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Restrictions on pharmacy ownership in Hungary and the EU’s recent challenge against them

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Since the introduction of a new law in 2011, the rules governing pharmacy ownership in Hungary have been made stricter each year, resulting in one of the most restricting regimes in Europe. This has happened in spite of fairly significant lobbying by European and local pharmacy chain owners. The express purpose of the strict requirements was to protect the interests of local individual private pharmacists by excluding (typically non-Hungarian) institutional pharmacy chains from the Hungarian market. This has understandably raised strong concerns among the EU institutions, eventually resulting in the Commission recently starting a formal infringement procedure against Hungary by sending an official “Letter of Formal Notice” to this effect.

Under current laws, the acquisition of majority shares in pharmacies by professional investors is effectively made impossible. In newly established pharmacies at least 51 per cent of the shares must be held by local, private individual pharmacists and the voting rights cannot be diverted from the proportional shareholdings.

Institutional investors in existing pharmacies were obliged to appoint a local pharmacist as director of the pharmacy and to sell at least 25% of their shareholding to the director or other private pharmacists by January 2014. By 2017 there is an obligation on investors to sell at least 51 per cent of the pharmacy to the pharmacists, thus effectively putting all pharmacies under the control of individual local pharmacists. There is an additional restriction, limiting the maximum number of pharmacies which may be owned by one individual pharmacist to four, with the evident intention of outlawing pharmacy chains.

Initial complaints were lodged with the Commission back in 2012. Prior to starting the formal infringement procedure, it carried out a lengthy so-called pilot procedure during which the detailed regulations were carefully examined. The Commission has raised its recent objections due to the limits the law poses on the free movement of capital and of persons. Additionally it is investigating whether and at what price the non-Hungarian investors will be able to dispose of their existing interests in pharmacies, as required by the law. An additional element of concern is the differentiation in the law between local and non-Hungarian investors, the former clearly being favoured by the Hungarian legislators.

The Letter of Formal notice was sent by the Commission late September 2014 and under the EU Treaty Hungary must provide a formal reply within two months. If the Commission is not satisfied with the response, it may send a formal request to comply with EU law, calling on Hungary to provide information on the measures it intends to take within a further two month period. If Hungary continues not to comply, the Commission has the right to refer Hungary to the Court of Justice for the issuance of a judgment. If, despite a negative judgment Hungary continues not to comply, it may be referred back to the Court of Justice under a second infringement procedure following which financial penalties may be imposed by the Court. As with all potential conflicts between EU member states and the European institutions, it remains to be seen how far the two sides are prepared to go to in the battle between compliance and protection of local lobbying interests.

Life sciences winter newsletter This article is included in Eversheds' life sciences quarterly newsletter to download the Winter 2014 edition click on the image. 

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