On 17 August 2023 the parliament held its final vote on a bill to tighten the section of the Pharmaceutical Law known as “Pharmacies for Pharmacists.” Now the act will be sent to the President of Poland, who will decide whether to sign it into law. The amendment (known as “Pharmacies for Pharmacists 2.0”) is stirring a lot of controversy. Its entry into force would significantly restrict the possibility to buy and sell pharmacies, and would require the Pharmaceutical Inspectorate to scrutinise franchise agreements. Pharmacy chains are concerned that the new provisions will lead to expropriation.
What is to change?
The current regulations include restrictions on the possibility to open new pharmacies. There are anti-concentration limits (one entity can operate no more than 1% of the pharmacies in a province, and no more than four pharmacies in Poland), demographic and geographic limitations, and entity-based restrictions (see our earlier article “Pharmacies for pharmacists—but what about patients?”). Under the entity-based restrictions, a licence to operate a public pharmacy can be obtained only by:
- A licensed pharmacist operating a sole proprietorship
- A registered partnership or professional partnership in which the partners are exclusively pharmacists
- Universities providing education in the field of pharmacy.
Under the regulations now in force, these restrictions also apply to buying pharmacies via acquisition of an enterprise.
But the current provisions do not expressly address other ways of taking control of pharmacies, such as purchasing the shares of a company operating a pharmacy. Province pharmaceutical inspectors have often challenged such practices, claiming that the subjective restrictions should apply not only to permits issued after entry into force of the “Pharmacies for Pharmacists” act of 25 June 2017 (new permits), but also to permits issued before “Pharmacies for Pharmacists” took effect (old permits), as long as the change in the entity occurred after the act entered into force. But the judgments of the Supreme Administrative Court have mostly held that the entity-based restrictions do not apply to “old” pharmacy permits.
Under the recently passed Pharmacies for Pharmacists 2.0, acquisition of control of pharmacies, broadly construed, is to be banned if the acquirer does not meet the subjective requirements or would exceed the nationwide limit of four pharmacies. In other words, the new act would narrow the set of entities that can take control of a pharmacy.
How to understand the takeover of control?
Regarding the definition of taking control, Pharmacies for Pharmacists 2.0 cross-references the Competition and Consumer Protection Act of 16 February 2007. Under Art. 4(4) of that act, acquisition of control means any form of direct or indirect acquisition of powers by an undertaking which, either separately or in combination, taking into account all legal and factual circumstances, enables the exercise of decisive influence over another undertaking or undertakings (a dependent undertaking). The catalogue of circumstances resulting in takeover of control is open-ended. The antitrust laws only give examples of situations where control is deemed to be acquired. These include:
- Directly or indirectly holding a majority of votes in the shareholders' meeting, including as a pledgee or usufructuary, or on the management board of a dependent undertaking, also pursuant to agreements with other persons
- The power to appoint or remove a majority of the members of the management board or supervisory board of a dependent undertaking, also pursuant to agreements with other persons
- A situation in which the members of the undertaking’s management board or supervisory board constitute more than half of the members of the dependent undertaking’s management board
- Directly or indirectly holding a majority of votes in a dependent partnership or in the general meeting of a dependent cooperative, also pursuant to agreements with other persons
- The right to all or part of the assets of a dependent undertaking
- An agreement providing for management of a dependent undertaking or transfer of profits by such an undertaking.
The consequences of the planned amendments
The broad definition of taking over control means that the new restrictions will cover such actions as the purchase of a majority of shares in a pharmacy-licensed company, and sometimes even the signing of a franchise agreement, when the terms imply that the franchisor may control the pharmacy franchisee. The takeover ban applies to entities that do not meet the subjective restrictions or would control more than four pharmacies in Poland. Thus, the new act clearly targets pharmacy chains.
In 2017, introduction of “Pharmacies for Pharmacists 1.0” was justified by the claimed need to combat the creation of an oligopoly of foreign-owned pharmacy chains, and to protect small Polish pharmacies run by pharmacists. Similar arguments were advanced by the proponents of Pharmacies for Pharmacists 2.0. But this does not take into account the patient’s perspective. The introduction of Pharmacies for Pharmacists 2.0 may lead to an increase in medicine prices for Polish patients, as it would eliminate the economies of scale allowing chains to sell goods for less. (The same is true in the grocery market, where discount chains offer low prices to consumers and compete fiercely on price.)
Also, inhibition of investment in the growth of pharmacies will be a natural consequence of the ban on pharmacy chains and foreign capital taking control of existing pharmacies. Certainly it would hinder the further development of institutions such as pharmaceutical care or the expansion of other services offered to patients in pharmacies (such as pharmacy vaccinations, where chain pharmacies are leading the way).
Limiting a pharmacy’s freedom to sell will be another negative consequence. The set of potential purchasers will be greatly reduced, and pharmacists who are eligible to acquire a pharmacy will rarely have the necessary capital at their disposal. This will have a big impact on pharmacy operators wishing to withdraw from the market.
And, for good reason, there are concerns about expropriation. Although the new provisions contain a clause stating that the ban on taking control is not to operate retroactively, experience shows that Pharmacies for Pharmacists 1.0 from 2017 was sometimes interpreted by province inspectors contrary to its literal wording, due to the imprecision of the regulation. Pharmacies for Pharmacists 2.0 is also insufficiently precise, so attempts by some inspectors to challenge old permits obtained before the amendment took effect cannot be ruled out, if proceedings regarding the takeover of control are initiated after the effective date of the amendment. In our view, even if this were to happen, the courts should uphold the right to sell the business. But it is too bad that potential disputes could not have been headed off through more precise provisions.
Beyond the risk of direct expropriation, there could also be some form of indirect expropriation, or restriction of historically acquired rights to operate a pharmacy. This is because foreign investors will not be able to expand their earlier investments, and exiting their investment will be greatly restricted.
If the President signs the Pharmacies for Pharmacists 2.0 amendment, it will enter into force 14 days after publication in the Journal of Laws.
Joanna Krakowiak, attorney-at-law, Marcin Rytel, adwokat, Joanna Prystupa, M&A and Corporate practice, Life Sciences & Healthcare practice, Wardyński & Partners