European Market Entry by public tender

Germany: 60 % of market for generic drugs subject to procurement proceedings

An example of the relevance of procurement law for a successful market entry is the situation on the German market for generic drugs. About 90 % of the German population (an impressive number of 70.12 Mio. people) receive health care from statutory health insurance companies (see: https://www.gkv-spitzenverband.de/english/statutory_health_insurance/statutory_health_insurance.jsp (English, last retrieved on 12/02/2016)). These public sickness funds are the main actors in the German social security system and are financed by a state-regulated system of social insurance contributions to be paid by the insured persons. For reasons of cost-effectiveness, German public health insurance companies are obligated by law to conclude a certain type of rebate contract with pharmaceutical companies, building up a complex contractual system which basically ensures an exclusive right for the pharmaceutical company in exchange for a rebate on the generic drug. This legal framework leads to a market situation in which 60% of the market for generics is covered by public contracts with German public health insurance companies (source: http://www.progenerika.de/wp-content/uploads/2015/06/Marktdaten-April-2015.pdf (German, last retrieved on 12/02/2016)).

Requirement of public tender proceedings

Resulting from a judgment by the European Court of Justice (CJEU, C-300/07 - Hans & Christophorus Oymanns), all public health insurance companies in Germany are obligated to tender contracts they conclude with private companies. This includes not only the aforementioned rebate contracts but all contracts for goods and services required by the insured persons. For instance, the range of such contracts may include goods and services relating to wheelchairs, sleep therapy device,s biosimilars,  blood glucose monitoring systems, and even medical apps. Given the market share of public health insurance companies, the obligation to tender can be a crucial benefit for non-European companies. Though organized in different ways, basically all European member states have publicly organized healthcare systems. As a result, the aforementioned obligation to tender is a factor relevant to other contracting authorities, not only in Germany – resulting in the chance for Non-European companies to win relevant market shares in Europe.

Transparent and non-discriminatory access for foreign companies

Regulated by European Procurement law and its national transposition, contracting public entities have to comply with a number of formal requirements and general principles. These formalities and principles become relevant at different stages of the procurement proceeding:

• Contract notice: At first, the health insurance company has to publish a contract notice on an EU-wide level. Those notifications can be looked at by all interested parties on ted.europa.eu, the relevant website of the EU. The website contains a huge database of all relevant tender proceedings in all the member-states of the European Union, organized by a system of codes, the Common Procurement Vocabulary (CPV). Different CPV-Codes are assigned to different types of goods and services. Every contract notice contains information on
  • the contracting authority
  • the description of the contract, e.g. the active ingredient which shall be subject to a rebate contract or a short description of the medical device
  • a list of qualitative criteria which need to be met by the bidders
  • the relevant contract award criteria
  • details of the particular procedure
  • the deadline for the offer
  • general information on remedies.
• Tender documents: In addition to the contract notice, contracting authorities need to provide more detailed information to all (potential) bidders. These documents specify the contract and often contain a number of forms which need to be filled in by the bidder. To safeguard all rights in potential review proceedings it is highly advisable to seek legal advice when reviewing the tender documents as a bidder: Belated complaints might be rejected as unfounded in many European jurisdictions.
• No negotiations: As a general rule, there is no room for individual negotiations in most tender proceedings due to the principle of equal treatment of all bidders. This prohibition of negotiations may also enlarge the chances for non-European companies to win the contract as it may prevent unfair advantages by long-established national companies.
• Preparing the offer: After receiving the tender documents it is up to the bidder to prepare the offer. As certain formalities have to be fulfilled, it can, especially for newcomers, be important to seek legal advice for clarifying and reviewing  the offer as well as to  resolve unforeseen situations.
• Examination of tenders by public authority: When the tender period has expired, the contracting authority will examine the offers closely. That process includes the verification of the qualitative criteria, checking the necessary formalities and evaluating the price and the quality of the offer. It is important to know that the tender evaluation needs to based on criteria which have been published in the original notification and the tender documents. If done correctly, all bidders should be able to know in advance how their tender will be evaluated. Tender evaluation is a part of procurement proceedings which is often challenged before the procurement reviewing bodies.
• Pre-information note and award: Once the contracting authority has decided which bidder to award, it needs to send out a pre-information with the relevant companies name to all bidders. Afterwards, the authority is obliged to wait for ten days before awarding the relevant bidder. Bidders often use that last stage of the procurement procedure to challenge the tender, as it is the last chance to do so: once a bidder has received the award basically no legal action can be taken to prevent this bidder concluding the contract.
• After the award: Also after the award has been granted., Procurement law provides certain limitations which need to be respected by all contractual parties. For example, no fundamental changes to the contract are allowed. If the contractual parties fail to respect these limitations, competitors may use that opportunity to challenge the contract, which might due to the violation of procurement law be declared as legally void.  

Legal Remedies

As indicated, there are quite a number of legal remedies to ensure compliance with Procurement Law and to prevent unfair treatment of bidders. Especially for non-European companies, these remedies should guarantee non-discriminatory access to relevant markets in the life science sector. They can also be used to challenge a public authorities’ decision to award a competitor. However, it is important to note that a successful challenge of a tender or an award decision depends on reacting immediately to every potential violation of Procurement Law.

The provisions of Procurement Law may vary in their implementation in the different member states of the European Union – however, public tenders give an opportunity for market entry that should not be ignored.

This article is part of the International Life Sciences Update for April 2016