State aid and the Norwegian system of financing of public hospital pharmacies

On 4 February, ESA decided to close the case concerning alleged aid resulting from i.a. cross-subsidisation of public hospital pharmacies in Norway. This decision was adopted following the implementation of measures to ensure that the financing of these pharmacies complies with the State aid rules of the EEA Agreement.[1] The Norwegian authorities took the appropriate measures as proposed by ESA.[2]

In November 2013, ESA adopted a decision proposing appropriate measures following its examination of the system of financing of the Norwegian public hospital pharmacies.[3] As it established, the Pharmacy Act of 2001 defines a hospital pharmacy as «a pharmacy connected to a public or private hospital which is part of the public health plans and which has as its primary objective to supply pharmaceuticals to the hospital».[4] Yet, hospital pharmacies are also active in the area of retailing pharmaceutical products and non-pharmaceutical products on public hospital premises i.e., retail sale of products «over-the-counter» to discharged patients and out-patients of the hospital and to the general public. These activities were undertaken in competition with private pharmacies.

In its 2013 decision, ESA examined three potential aid measures in favour of public hospital pharmacies. These were as follows:

1) cross-subsidisation of retail activities of public hospital pharmacies with funds meant for non-commercial activities of the public hospital pharmacies;

2) profits foregone through the non-profit orientation of the commercial activities of the public hospital pharmacies;

3) exemption from income tax for public hospital pharmacies.[5]

All of them met the conditions provided in Article 61(1) EEA and thus amounted to aid, which was considered incompatible with the internal market. Yet, this aid qualified as well as existing aid, which is defined as «aid which existed prior to the entry into force of the EEA Agreement in the respective EFTA States, that is to say, aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the EEA Agreement».[6]

Consequently, ESA considered that the identified aid measures should  be abolished by way of appropriate measures. Norway accepted ESA’s proposals, and as of January 2015 the following changes are in place:

1)      a tax duty on the income from retail activities;

2)      new procedures ensuring that no cross-subsidisation takes place between the commercial and non-commercial activities;

3)      a requirement that the retail activities achieve profits comparable to what a private investor would expect from a similar undertaking. 

This allowed for closing the case.

[1] See Press release of 4.2.2015 PR(15)03 http://www.eftasurv.int/press--publications/press-releases/state-aid/nr/2410. A non-confidential version of the decision will be published in the register of state aid decisions on ESA’s website, normally within a month.

[2] Compare, in this respect, 192/14/COL: EFTA Surveillance Authority decision of 8.5.2014 to close the case concerning the Norwegian public dental health care («DOT»), 174/13/COL: EFTA surveillance Authority Decision of 30.4.2013 to close the case concerning the financing of municipal waste collectors, OJ C 263, 12.9.2013, p. 5.

[3] 460/13/COL: EFTA surveillance Authority Decision of 20.11.2013 to propose appropriate measures with regard to state aid granted to publicly owned hospital pharmacies in Norway.

[4] The Norwegian Act of 2.6.2000 No 39: the «Pharmacy Act» - «Lov om apotek». It entered into force in 2001.

[5] Section 2-30(1)(g)(5) of the Tax Act of 26.3.1999 No 14: - «Lov om skatt av formue og inntekt».

[6] Article 1(b) (i) of Part II of Protocol 3 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice.