain them on terms that do not prevent, restrict or distort competition with veterinary surgeons; and
- on the provision of transparent information to enable animal owners to understand and compare prices.

To reduce barriers, and to otherwise promote competition, in relation to each of these factors, and to address the detriments we have identified, we recommend that the following remedies be introduced under the FTA:

(I) A requirement for a large and prominently displayed sign in all
veterinary surgeries advising clients on:
- the availability of-and charge for-prescriptions…. to enable them to obtain POMs from pharmacies if they wish;
- the price of the ten POMs most commonly prescribed or dispensed by that surgery in a typical three-month period; and
- the availability of further information on prices of all POMs stocked or sold."
Vets themselves came under fire from the Commission, who declared that they must take a fair measure of responsibility for allowing fairness in the supply of POMs in the customers’ interest:

"(II) A requirement for veterinary surgeons to inform clients, on request, of
the price of any POM they propose to dispense and to quote the price of any
POM stocked or sold to anyone who asks.

(III) A requirement for veterinary surgeons to provide itemised bills distinguishing the cost of services from the cost of POMs.

(IV) A requirement for veterinary surgeons recommending the use of POMs to inform clients of their policies and charges regarding further examination of animals requiring repeat prescriptions, either by provision of a leaflet or in a letter of engagement. We would encourage veterinary surgeons also to include in these leaflets or letters of engagement texts advising clients of the matters covered in remedies (I), (II) and (III).

(V) A requirement for clients of veterinary surgeons to be offered, either orally or in writing, prescriptions for POMs the veterinary surgeon recommends, except for those used in emergency treatment, for treatments during surgical procedures or as anaesthetics; and for prescriptions requested in consequence to be provided by the veterinary surgeon."

One requirement arising from the report, which would be bound to cause widespread concern throughout the veterinary profession, was the suggestion that vets supply POMs FREE OF CHARGE for a period of three years whilst the situation was monitored.

The Commission stated " A requirement, for a period of three years, for veterinary surgeons providing prescriptions to do so at no additional charge to the client beyond that of the consultation. The Director General of Fair Trading (DGFT), with the Royal College of Veterinary Surgeons (RCVS), to monitor the prescriptions written, and the charges made for them, over the 12 months following the end of that period. The DGFT to set charges for prescriptions if, in his judgement, veterinary surgeons are charging for prescriptions so as to deter animal owners from asking for prescriptions or to influence the terms of competition with pharmacies to their own advantage."

The RCVS was also urged to take its share of responsibility: "We also urge the RCVS to encourage veterinary surgeons to provide prescriptions in a form that will allow identification and dispensing of alternatives which, in their clinical judgement, would be equally acceptable so as to give the animal owner maximum opportunity to seek the most cost-effective solution and, in order to facilitate such behaviour, to consider the desirability of drawing up or endorsing lists of alternative veterinary medicines to be considered by veterinary surgeons in writing prescriptions for common conditions….


"Although none of our recommendations or remedies affects veterinary surgeons' exclusive right to prescribe POMs for animals or herds under their care, they are all designed to encourage and increase competition in the supply of POMs. The eventual success of the measures designed to increase competition between veterinary surgeons, and between them and pharmacies, will depend on animal owners and veterinary surgeons responding to the new opportunities we have sought to create, and on the readiness of pharmacies to enter the market. This, in turn, will require that they should be able to obtain supply, on terms that will allow them to compete."

Commenting on the Competition Commission's report on the supply of prescription-only veterinary medicines the President of the British Veterinary Association (BVA) Peter Jinman said that he was "deeply disappointed at the failure of the Commission to understand how veterinary practice worked" and that the profession would "fight to protect the welfare of the animals under its care."

"Clearly we need to study the report in detail before making a substantial response" said Mr Jinman "but at first sight the recommendations would appear to undermine everything that has been done in recent years to put in place a system that ensures the responsible use of veterinary medicines. The BVA is particularly concerned that competition theory should not be prejudicial to animal health and welfare and public health: while the Competition Commission and DTI have their particular interests other government departments as well as the European Commission will now need to play their role in explaining just why medicines legislation is framed in somewhat monopolistic terms".

Mr Jinman was adamant that the UK animal population received, as it deserved, a first-class service from the veterinary profession. "We will respond vigorously to this report, secure in the knowledge that what we are dispensing are medicines - biologically active substances - and not, as some of the recommendations might lead one to believe, sweets."

Accepting the Competition Commission recommendations, Trade and Industry Secretary Patricia Hewitt said: "The Competition Commission Report shows that the market in prescription-only veterinary medicines is not working as well as it might. Prices are too high.

Once implemented, the Commission's recommendations and proposed remedies should lead to greater choice for animal owners and increased competition in the market, while ensuring that we continue to protect both human and animal health.

"I will be asking the Office of Fair Trading to consult with relevant parties on the appropriate terms of orders to implement the Commission's remedies under the Fair Trading Act 1973, and to report back to me within three months.

"My Department will also coordinate discussions with other Government Departments and interested bodies over the practicalities of introducing the changes to the regulatory regime advocated by the Commission. This approach is in line with DTI's co-ordinating role in relation to regulatory recommendations arising from Office of Fair Trading market studies."