Wholesale and pharmacy margins on medicines in Europe: how the mark-ups work

Two margins, four designs

In almost every European country the price a patient or payer sees is built from the manufacturer’s price by adding a wholesale margin and a pharmacy margin, both regulated for reimbursed medicines. The designs fall into four families, often combined:

• A flat percentage of the price below. Simple, but it rewards dispensing expensive products.
• A fixed fee per pack, independent of price. Rewards volume, not value; common for the pharmacy element.
• A degressive (regressive) scale: a higher percentage on cheap products, falling in bands as the price rises. The most common design for both margins in Western Europe.
• A cap: a maximum absolute margin, so that a very expensive product does not earn a very large mark-up.

Hospital supply usually sits outside these rules and is tendered.

Worked example: Germany (working figures, to verify)

Germany’s price ordinance fixes both margins for prescription medicines. The wholesaler may add a percentage of the manufacturer price (3.15 per cent) plus a fixed amount (EUR 0.70), with the percentage element capped (EUR 37.80). The pharmacy then adds 3 per cent of its purchase price plus a fixed fee (EUR 8.35) plus a small levy (EUR 0.21). VAT at 19 per cent goes on top. A EUR 20 manufacturer price therefore becomes roughly EUR 21.33 at wholesale, EUR 30.20 at the pharmacy before VAT, and about EUR 36 retail; a EUR 2,000 manufacturer price becomes about EUR 2,038 at wholesale and EUR 2,108 at the pharmacy before VAT, a far smaller proportional mark-up. That is what a fixed fee plus a cap does: it flattens the distribution’s share on expensive products.

Other designs in outline (to verify per country)

• France uses degressive scales for both wholesaler and pharmacy, with several price bands, plus per-pack dispensing fees for the pharmacy; the public price is published so the margins can be read off.
• Spain sets percentage margins with price bands and a cap for expensive products.
• The Nordic countries publish pharmacy purchase prices and apply a pharmacy margin formula to get the retail price; Denmark’s fortnightly re-bidding sits at the pharmacy purchase level.
• The UK has no regulated margins for generics: pharmacies buy at market prices and are reimbursed at the Drug Tariff price, keeping the difference, which is clawed back on average through the discount deduction. For branded products the manufacturer’s list price is the reimbursement basis.
• The Netherlands regulates the maximum price at pharmacy purchase level and pays pharmacies largely through dispensing fees rather than a margin.

Why the structure matters

For cross-border comparison, margins are the reason a retail price cannot be compared across countries without being decomposed. Two countries with identical manufacturer prices can show retail prices 20 per cent apart from margin design alone, before VAT.

For parallel trade, the margin design in the destination market sets how much of the price gap is available to the trader and the pharmacy. A fixed-fee pharmacy margin leaves the pharmacy indifferent between a parallel import and the domestic pack; a percentage margin does not. Several countries have added rules on parallel import discounts to pharmacies for exactly this reason.

For procurement and buyers, the published margin tells you what the wholesaler’s and pharmacy’s legal remuneration is, and therefore how much of a discount from the published price is possible before someone is selling below cost.

How to decompose a retail price

1. Remove VAT at the country’s medicine rate.
2. Remove the pharmacy element using that country’s formula (percentage, fee, band).
3. Remove the wholesale element the same way.
4. What remains is the manufacturer price, which is the comparable rung.

Where the country publishes more than one rung (as France, Belgium, Spain and Italy do), use the published manufacturer price directly and skip the arithmetic.

MPA records which rung each published price represents; the margin formulas by country belong in the country guides and will be added there as they are verified.