17 July 2022

Regulation and Registration of Prices for Medical Devices

July 17, 2022

BRACE Law Firm ©

It is difficult to imagine providing medical care without the use of medical devices. The recent coronavirus epidemic led to a surge in demand from medical organizations and citizens, supply disruptions, and broken logistics chains, which inevitably affected the prices of medical devices. This once again emphasized the need for state regulation of prices for essential medical devices. In this article, we will consider in which cases state regulation and registration of prices for these goods are applied.

Before considering the topic, let us clarify that under medical devices (hereinafter also referred to as "medical devices"), by virtue of Part 1 of Article 38 of Federal Law No. 323-FZ dated November 21, 2011 "On the Basics of Health Protection of Citizens in the Russian Federation" (hereinafter – "the Law on the Protection of Citizens' Health"), any instruments, apparatus, devices, equipment, materials, and other products used for medical purposes, including special software, and intended by the manufacturer for the prevention, diagnosis, treatment, and medical rehabilitation of diseases, monitoring the state of the human body, conducting medical research, restoration, replacement, modification of the anatomical structure or physiological functions of the body, prevention or termination of pregnancy are understood.

State Regulation of Prices for Implantable Medical Devices

Part 2.1 of Article 80 of the Law on the Protection of Citizens' Health establishes state regulation of prices for medical devices implanted into the human body when providing medical care within the framework of the program of state guarantees for the free provision of medical care to citizens.

According to GOST 31508-2012 "Medical devices. Classification depending on the potential risk of use," an implantable medical device is understood to be an invasive medical device intended for partial or complete replacement of an organ or tissue and (or) for partial or complete restoration of the physiological functions of the body.

The list of medical devices implanted into the human body when providing medical care within the framework of the program of state guarantees for the free provision of medical care to citizens (hereinafter – "the List", "the List of Implantable Medical Devices"), to which state regulation applies, was approved by Decree of the Government of the Russian Federation No. 3053-r dated December 31, 2018. For example, these include:

synthetic bone matrix implant;
dural prosthesis;
resorbable synthetic bone matrix implant of animal origin;
antibacterial synthetic bone matrix implant;
biomatrix dural prosthesis;
non-resorbable bone matrix implant of animal origin;
composite bone matrix implant;
bone matrix implant of human origin;
dural prosthesis of animal origin.

At the same time, prices for medical devices used to prepare for implantation, prevent complications during surgical interventions, delivery, fixation, and extraction of implantable medical devices included in the List of Implantable Medical Devices are not subject to regulation.

State regulation is carried out by:

registration of maximum selling prices of manufacturers;
establishment of the maximum size of wholesale markups to actual selling prices.

State registration of maximum selling prices of manufacturers for medical devices is carried out by the Federal Service for Surveillance in Healthcare, which performs:

state registration or re-registration of maximum selling prices of manufacturers for medical devices included in the List of Implantable Medical Devices;
maintains the state register of maximum selling prices of manufacturers for medical devices.

The procedure for state regulation of prices for implantable medical devices is regulated by Decree of the Government of the Russian Federation No. 1517 dated December 30, 2015 (hereinafter – "Decree No. 1517"). This normative act approved:

Methodology for determining maximum selling prices of manufacturers for implantable medical devices;
Rules for the registration of maximum selling prices of manufacturers for implantable medical devices included in the List;
Rules for maintaining the state register of maximum selling prices of manufacturers for implantable medical devices included in the List.

Methodology for Determining Prices for Implantable Medical Devices

According to the provisions of Decree No. 1517, the maximum selling price of a manufacturer cannot exceed the weighted average price for the corresponding type of medical device.

The weighted average price is calculated by the Federal Service for Surveillance in Healthcare separately for each type of medical device approved by the Nomenclature Classification of Medical Devices. To carry out the calculation, manufacturers provide Roszdravnadzor with information on the cost and quantity of medical devices sold during the 12 preceding months. Based on the data received, the agency determines the weighted average price for each type of medical device. Further, the resulting price is subject to approval by the Federal Antimonopoly Service. Weighted average prices are posted on the official website of Roszdravnadzor. Thus, the weighted average price actually reflects the established level of prices for medical devices in the country.

Furthermore, by virtue of paragraph 6 of Decree No. 1517, executive authorities of the constituent entities of the Russian Federation establish maximum sizes of wholesale markups to the actual selling prices of medical devices. The maximum size of such markups is established differentially, taking into account the costs associated with the sale of medical devices (transportation costs; labor costs with accruals; costs for the maintenance and operation of buildings, structures, premises, and equipment; depreciation charges; costs for storage and pre-sale preparation of goods; utility costs; other costs).

For the purpose of a uniform approach, the Ministry of Health of Russia has developed recommendations for determining the maximum sizes of markups. Thus, it is recommended to establish maximum selling markups depending on the maximum selling price of the manufacturer for the medical device, excluding VAT and taking into account the costs associated with the sale of medical devices, according to the table:

Actual selling price (selling price including costs associated with realization), excluding VAT, rubles	Maximum size of the wholesale markup to the actual selling price, not more than, %	Maximum size of the wholesale markup to the actual selling price, not more than, rubles	Note
0 – 5,000	7	350	Subject entities of the Russian Federation apply the lowest value of the maximum size of the wholesale markup from columns 3 or 4 in calculations
5,000 – 10,000	5	500
10,000 – 50,000	5	2,500
50,000 – 100,000	3	3,000
100,000 – 500,000	2	8,500
More than 500,000	1	10,000

The starting (maximum) prices of contracts for the procurement of medical devices cannot exceed the registered maximum selling prices of manufacturers for medical devices, taking into account the established maximum sizes of wholesale markups and VAT (for medical devices subject to value-added tax).

Approval of the maximum sizes of wholesale markups to actual selling prices for medical devices is not provided for by current legislation. As for retail markups, according to the clarifications of the FAS Russia, medical devices implanted into the human body are purchased exclusively within the framework of the program of state guarantees for providing citizens with free medical care. The FAS Russia concludes that retail trade in medical devices included in the List of medical devices implanted into the human body during the provision of medical care within the framework of the program of state guarantees for the free provision of medical care to citizens should not be carried out. Thus, according to the FAS Russia, the necessity to calculate maximum retail markups to the actual selling prices of manufacturers of medical devices included in the specified List is absent.

Maximum selling prices of manufacturers are subject to state registration, and maximum selling markups to registered prices – to approval by the executive authority authorized on the territory of the constituent entity of the Russian Federation.

Procedure for State Registration of Maximum Selling Prices for Implantable Medical Devices

State registration of manufacturers' maximum selling prices for medical devices is carried out by Roszdravnadzor based on applications from manufacturers (authorized representatives) of medical devices. The application is drawn up in the form established by Decree No. 1517 on paper or in the form of an electronic document. The application specifies the code of the type of medical device and its name, details of the registration certificate, and the proposed price. A power of attorney is attached to the application signed by the authorized representative of the manufacturer.

In case of a positive decision, Roszdravnadzor, within 5 working days, issues an order on the registration of the price and enters the information into the state register of maximum selling prices of manufacturers for medical devices included in the list of medical devices implanted into the human body when providing medical care within the framework of the program of state guarantees for the free provision of medical care to citizens (hereinafter – "the Register", "the State Register of Maximum Selling Prices"). If the calculation is made for a new type of medical device, a calculation of the weighted average selling price is performed beforehand, which is sent for approval to the FAS Russia. The registering authority, within 10 working days from the date of receipt of approval of the calculation of the weighted average selling price from the FAS Russia, makes a decision on registration or refusal to register the maximum selling price.

Grounds for refusal of state registration:

a) submission of false information;

b) submission of documents for registration in an incomplete volume and (or) incompleteness of the information contained therein;

c) failure to eliminate identified violations;

d) exceeding the maximum selling price of the manufacturer for the medical device submitted for state registration over the weighted average selling price of the corresponding type of medical device;

e) absence of the medical device in the list of implantable medical devices subject to state price regulation.

The decision to refuse registration may be appealed in court in accordance with Chapter 24 of the Arbitration Procedure Code of the Russian Federation as a non-normative legal act (decision of a state authority).

Procedure for Maintaining the State Register of Maximum Selling Prices

Maximum selling prices for implantable medical devices are subject to registration in the State Register of Maximum Selling Prices, which is maintained by Roszdravnadzor and posted on its official website on the Internet. The Register contains the following information:

a) name of the manufacturer of the medical device;

b) name of the medical device;

c) type of medical device according to the nomenclature classification of medical devices;

d) registration number of the medical device;

e) registered maximum selling price of the manufacturer in rubles;

f) date of state registration of the maximum selling price.

Data is entered into the State Register of Maximum Selling Prices within 3 working days from the date of the decision on state registration of the price.

The registered price may be excluded from the Register upon the application of the manufacturer (authorized representative) in cases where the medical device is excluded from the State Register of Medical Devices or the List of Implantable Medical Devices, as well as in cases where Roszdravnadzor or FAS Russia identifies facts of submission of false information by the manufacturer, as a result of which the registered price was overestimated. A notification about exclusion from the Register is sent to the manufacturer within 2 working days from the date of the decision.

Regulation of Prices for Medical Devices in Emergency Situations and Price Growth

Another case where state regulation of prices for medical devices is permitted is provided for by Part 21 of Article 38 of the Law on the Protection of Citizens' Health. This norm empowers the Government of the Russian Federation to establish maximum selling prices of manufacturers, maximum sizes of wholesale markups, and maximum sizes of retail markups:

in an emergency situation and (or) when a threat of the spread of a disease posing a danger to others arises;
if within 30 calendar days after the Government of Russia makes a decision to monitor retail prices for medical devices in the territories of the constituent entities of the Russian Federation, an increase in retail prices for medical devices by 30% or more is identified.

The rules for forming the list of medical devices in respect of which state price regulation is established in the specified cases were approved by Decree of the Government of the Russian Federation No. 1309 dated August 29, 2020. At the same time, the procedure for introducing state regulation of prices differs from the procedure for registering prices for implantable medical devices.

State authorities of the constituent entities of the Russian Federation initiate the introduction of regulation by sending a corresponding application to Roszdravnadzor, which within 5 working days forms a draft list of medical devices subject to state price regulation, indicating the proposed maximum size of the selling price, the maximum size of the wholesale markup, and the maximum size of the retail markup, and sends it for consideration to the Ministry of Health of the Russian Federation. Further, the procedure depends on the reasons for contacting Roszdravnadzor:

if there is an emergency or a threat of disease spread, the Ministry of Health of Russia, within 3 working days, submits to the Government a draft act on establishing maximum prices and markups;
in other cases, price monitoring for medical devices is carried out beforehand. If during the first month of such monitoring a price increase of 30% or more is identified, Roszdravnadzor forms a draft list and proposals on prices and markups and sends them for approval by the Government.

At the same time, maximum sizes of wholesale and retail markups to the actual selling price of the manufacturer are established for each constituent entity of the Russian Federation separately.

Within 90 calendar days from the date of approval of the List of medical devices subject to state price regulation, their realization and dispensing at prices exceeding the registered maximum selling prices of manufacturers, maximum sizes of wholesale markups, and maximum sizes of retail markups, including value-added tax, are not allowed.

Liability for Violation of the Pricing Procedure

Liability for violation of the pricing procedure for medical devices in the above-considered cases occurs under Part 1 of Article 14.6 of the Administrative Code of the Russian Federation "Overestimation of state-regulated prices (tariffs, rates, etc.) for products, goods, or services, maximum prices (tariffs, rates, fees, etc.), overestimation of established markups (surcharges) to prices (tariffs, rates, etc.)" and entails the imposition of an administrative fine on officials in the amount of 50,000 rubles or disqualification for up to 3 years; on legal entities – double the amount of excessively received revenue from the sale of the product (work, service) for the entire period during which the offense was committed, but not more than 1 year. This sanction for legal entities is the most significant since it entails substantial losses.

In one of the cases considered, the prosecutor's office conducted an audit of the implementation of the legislation on pricing in relation to an individual entrepreneur engaged in the sale of medical devices. During the audit, the sale of medical masks with a markup exceeding the maximum size of the markup established in the constituent entity of the Russian Federation was revealed. The entrepreneur was held administratively liable with a fine of 25,000 rubles, below the lower limit established by Part 1 of Article 14.6 of the Administrative Code of the Russian Federation. It was not possible to replace the fine with a warning in court.

Antimonopoly Regulation of Prices for Medical Products

State price regulation in other cases not considered above is not provided for. However, this does not mean the possibility of unreasonably establishing prices for medical devices.

Thus, in accordance with paragraph 1 of Part 1 of Article 10 of Federal Law No. 135-FZ dated July 26, 2006 "On Protection of Competition" (hereinafter – "the Law on Protection of Competition"), actions (inaction) of a dominant business entity that result or may result in prevention, restriction, elimination of competition and (or) infringement of the interests of other persons (business entities) in the sphere of entrepreneurial activity or an indefinite circle of consumers, including the establishment and maintenance of a monopolistically high price of goods, are prohibited.

A monopolistically high price, by virtue of Article 6 of the Law on Protection of Competition, is understood to be such a "price that exceeds the sum of costs and profits necessary for the production and sale of goods, as well as the price that was formed under conditions of competition in a comparable product market." A monopolistically high price can be established both by increasing the previously established price of a product (with constant costs, the composition of sellers or buyers of the product, conditions of product circulation, or their slight change) and by maintaining or not reducing the previously established price of the product.

It is worth noting that these actions are prohibited not for all business entities, but only for those who occupy a dominant position in the relevant product market. According to Part 1 of Article 5 of the Law on Protection of Competition, a dominant position is recognized as the position of a business entity (or several business entities (a group of persons)) in the market of a certain product, giving them the opportunity to exert a decisive influence on the general conditions of product circulation in the relevant product market, and (or) to eliminate other business entities from this product market, and (or) to hinder access to this product market for other business entities. As a general rule, the share in the product market of such an entity must exceed 50%. Collective dominance may also be established as provided for by the Law on Protection of Competition.

Abuse of a dominant position entails the application of measures of administrative liability under Part 2 of Article 14.31 of the Administrative Code of the Russian Federation. To hold liable, the presence of a set of interconnected signs is necessary:

dominant position of the business entity;
commission by the business entity of action (inaction);
onset or possibility of onset of negative consequences in the form of prevention, restriction, elimination of competition and (or) infringement of the interests of other persons (business entities) in the sphere of entrepreneurial activity, or an indefinite circle of consumers;
presence of an objective relationship between the dominant position, the commission of the act and its negative consequences or the possibility of such consequences.

For example, the antimonopoly authority initiated a case against one pharmaceutical organization for signs of violation of Article 10 of the Law on Protection of Competition, expressed in the unreasonable establishment of the retail price for medical masks. The calculation of aggregate shares was performed and the collective dominance of 3 pharmaceutical organizations in the district was established. At the same time, during the consideration of the case, the antimonopoly authority conducted an analysis of the cost of medical masks within the district, which showed that competitors sold them at prices both lower and higher. The antimonopoly authority concluded that the actions of the pharmaceutical organization did not lead to infringement of the interests of an unlimited circle of consumers; the composition of the offense provided for by paragraph 1 of Part 1 of Article 10 of the Law on Protection of Competition is absent.

The second possible case of antimonopoly price control may be the conclusion of anticompetitive agreements in order to maintain prices at auctions. Thus, in accordance with paragraph 2 of Part 1 of Article 11 of the Law on Protection of Competition, agreements between business entities selling goods in the same product market are prohibited if they lead or may lead to an increase, decrease, or maintenance of prices at auctions.

Unlike the previously considered case, such cases are often encountered in the practice of antimonopoly authorities. The fact of concluding an anticompetitive agreement can be established both on the basis of direct evidence (for example, written agreements) and a set of circumstantial evidence. As a rule, such circumstantial evidence includes:

submission of applications and price proposals;
signing contracts from the same IP addresses;
creation of uniform files for participation in auctions;
presence of stable economic relationships between competitors;
refusal of competition with each other, in comparison with auctions in which the defendants participated together with other persons and so on.

The set of such evidence allows the antimonopoly authority to conclude that an anticompetitive agreement has been concluded.

Administrative or criminal liability can be imposed for such actions, and an order to terminate the violation of antimonopoly legislation can also be issued. Administrative liability occurs under Part 2 of Article 14.32 of the Administrative Code of the Russian Federation with the imposition of an administrative fine on officials from 20,000 to 50,000 rubles or disqualification for up to three years; on legal entities – from 1/10 to 1/2 of the initial cost of the subject of the auction, but not more than 1/25 of the total amount of the offender's revenue from the sale of all goods (works, services) and not less than 100,000 rubles.

Criminal liability is imposed under Part 2 of Article 178 of the Criminal Code of the Russian Federation if the conclusion of an anticompetitive agreement caused large or particularly large damage or entailed extraction of income on a large or particularly large scale. The maximum punishment under this article is imprisonment for up to 6 (six) years. At the same time, income on a large scale is recognized as income, the amount of which exceeds 50 million rubles, on a particularly large scale – 250 million rubles. Large damage is recognized as damage, the amount of which exceeds 10 million rubles, particularly large damage – 30 million rubles. When defining the concept of "income," antimonopoly authorities are guided by the position of the Supreme Court of the Russian Federation set forth in paragraph 1.2 of the Resolution of the Plenum dated November 18, 2004 No. 23 "On judicial practice in cases of illegal entrepreneurship," namely: income should be understood as revenue from the sale of goods (works, services) for the period of entrepreneurial activity without deduction of expenses incurred by the person. The amount of income received by a group of persons is calculated from the total amount of income extracted by all its participants.

The subject of the crime is a natural person who has reached the age of 16, endowed with managerial functions or the necessary powers to conclude relevant contracts and agreements. Legal entities cannot be held criminally liable in the Russian Federation. At the same time, cases of holding legal entities administratively liable for concluding an anticompetitive agreement, and their heads – criminally liable if there is a composition of a crime, are not excluded.

Thus, the UFAS for the Novosibirsk Region found a group of 5 participants guilty of concluding an anticompetitive agreement that led to maintaining a high price in 43 auctions for the supply of medical devices for healthcare institutions. The total income amounted to more than 833 million rubles. An order to terminate violations of antimonopoly legislation was issued to the companies, and the case materials were sent to law enforcement agencies to resolve the issue of initiating a criminal case on the grounds of a crime provided for by Article 178 of the Criminal Code of the Russian Federation.

Summing up, we emphasize the need for state regulation of prices for medical devices to prevent unreasonable price increases in an unstable economic situation. At the same time, we note the insufficient certainty of legal regulation:

complexity of the methodology for calculating weighted average prices, which requires determining a single price for medical devices of the same type, while a significant number of medical devices with different characteristics can be included in this type;
lack of promptness and flexibility in making decisions on the need for price registration;
subjectivity of criteria in assessing a dominant position, signs of anticompetitive agreements, and other violations of competition principles.

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References

[1] Order of the Ministry of Health of the Russian Federation dated June 6, 2012 No. 4n "On approval of the nomenclature classification of medical devices".

[2] Letter of the Ministry of Health of the Russian Federation dated July 5, 2016 No. 1482/25-3 "On the direction of Recommendations for determining the maximum sizes of wholesale markups to actual selling prices for medical devices".

[3] Letter of the Federal Antimonopoly Service dated March 28, 2016 No. AK/19638/16 "On the consideration of the appeal".

[4] Letter of the Federal Antimonopoly Service dated February 25, 2016 No. AK/11445/16 "On the consideration of the appeal".

[5] Decree of the Government of the Russian Federation dated August 29, 2020 No. 1309 "On approval of the Rules for forming the list of medical devices in respect of which maximum selling prices of manufacturers, maximum sizes of wholesale markups and maximum sizes of retail markups to actual selling prices of manufacturers are established".

[6] Resolution of the Sixth Arbitration Court of Appeal dated January 26, 2021 No. 06AP-6213/20 in case No. A73-13108/2020.

[7] Clarification of the Presidium of the FAS Russia dated June 7, 2017 No. 8 "On the application of the provisions of Article 10 of the Law on Protection of Competition".

[8] Decision of the Directorate of the Federal Antimonopoly Service for the Lipetsk Region dated September 15, 2020 No. 048/01/10-259/2020.

[9] Decision of the Federal Antimonopoly Service dated December 2, 2021.

[10] Decision of the UFAS for the Novosibirsk Region dated September 5, 2018 No. 02-01-01/06-11-18.