GEO

The New Draft Law on Competition Regulation in the Healthcare Sector

28 December, 2012

Transparency International Georgia has examined the latest proposed amendments to the Law on Free Trade and Competition by Koba Davitashvili, MP.

As of the moment Georgia has basic competition regulations in place and no violation of competition rules and principles has yet been investigated/detected by the Competition and State Procurement Agency. Apart from this, legislation regulating competition in Georgia is a mandatory step towards successful conclusion of the Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union.

This draft law advocates a fragmented approach to competition policy in the healthcare sector and treats the vertical integration of the companies within the healthcare sector (pharmaceutical, health insurance and hospital markets) as the abuse of dominant position. Put otherwise, it prohibits the company/interdependent companies from simultaneously engaging in two or more activities on the pharmaceutical, health insurance and hospital markets. Yet, the draft law introduces strict sanctions for noncompliance with the rule, including a compulsory disposal and sale of the assets, i.e. if a company/interdependent companies fail to comply with this regulation, their assets will be sold and the proceeds will go back to the owners.

The aforementioned amendment is termed ‘abuse of dominant position’ in Article 6 of the law of Georgia on Free Trade and Competition. For a company’s action to qualify as abuse of a dominant position as set forth in the applicable legislation it has to hold a significant share of the market. A significant market share means holding at least 40 percent of turnover in the relevant market. Therefore, a company or interdependent companies have to hold at least 40 percent of the market shares on pharmaceutical, insurance and hospital markets separately to be abusing a dominant position. Furthermore, significant market share is, as a rule, determined with regard to the share of the company’s sales in the last three financial years on the basis of the methodology developed by the Competition and State Procurement Agency. It is noteworthy that such methodology has not yet been developed by the Agency. Transparency International Georgia’s research into the health care sector (“Health Care in Georgia”, Transparency International – Georgia, 2012) showed that neither a single nor interdependent companies hold a significant market share on each of the three markets simultaneously. These amendments, respectively, will have no impact on the competition dynamics in the healthcare sector. Even so, it highlights the importance of an effective competition regulating authority.

Another point to be emphasized is that the legal and economic implications as well as risks should be carefully assessed, as compulsory disposal and sale of assets proposed by this draft law in the absence of sufficiently detailed regulations (selling price, sales rule and  procedure etc.) may have a negative impact on the country’s investment profile as well as economy in general.

Transparency International Georgia believes that a fundamental institutional reform of competition policy is of crucial importance to ensure effective regulation of anti-competitive practices in Georgia. A fragmented approach to the competition legislation would only undermine economic and legal impact of the proposed amendments. International experience demonstrates that effective state supervision of competition practices should be equally ensured in all sectors of the economy while the impact of vertical integration and/or abuse of dominant position by a company/interdependent companies should be established on case-by-case basis by a competent competition authority mandated to ensure free and fair competition in the market.

Author: Natia Kutivadze
healthcare