Pharmaceutical Accountability Foundation

Legal Principles

PAF uses the law to hold pharmaceutical companies to account for medicines pricing, and then shares the lessons learned in the living document below to help others working to increase access to medicines.

Legal principles

There are four main legal principles that form the basis of PAF’s work. Click on the buttons below or scroll down to learn more about each principle. 

Displacement of care

National health plans and hospitals have limited financing. Health authorities therefore set priorities about which medicines the health system can afford. This section relies heavily on illustrative examples from the Netherlands, but the issues have global applicability.

In the Netherlands health insurers cannot automatically add new medicines to the roster of what they cover; a medicine can be put on hold by the Healthcare Institute of the Netherlands if it would cost more than €40 million per year across the country or more than €50,000 per patient per year and more than €10 million across the Netherlands.

When medicines prices are high, there are four paths health authorities might take: Negotiate for lower prices, increase health spending, ration care, or set priorities on which care to give. They are detailed below.

When medicines costs are unjustifiably high, this can act to ‘displace’ care: that is, replace other useful services or limit access to needed services.

    1. Negotiate lower prices:
      • In the Netherlands, the health ministry began negotiations with pharmaceutical companies on behalf of the whole country in 2012. This saved the country’s health systems overall €272 million Euro between 2012 and 2018.
      • But negotiations are not always cost-effective, the Netherlands Court of Audit found, especially in cases of medicines that have no viable alternatives (such as Spinraza, which treats a genetic illness called spinal muscular atrophy, or Orkambi, which treats cystic fibrosis) that the Health Ministry was unable to successfully negotiate to prices as low as those recommended by the Dutch National Health Care Institute.
    2. Ask for an increased budget:
      • One way to accommodate rising medicines costs is to ask for an increased budget.
      • However, without government action, this has led  to an increase in the cost of expensive hospital pharmaceuticals by 10% every year, which is not sustainable.
      • It is even more unsustainable as the Netherlands has decided to cap growth on the cost of specialised care nationally until 2022
      • At the hospital level, case studies on the introduction of six expensive treatments found that the introduction of high-priced treatments resulted primarily in increased spending as well as rationing (see next point), and predicted that with more budget pressure more drastic decisions might be made.
  1. Ration care:
    • Given limited budgets, health authorities might decide to limit who has access to high-priced care, for example by delaying treatment until a patient has reached an acute phase of disease. This happened across Europe in response to high prices for sofosbuvir, a treatment for hepatitis C that was priced at €55,000 for a 12-week course of treatment.
    • Rationing can take many forms in addition to delayed care: patients may be selected to receive treatment on basis of their prognosis; patients may be directed to other services; services may be offered in a limited form or ended earlier than previously; or by making a treatment harder to access.
    • In the Netherlands, a study found that hidden ‘bedside’ rationing is happening in hospitals. In a survey, 64% of physicians reported prescribing a lower-cost course of treatment when a more effective, but more expensive treatment was available. These decisions were not always disclosed to patients.
    • Rationing of care can lead to suboptimal health outcomes.
  2. Make trade-offs:
    • In addition to rationing of high-priced care, health authorities may trade-out other health services.
    • This is known as ‘priority setting’, and decisions might be made on the basis of clinical need as well as cost-efficiency.
    • A case study in public hospitals in Australia found that priority-setting at the hospital level required difficult moral decisions, between the needs of individual patients with the need to maximise benefit over all patients.

Rationing and priority setting constitute ‘displacement’ of care: health authorities at all levels –nationally, at hospitals, and in physician/patient settings – must make tough choices when the cost of treatments puts pressure on budgets. Some medicines are costly to produce and/or costly to administer, and difficult choices will always be part of health financing. But some other medicines are inexpensive to produce but have excessive prices due to abuse of a monopoly position in the market. In these cases, displacement of care is an unjustified harm to health outcomes made to feed pharmaceutical company profits.   


Fair pricing

Effective and innovative medicines are kept out of reach for many patients worldwide due to high prices. A ‘fair price’ is envisioned as one which is ‘affordable to the buyer while covering the seller’s costs and providing a reasonable profit margin’. A fair price should align affordability for health systems with market incentives for pharmaceutical innovation. Defining a fair price in relation to a specific product requires transparency about the costs incurred in R&D, manufacturing, and distribution of the medicine. Applying a fair pricing strategy is therefore inherently linked to this type of public disclosure. The WHO organises ‘Fair Pricing Forums’ to encourage dialogue between stakeholders about creating a fairer global pricing system for medicines. The official WHO ‘Fair Medicine Price’ definition is: “A fair price is one that is affordable for health systems and patients and that at the same time provides sufficient market incentive for industry to invest in innovation and the production of medicines.”

Fair medicine prices are usually between the ‘cost-plus’ price proposed by health insurers/governments and ‘value-based’ price requested by pharmaceutical companies.

Cost-plus pricing is defined by WHO as: “the practice of setting the price of pharmaceutical products considering a wide range of costs, including those associated with research and development, manufacturing, regulatory processes and compliance, overheads and operational expenses, and profit.”

Value-based pricing is defined by WHO as: “an approach that aims to set prices for pharmaceutical products based on the measured and quantified “value” or worth that patients and health systems attribute to pharmaceutical products.”

Abuse of dominant market position

Article 24.1 of the Dutch Competition Act (DCA) holds that ‘undertakings are prohibited from abusing a dominant position’. More specifically, Article 102 of the Treaty on the Functioning of the European Union (TFEU), states:  ‘Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets, or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.’

Market dominance usually occurs when a private company enjoys a position allowing it to function independently from its competitors, and controls a majority share of the market. This is sometimes measured by market share – e.g., above 40% – but this is not a perfect measure of dominance. In United Brands v Commission, the Court of Justice of the European Union (CJEU) described the dominant position as one ‘of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers’. Misusing the regulatory framework by, for example, extending patent protection for drugs in order to delay the market entry of generic products, is considered to be an anti-competitive practice and an abuse of such a dominant market position. Charging excessive prices for a medicine during the patent protection period can also be considered an abuse of dominance.

Duty of care

What is duty of care?

Every actor in the Dutch healthcare system (doctors, pharmacists, and health insurers) has a mandatory duty of care towards patients and policyholders. Pharmaceutical companies are the only actors within this system which do not have such a duty. 

But pharmaceutical companies, by developing and marketing lifesaving drugs, play an essential role in the Dutch healthcare system and should also have a legally binding duty of care, just like doctors and insurers, to allocate these medicines fairly. 

There is a legal provision in the Dutch Civil Code (art 6:162) which holds that an act or omission that violates ‘a rule of unwritten law pertaining to proper social conduct’ will be considered a tort. 

In the landmark judgment Milieudefensie vs Royal Dutch Shell (2019), the Dutch District Court ruled that private companies have individual obligations (in this case, to reduce CO2 emissions), independently of existing State obligations, and that this obligation is enshrined in Dutch tort law in article 6:162. 

Accordingly, this provision can also be used to hold pharmaceutical companies to account for breaching their duty of care, by e.g. setting high prices that result in displacement of care and loss of life.