Economy

Market monopolization: it became known why Ukrainians overpay for medicines

The Ukrainian pharmaceutical industry is in dire straits due to market monopolization and lack of state regulation. About 90% of the market is controlled by only two distributors who dictate terms to pharmacies and manufacturers, Komersant ukrainskyi reported citing Telegraf UA.

This situation, combined with unregulated pricing and marketing tactics of pharmacies, leads to exploitation of consumers and sale of dubious drugs.

The lack of proper state regulation worsens the situation. The market is controlled by a few players, mainly two distributors and five large pharmacy chains, who resort to cartelization. The ultimate costs are borne by consumers, who end up paying billions of hryvnias for overpriced drugs, enriching the owners of intermediary companies. As a consequence, drug prices in Ukraine are much higher compared to European countries, where the purchasing power of the population is much higher.

For example, in Poland the well-known painkiller Nimesil costs about 185 UAH per package. In Ukraine, the same package can cost from 400 to 500 hryvnias, which makes medicines in Ukraine two or two and a half times more expensive.

Experts say: if nothing is changed, drug prices will continue to rise rapidly. This situation puts consumers at a disadvantage, especially considering that Ukraine has the highest mortality rate in the world.

An important factor in the pharmaceutical crisis is the monopolization of the distributors’ market. Now two companies, “BaDM” and “Optima-Pharm, LTD”, control more than 90% of drug distribution, despite the fact that they are unable to efficiently deliver drugs to remote areas. The lack of competition allows these two distributors to significantly increase their markups from 4.5% in 2021 to 12% in 2024. As a consequence, the net profits of these distributors have increased sixfold, which has affected prices at pharmacies.

The owners of these intermediary companies attract attention because of their dubious reputations. For example, the owner of Optima-Pharm, LTD, Andriy Gubskyy, is the brother of scandalously famous MP Bohdan Gubskyy. Andriy Gubskyy is also associated with Viktor Medvedchuk, a figure linked to treason. He is believed to be involved in corruption, raiding, fraud and may be implicated in the criminal activities of the “magnificent seven” clan, which was known for murders, kidnappings, pyramid schemes and tax fraud in the 90s. Despite the fact that Andriy Gubsky does not reside in Ukraine, he controls half of the pharmaceutical distribution market and receives income from the Ukrainian population.

However, the company “BaDM” is founded by the Cyprus offshore “Liorco Investments Limited”, the ultimate beneficiaries of which are Alexander Dityatkovsky, Alexander Sukhodolsky and Igor Sukhodolsky. One of the owners, Oleksandr Dityatkovskyy, lives outside Ukraine, which makes it difficult to control the monopoly’s activities.

Now the main threat to the owners of BaDM and Optima is the possibility of fines from the Antimonopoly Committee. In June 2024, the AMCU began considering a case against the two monopolists for price collusion on Spazmalgon and Evkazolin Aqua. The fines for this could be significant: UAH 5.4 billion for Optima and UAH 6 billion for BaDM. Anticipating these potential fines, the beneficiaries paid dividends this year totaling UAH 2.9 billion for Optima and UAH 2.3 billion for BaDM. It is likely that some of these funds will be withdrawn outside Ukraine, especially since some of the owners reside abroad.

However, even billion-dollar fines will not solve the problems in the industry. Monopoly, or in this case duopoly, creates a number of problems for the state and consumers of medicines. In addition to inflated prices, monopoly distributors create other problems. They limit the variety of medicines available to consumers, create a high risk of supply disruptions, hinder the improvement of logistics, put pressure on drug manufacturers with their conditions and hinder innovation in the pharmaceutical industry.

Telegraf UA also writes about the involvement of five pharmacy chains and two distributors in the drug market crisis:

• ANC;
• Podorozhnik;
• 9-1-1;
• We wish you health;
• Dobrogo Dnya Pharmacy.

These pharmacy chains control almost 60% of the retail drug market in Ukraine. The lack of a legislative definition of pharmacy chains combined with passive response of state authorities promotes the development of monopolies. As a consequence, drug prices remain high, clouding the illusion of choice offered by a large number of pharmacies.

Many EU countries do not allow monopolization of the pharmacy market. In Germany, for example, pharmacists are allowed to own a maximum of four pharmacies. However, the owners of the largest pharmacy chains in Ukraine have more than 1,500-1,700 pharmacies, which allows them to dictate their terms. Introduction of such restrictions in Ukraine together with a clear legislative definition of pharmacy chains will promote the development of independent business and prevent excessive monopolization.

The Ukrainian pharmaceutical market lacks restrictions for manipulative marketing tactics used by pharmacy owners. A key problem in the Ukrainian market is the use of marketing agreements, where pharmacies are remunerated for promoting certain drugs regardless of their medical appropriateness. This mechanism allows pharmacies to sell medicines cheaper than their competitors, which makes consumers believe that they are getting a favorable offer.

However, such a system not only fails to address affordability issues, but also creates additional risks for consumers, pharmacies and the market as a whole. Lack of control over retail mark-ups leads to discrimination against consumers, as prices differ significantly from one pharmacy to another. Marketing agreements also hinder competition for smaller players in the market. Strict monitoring of these agreements, increased transparency and consumer education are necessary to protect consumers and establish fair pricing mechanisms.

The government should regulate the transparency of transactions between manufacturers, distributors, and pharmacies, and consider banning marketing deals altogether. In addition, measures should be taken to reduce monopolization, promote competition and increase access to medicines.