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Doing Business in Brazil: Political and economic landscape

Licks Attorneys' COMPLIANCE Blog

DISCOUNT ON MEDICATION - A SOURCE OF CONCERN FOR THE PHARMACEUTICAL SECTOR

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In May 2021, the State of Arkansas in the United States published the HB1709 bill prohibiting manufacturers from offering discount on any product containing insulin, with the exception of the discount provided directly to the end user in the form of a pharmaceutical manufacturer discount coupon and which can be obtained through the National Council for Prescription Drug Programs e-prescribing service.

This fact re-sparked the controversy of discount, also here in Brazil.

Discount can be granted in various ways, such as when selling to the wholesale sector, through discount coupons, in retail consumer sales, etc...

Below, we can see the main challenges in granting discounts:

1.1. AGGRESSIVE COMMERCIAL DISCOUNTS

In Brazil, the price of drugs is regulated by the Drug Market Regulation Chamber (CMED), which is an interministerial body responsible for economic regulation of the drug market in Brazil. As a rule, the price of drugs is adjusted once a year, at the beginning of April each year.

One way found by some pharmaceutical companies to increase their sales is to grant aggressive commercial discount and thus increase their market share. However, aggressive commercial discount raises a red flag with CMED, because if the company can grant such a discount, one wonders why its price is registered at such a high level in the first place.

Besides, if such discount would reduce the product’s final price below the cost price, violation of the economic order occurs.

1.2. DISTRIBUTOR DISCOUNT

Distributor discount always brings three concerns: (i) the possibility of such discount being used by distributors, either in collusion or not, with the company, for acts related to bribery, corruption and bid fraud and (ii) the possibility of violating free competition, if the differentiation of discount granted to different distributors is not based on a predefined criterion, such as a commercial policy, for example, and (iii) the possibility of violating the economic order, if the discount reduces the value of the product below the cost price.

1.3. DISCOUNT THROUGH COUPONS OR DISCOUNT CARDS

Another way to be used by the pharmaceutical industry to grant discount, seeking patient’s loyalty, is through coupons or discount cards that are, as a rule, distributed to health professionals, so that they can pass them on to patients.

The use of coupons or discount cards raises the concern of inappropriate interference in the physician's value judgment in prescribing the best treatment for their patient. In a country where access to medication is a major challenge, especially given the purchasing power of Brazilians, the coupon argument becomes an inexorable way to build a physicians' loyalty into prescribing a certain medication.

Faced with this issue, associations such as Interfarma have already banned such praxis in their code of conduct: "Companies should not promote any mechanisms that induce the physician to provide coupons or discount cards for the purchase of medication by patients, as well as fill out any kind of registration, enrollment, form, information card or similar documents for the mentioned promotions."

1.4. DISCOUNT GRANTED BY PHARMACIES TO CONSUMERS

Regarding discount granted by pharmacies to consumers, there are two potential problems that can become a major headache if the correct legal framework is not in place.

First, we come across the new data protection act. As most pharmacies that grant discounts to consumers require the consumer's personal data and, sometimes, such pharmacies use this personal data at their own discretion, this practice may be turning into a nightmare for retailers, as it has already happened with the enforcement of some penalties, for the time being, still in the judicial sphere or under consumer law. However, with the validity of the LGPD penalties as of August 1, 2021, it is necessary to have the correct framing of the processing of personal data, according to the new act, so that this practice is perpetuated, or even, to stop collecting such data at all.

In addition, such discounts can bring to light the logistical operations, which are agreed between pharmaceutical industries and large pharmacy chains. Again, without a predefined criterion, such logistical operations can mean a violation of free competition or even characterize an infraction of the economic order, either by resulting in a sales price lower than the cost price, or by undue interference by the industry imposing the transfer of discounts to the retail trade.

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