DEC 19 2014
LIBERALISATION OF THE PHARMACY MONOPOLY - A HARD PILL TO SWOLLOW
Master Thesis in M.Sc. International Business and Politics Author: Birgitte Lund Rants Supervisor: Ove Kaj Pedersen STU Count: 181.812/182.000
COPENHAGEN BUSINESS SCHOOL
Abstract Although economic liberalisation such as privatisation, open markets and deregulation has increasingly become an integrated part of Danish politics, the Danish pharmacy sector has not been subject to any radical neoliberal reforms. Even though several initiatives have been proposed to liberalise the pharmacy sector, policy stability rather than policy change seems to rule. This dissertation explores why the Danish pharmacy monopoly is still maintained, and under which conditions the pharmacy monopoly is most likely to fall. Through first-hand interviews with key stakeholders in the pharmacy sector, this study examines how diverging interests and competing advocacy coalitions have caused almost a complete policy standstill. Taking departure in a case study of the Uldum pharmacist’s collaboration with the retail chain, Matas, the analysis uncovers how certain actors seek to exclude competition and how only very few dare to challenge the current pharmacy monopoly. Although the Principal-Agent (PA) Theory is deemed useful to understand the relationship between the health authorities and the pharmacies, the case study reveals how core theoretical assumptions made by the PA theory fails to explain all the dynamics at play in the Danish pharmacy sector. Instead, the Advocacy Coalition Framework is turned to in order to examine what causes policy change and furthermore what policy core beliefs the different advocacy coalition groups are structured around. Finally, the thesis discovers why only minor policy change has been introduced and concludes that various conditions are still lacking before liberalisation is likely to truly be considered politically in the future. This thesis does not aim to decide whether a liberalisation of the pharmacy monopoly is beneficial or not, but is meant to give insights about the dynamics at play in the Danish pharmacy sector to provide the readers with a solid foundation to decide for themselves.
List of figures
Figure 1: Opinion-overview based on content analysis Figure 2: Overview of interviewees within the stakeholder map of the pharmacy sector Figure 3: Primary and secondary data collection arranged by year within time horizon for research scope Figure 4: Policy Core beliefs: monopoly, modernisation, and liberalisation Figure 5: Scaling the degree of commitment to maintain, change or abolish the current structure Figure 6: Structural implications and assumptions: monopoly, modernisation, and liberalisation Figure 7: Comparison of the Danish, Swedish and Norwegian pharmacy sector Figure 8: Principal-Agent relationship in the pharmacy sector Figure 9: Explicit government level of stakeholder map Figure 10: Advocacy Coalition Groups within the pharmacy sector Figure 11: Development in official party political opinions over time Figure 12: Tipping point: before 2011 Figure 13: Tipping point: recent developments Figure 14: Tipping point: If change is to occur Source: Author’s own construction based on finding
TABLE OF CONTENTS
1. INTRODUCTION 3 1.1 SETTING THE SCENE 3 1.1.1 INTERACTION BETWEEN BUSINESS AND POLITICS 3 1.1.2 FAILED LIBERALISATION INITIATIVES IN THE PHARMACY SECTOR 3 1.2 VISUAL OUTLINE OF RESEARCH STRUCTURE 5
2. METHODS 5 2.1 LITERATURE REVIEW 5 2.1.1 CONTRIBUTION 7 2.2 LIMITATIONS AND DELIMITATIONS 7 2.3 METHODOLOGY 8 2.3.1 RESEARCH DESIGN AND COLLECTION OF DATA 10 2.3.2 LIMITATIONS 16 2.3.3 CREDIBILITY 17
3. THEORETICAL FRAMEWORK 19 3.1 PRINCIPAL-AGENT THEORY 19 3.1.1 THEORETICAL ASSUMPTIONS 21 3.1.1 CHALLENGED THEORETICAL ASSUMPTIONS 21 3.1.2 EXPANSION OF THEORY 23 3.2 ADVOCACY COALITION FRAMEWORK 24 3.2.1 PREREQUISITES FOR POLICY CHANGE 25 3.2.2 THEORETICAL ASSUMPTIONS 27 3.2.3 CRITIQUE OF FRAMEWORK 27
4. THE EMPIRICAL CONTEXT OF THE PHARMACY MONOPOLY 28 4.1 THE DANISH PHARMACY MONOPOLY 30 4.2 DEFINITIONS 31 4.2.1. MONOPOLY 31 4.2.2 MODERNISATION 32 4.2.3 LIBERALISATION 32 4.2.4 COMPARISON OF MONOPOLY, MODERNISATION AND LIBERALISATION 33 4.3 INTERNATIONAL LIBERALISATION EXPERIENCES 34 4.3.1 IMPACTS OF LIBERALISATION IN SWEDEN AND NORWAY 35 4.4.2 LIBERALISATION PRESSURE FROM THE EU 38
5. ANALYTICAL FRAMEWORK 39 5.1 THEORY IN PRACTICE –THE PRINCIPAL-AGENT RELATIONSHIP 39 5.2 BUSINESS CASE STUDY: THE ULDUM CASE 40 5.2.1 PRELIMINARY CONCLUSION 46 5.3 EMPIRICAL FINDINGS – ADVOCACY COALITION FRAMEWORK 47 5.3.1 ANALYSIS OF COMPETING BELIEF SYSTEMS WITHIN THE PHARMACY SECTOR 47 5.3.2 HOW COMPETING BELIEF SYSTEMS TRANSLATE INTO COMPETING ADVOCACY COALITIONS GROUPS 54 5.3.3 DEVELOPMENT OF ADVOCACY COALITION GROUPS OVER TIME 56 5.3.4 LACK OF PREVALENT COORDINATED ACTIVITIES BETWEEN ADVOCACY COALITION GROUPS 57 5.4 EXTERNAL SHOCKS AS STIMULI TO POLICY CHANGE 58 5.4.1 CHANGES IN SOCIO-ECONOMIC CONDITIONS –AS DRIVER, BUT NOT GAME-CHANGER 59 5.4.2 CHANGES IN GOVERNING COALITIONS –NOT A POLICY WINDOW 59 5.4.3 LACK OF SUPPORT IN PUBLIC OPINION 60 5.4.4 UNCONVINCING INTERNATIONAL EXPERIENCES 61 5.5 STABILIZING FACTORS 62 5.5.1 A STRONG PHARMACY ASSOCIATION 62 5.5.2 EASIER TO HINDER THAN TO CHANGE 63 5.6 PRELIMINARY CONCLUSION 64
6. DISCUSSION 65 6.1 THE FUTURE OF THE PHARMACY MONOPOLY 65 6.1.1 DECREASING LEGITIMACY OF THE PHARMACY ASSOCIATION 65 6.1.2 RESULT OF THE MODERNISATION PROPOSAL 66 6.1.3 MUTUAL DEPENDENCY RELATIONSHIP IS LESS PRONOUNCED 67 6.1.4 WHEN IS THE TIPPING POINT REACHED? 69
7. CONCLUSION 71 8. LIST OF REFERENCES 74 9. APPENDICES 80 APPENDIX I: TIMELINE FOR POLITICAL INITIATIVES TO LIBERALIZE THE PHARMACY SECTOR 80 APPENDIX II: OPINION CATALOGUE 83 APPENDIX III: DEGREE OF VISIBILITY IN PUBLIC DEBATE 123 APPENDIX IV: DEGREE OF POLITICAL INFLUENCE 123 APPENDIX V: INTERVIEW WITH DANJI BHANDERI, ULDUM PHARMACY 124 APPENDIX VI: INTERVIEW WITH NIELS KRISTIENSEN, PHARMACY ASSOCIATION 124 APPENDIX VII: INTERVIEW WITH CARSTEN KOCH, MINISTRY OF HEALTH 125 APPENDIX VIII: INTERVIEW WITH FLEMMING MØLLER MORTENSEN, SPOKESMAN OF HEALTH 126 APPENDIX IX: INTERVIEW WITH FREDERIK SCHULIN, EUROMEDICIN 126 APPENDIX X: INTERVIEW WITH HENRIK VESTERGAARD, LIF AND MINISTRY OF HEALTH 127 APPENDIX XI: INTERVIEW WITH SINE JENSEN, THE CONSUMER COUNCIL 128 APPENDIX XII: INTERVIEW WITH PETER BIRCH SØRENSEN, PRODUCTIVITY COMMISSION 129 APPENDIX XIII: E-MAIL CORRESPONDENCE WITH KIM HELLEBERG MADSEN, DMHA 130 APPENDIX XIV: INTERVIEW WITH IWAN ALSTRUP, TJELLESEN MAX JENNE 130 APPENDIX XV: INTERVIEW WITH CHRISTIAN SESTOFT, DANISH CHAMBER OF COMMERCE 131 APPENDIX XVI: ADVOCACY COALITON FRAMEWORK 132 APPENDIX XVII: MODERNIZATION MODELS BY THE MODERNIZATION COMMITTEE 132 APPENDIX: XVIII: EXAMPLES OF PHARMACY ASSOCIATION CAMPAIGNS 133 APPENDIX XIX: VOCABULARY 133
2 1. INTRODUCTION
1.1 Setting the scene
1.1.1 Interaction between business and politics Ideological trends in society continuously affect international business and politics. Moreover, ideological ideas strongly influence how certain industries and sectors are regulated. In the 1970s a focus on nationalization and strong interference by the state1 to regulate was dominant in large parts of the world. Later, in the 1980s, a wave of privatisation and deregulation emerged as economic growth began to flourish. Throughout the 1990s, state-controlled monopolies were considered out-dated and inadequate, and a hegemonic belief seemed to be that more market powers should be activated. As a result, monopolies began to fall and previously protected sectors were exposed to international competition (Esping-Andersen, 1993, Larsen et al, 2004, no.1).
However, some sectors did not experience this exposure. Up until the 2000s the pharmacy sector was still heavily regulated and upheld as a state-controlled monopoly in many countries. Since pharmacies played a central role in securing public health, a close collaboration between states and pharmacies have made it less appealing to break with the state’s control over the pharmacy sector. Effectively, the Danish pharmacy sector has managed to resist strong ideological pressures in favour of liberalisation even whilst political priorities shifted towards more market-oriented reforms (e.g. Competition Package, 2011, Competition proposal, 2012, Growth Package DK, 2013)
How a market is regulated strongly affects how business activities can be conducted within a certain industry. Through the lens of the pharmacy sector in Denmark, this dissertation will demonstrate and emphasize that there is indeed a strong link between business and politics and that influential actors can impact policy regulation to such a degree where it essentially eliminates and prevents international competition.
1.1.2 Failed liberalisation initiatives in the pharmacy sector For decades, an on-going heated debate has kept the pharmacy monopoly on the public and political agenda. Scanning the debate covered in the media, the arguments are often anchored in
1 ‘State’ is throughout this thesis defined as the legislative power as well as administrative authorities.
3 two contrasting ideological preferences with one side favouring a publically controlled pharmacy monopoly and the other a liberalised pharmacy sector.
Several actors have challenged the Danish pharmacy monopoly and many initiatives have been proposed to change the current structure of the pharmacy sector (see timeline for initiatives for policy change, appendix I). Changing governments2, commissions, committees, working groups, interest groups, politicians, private actors and experts have attempted to pursue a liberalisation of the pharmacy sector, but so far nothing has disrupted the more than 450 year-old pharmacy monopoly. Ever since King Christian III in 1546 gave the first pharmacy authorisation, the pharmacy monopoly in Denmark has been kept intact (Larsen et al, 2004, no.1).
As neighbouring Nordic countries liberalised their pharmacy sectors, pressure increased on Danish politicians to finally break with the old monopoly. Norway liberalised its pharmacy sector in 2001 and Sweden followed suit in 2009. However, in this period of time, something happened to which initiatives were put forward by politicians to change the sector in Denmark. In 2001, a minor liberalisation of selected non-prescription medicine, so-called Over-The- Counter (OTC) medicine was introduced. This process began with a demand for a complete liberalisation, but resulted in a slight adjustment of the existing market structure. Where previous terminology such as ‘liberalisation’ and ‘deregulation’ had been used, now ‘restructuring’ and ‘modernisation’ gained footing in the debate. (Larsen et al, 2003) The Danish Government has recently presented its ‘modernisation proposal’ in October 2014, not a ‘liberalisation proposal’.
Acknowledging that neither politics, nor laws are static, what has caused this change in approach? Why now only seeking a modernisation of the sector and not a complete liberalisation? On the basis of these intriguing changes (or lack thereof), this dissertation will seek to answer the following research questions:
Why is the Danish pharmacy monopoly still maintained? And under which conditions is liberalisation of the Danish pharmacy monopoly most likely to occur?
2 ‘Government’ is throughout this thesis defined as the composition of ruling parties who have the majority in the Parliament
4 1.2 Visual outline of research structure
2. METHODS
2.1 Literature review The scholars Larsen, Mount, Kruse, Vrangbäk, Traulsen and Noerreslet have conducted the majority of previous research made within the field of studying the pharmacy sector and related pharmacy policy developments in Denmark (2003, 2004, 2005, 2006). Their findings have been deemed relevant for this study, as they serve as a backdrop for further research and analysis.
5 Overall, the research by Larsen et al. is mainly concerned with changes of pharmacy regulation in Denmark; the background for changes and the impact of these changes on the industry, society and the political sphere. Yet Larsen et al. conclude that stability rather than change rule in the pharmacy sector. In one study Larsen et al. analyse the dynamics of pharmacy regulation in Denmark in the early period from 1546 – 1932 and later from 1932-1994 (Larsen et al, 2004); including the relationship between the state and the pharmacies. Another study explores which advocacy coalitions frame policy process and in which direction these coalitions seek to push the pharmacy sector; one completely controlled by the state, the other being a full-scale liberalised sector (Larsen et al, 2006).
The state-pharmacy relationship under regulatory framework From analysing the period from 1546-1932 it was found that regulatory principles and traditions of the Danish pharmacy sector were established during the first third of this nearly 400-year period and was followed by 260 years of almost total regulatory stability. This was even during a time when the Danish society went through massive changes such as the transformation of the constitution of the state from absolute monarchy into the early stages of a welfare state. (Larsen et al, 2004, No.1) Two factors contributed significantly to the stability of the pharmacy’s regulation. Firstly, pharmacy representatives were prominent members of the commission that formulated the policy recommendations and secondly, the close century-old relationship between the state and the pharmacies formed a pharmacy sector with rigid rules, norms and procedures being firmly fixed and unquestioned (Larsen et al, 2004, No.1). In other words, the relationship between state and pharmacy resembled a corporate agreement based on strong historical ties, where the pharmacy licencing system served the mutual interest of the state and the pharmacy profession (Noerreslet et al, 2005). This effectively blocked the political agenda and made it difficult for third parties to introduce radical reforms.
Not surprisingly, the later period studied from 1932-1994 reaffirmed that the basic regulatory principles and structures within the pharmacy sector were so deeply rooted and institutionalised that any departure from the current system seemed difficult, if not impossible. Nevertheless, it was also found that these established structures were challenged as opposing interest groups mobilised against the monopoly. However, opponents had limited access to the political agenda (Larsen et al, 2004, No.2). Moreover, the public opinion on pharmacies in Denmark viewed the pharmacies as functioning well. In combination, this explained the lack of radical reforms within the pharmacy sector. In absence of acute problems, no counter-dynamic
6 had been strong enough to challenge the current monopoly. As a result, regulatory changes within the pharmacy sector have been gradual rather than radical.
Advocacy coalitions and pharmacy policy In 2006, Larsen, Vrangbäk and Traulsen studied what caused the limited deregulation OCT- medicines in 2001 to be sold through other retail channels than the pharmacies, and why a further liberalisation of prescription drugs did not occur in the following years. (Larsen et al, 2006). By examining the political process between 1996 and 2001, the scholars concluded that the pharmacy monopoly had survived due to two main factors. Firstly, the debate changed from being driven by ideological convictions to complex technical matters, making it hard for politicians to predict the actual effects of a liberalisation. Secondly, the legitimacy of a status quo solution, which was reinforced by institutionalised norms, made politicians consult with pharmacy professionals who preferred the monopoly (Larsen et al, 2006).
2.1.1 Contribution Since previous research has not focused on the time period after 2001, this dissertation builds on existing literature and generates new insights. Recent developments allow this dissertation to include international liberalisation experiences from Sweden and Norway, which have not yet been analysed. The inclusion of an international perspective and comparison serves to explain how external developments have impacted the Danish pharmacy sector. Though first-hand interviews with central actors in the Danish pharmacy sector, this study investigates the different interests held by different key stakeholders in order to explore and map a matrix of core policy beliefs and advocacy coalitions. Based on new, collected empirical data the project’s originality is insured and demonstrates its independence from previous research made within the field. Hence, this study bridges publically available information with primary data from interviews to provide a holistic picture of the dynamics at play in the Danish pharmacy sector over the last decade and up until today. The analysis is rooted in a case study that enables the exploration of the pharmacy monopoly from an angle never pursued before. As a result, this research is mainly exploratory in contrast to previous explanatory-oriented research.
2.2 Limitations and delimitations Topic-related limitations: The topic of this thesis is currently a political hot potato, which has made it difficult to interview all relevant stakeholders. Amongst those that agreed to be interviewed, certain questions were not answered since some of the information is strictly
7 confidential and not shared with the public. Due to the nature of the topic, I faced the trade-off between a confidential study that could have included more primary data and a publicly available study with less insider-knowledge. I chose the latter to enable this research to contribute to the understanding of this complex field for those with interest in the pharmacy sector and the political controversy it has been surrounded by.
Focus-related delimitations: As the focus of this study is to explore policy change and which key actors have been involved in shaping the pharmacy sector, it will not go into depth about the specific technicalities of the Danish pharmacy monopoly. Nor will it provide a detailed examination of the current legislation under the Pharmacy Act. This thesis only provides a brief overview of the most important structural components, which is needed to understand the premise for what constitutes a monopoly and which modernisation and liberalisation suggestions have been proposed. The exclusion of a more technical examination is to prevent the study from being too descriptive and instead advances a higher abstraction level. Furthermore, aspects related to online-pharmacies have been excluded from this study as the implementation of these is still in the initial phase. In turn, it is hard to fully analyse the benefits and drawbacks of online pharmacies at this early stage of research. Finally, it is important to state that this thesis does not intend to decide whether a liberalisation of the pharmacy monopoly is favourable or not, but is meant to give insights about the dynamics at play in the Danish pharmacy sector to provide interested readers with a solid foundation to decide for themselves.
Scope-related delimitations: On an international level, only the outcome of the pharmacy liberalisation in Norway and Sweden has been included, and not the causal drivers behind their regulatory changes. Although exploring what happened prior to the fall of the monopolies in Norway and Sweden would be highly relevant, this accounts for an entire study of its own. Other European developments have been excluded, as Norway and Sweden serve as sufficient examples of how liberalisation in two different countries has affected the Danish sector. Furthermore, these two countries are very similar to Denmark and hence serve as benchmark to how developments can be translated into a Danish context.
2.3 Methodology Methodological considerations serve as the backdrop for how to study and analyse the pharmacy monopoly in Denmark. Thus, this section aims to cast light on the underlying philosophy of science and the related methodology that guides this research. Acknowledging that several methods can be applied and no single method is considered ‘the right approach’
8 (Lake, 2011), this section will assess the opportunities and drawbacks of the methodology applied, as well as argue in favour of the chosen methods.
Research philosophy The choice of research philosophy is important since it reflects how we see, collect and understand the data, which lays the foundation of the analysis. In social science, there are two main strands of how knowledge is produced through research; namely positivism and interpretivism. Where positivists believe that social life objectively can be observed, measured and then used to create generalizations about a social phenomenon regardless of the contextual circumstances, interpretivists do not decontextualize knowledge or seek to universalize research results. Instead, they produce knowledge through interpretation of observed interaction in a specific social context. By interpreting data, the meaning is highly subjective and therefore unique. The high level of subjectivity is often subject to critique, since the positivist approach is far more scientific in its approach to analysing data (Abbott, 2004).
Nevertheless, this thesis reflects the principles of an interpretivist epistemology. The Danish pharmacy sector and its stakeholders are constructed of a high degree of complexity and uniqueness, which would be lost in a positivist approach. Interpretivists argue that the world is socially constructed and observations cannot be decomposed from their social settings. (Abbott, 2004) According to this approach, the increasing pressure to dissolve the pharmacy monopoly in Denmark is highly linked to the international developments which place Denmark in a setting where protected economies belongs to the past and free markets are what constitutes the present. Hence, the ontological position in this thesis acknowledges that the collected data is highly context-dependant since reality is socially constructed and interpreted in a specific social setting (Saunders et al, 2007).
Research approach The choice of research approach reflects how I attempt to move between theory and empirical data. At first, I applied an inductive approach by collecting data and then matching this to a theory. Once a suitable theory was found (Principal-Agent), the theory was tested through a case study and testaments from first-hand interviews. Testing a theory through empirical data is using a deductive approach. When I discovered that the theory was insufficient in explaining the complexity of the dynamics in the pharmacy sector, an additional theory (Advocacy Coalition Framework) was added. The research approach thus applies a combination of the inductive approach departing from the empirical basis and the deductive approach departing from the theoretical basis, which is often referred to as abduction. The great advantage of abduction is that it offers the possibility to test existing theory, then revisit and build onto it as
9 empirical findings reveal the limitations of the existing theory. The abductive research approach also tolerates data to be collected throughout the entire process and allows for ideas and patterns to emerge gradually (Saunders et al, 2007).
2.3.1 Research design and collection of data The research design outlines the choice of data collection methods. In other words, the research design serves as the guideline to how I seek to answer the research question.
Initially, a descriptive presentation of empirical context including the characteristics of the Danish pharmacy sector is presented and what relevant international developments have occurred in Norway and Sweden. The descriptive phase of the contextual setting serves as a brief forerunner to the main explanatory and exploratory studies. As Saunders et al. experience, it is “necessary to have a clear picture of the phenomena on which you wish to collect data prior to the collection of the data” (Saunders et al, 2007, p. 134) As key actors were identified their interests and arguments were concurrently discovered through interviews. Finally, the exploratory strategy aims to “(...) seek new insight; to ask questions and to assess phenomena in a new light” (Robson in Saunders et al, 2007, p. 133). By exploring how actors are interlinked and why they reason as they do, new knowledge was produced through interviewing central stakeholders and analysing their positions and well as producing new knowledge of advocacy coalition groups. The exploratory dimension seeks to explain the causal relationships between two variables. Since this study investigates policy change within the pharmacy sector –or lack thereof- the dependent variable is ‘policy change’ and the independent variables account for all the factors which influences policy change, e.g. external shocks and policy learning, which will be elaborated on in the theory section.
A multi-method approach was used by combining both primary and secondary data. In order to answer the research question I found it necessary to triangulate multiple sources of data as empirical evidence. Triangulation is a method for crosschecking data, because it combines different data collection methods and is in line with a social constructionist position, since it integrates data from both primary and secondary sources. This helps to construct a more holistic view of the research area (Saunders et al, 2007). Firstly, secondary data was collected from official documents, such as reports from commissions, working groups, hearing statements, position papers from interest groups, journals and law proposals on the topic, which enabled me to construct a timeline for all the different initiatives proposed in order to change the pharmacy sector during the past ten years. (The timeline is found in appendix I).
10 Opinion catalogue: An elaborate news article search was conducted including the buzzwords ‘pharmacy’, ‘monopoly’ and ‘liberalisation’ through the database ‘Infomedia’, collecting a vast amount of articles from the past ten years. A total of 537 articles were found in the media search. The selection criteria for the articles used in the opinion catalogue were (1) articles written within the period April 2004 - April 2014, and (2) articles representing beliefs of a single important political actor; i.e. political party, public authority, interest organisation, individual expert or company. Through a content analysis of all relevant news articles that fulfilled the selection criteria (N=77), the findings were structured in an opinion catalogue in order to pin point interests and viewpoints of different stakeholders within the pharmacy sector (see appendix II). The articles used for content analysis are outlined in the reference list in the back of the opinion catalogue as a separate reference list. As the opinion catalogue only serves as an initial starting point and have not been actively used in the analysis, the articles will not be featured in the final list of references. The table below shows the initial findings from the content analysis of the media search and provides an overview of different stakeholder opinions toward a liberalisation of the pharmacy monopoly. (Although the opinion catalogue also includes the statements of all political parties represented in the Danish Parliament, these are left out for simplicity, but included in section 6)
Figure 1: Opinion-overview based on content analysis Actor Pro* Con** Public actors Competition Council (Konkurrencerådet) x Competition Authority (Konkurrence-og forbrugerstyrelsen) x Consumer Council (Forbrugerrådet Tænk) x Productivity Commission (Produktivitetskommissionen) x Ministry of Business and Growth (Erhvervs-og vækstministeriet) x Ministry of Health (Ministeriet for Sundhed og Forebyggelse) x Private actors Matas x Euromedicin x Tjellesen Max Jenne x Interest organizations Pharmacy Association (Apotekerforeningen) x Danish Chamber of Commerce (Dansk Erhverv) x Consumer Council (Forbrugerrådet Tænk) x x Other actors Pharmacists x x Experts/Academia x Overall tendency 11 5 *Pro: indicates ‘in favour of a liberalisation of the pharmacy monopoly. Advocates for change. **Con: indicates ‘against a liberalisation of the pharmacy monopoly’. Advocates for stability.
The opinion catalogue provides a preliminary overview of arguments presented by different political actors and key stakeholders involved in advocating for change or stability within the
11 Danish pharmacy sector. Referring to the second selection criteria, the opinion catalogue cannot be said to represent a comprehensive description of beliefs held by all actors, since some actors have deliberately been excluded3 based on the argument that these actors did not play a significant role in the debate. Nine of the interviewees did not mention any of the excluded actors, which validate this exclusion. Moreover, a crosscheck with the hearing list of the ‘Modernisation proposal’ available at hoeringsportalen.dk assured that no crucial actor was overlooked.
Acknowledging that political debates not only take place in public forums and official newspapers, and that some beliefs have exclusively been expressed in closed meetings, I nevertheless assume that key arguments with high priority for the selected actors have been presented when debating the pharmacy monopoly. In turn, these policy beliefs must then have been mentioned in central articles, if not by the specific actor it belongs to, then by other actors who have expressed a similar belief.
Case selection Case studies are appropriate to use in the early stages of research when knowledge is still limited about the phenomenon and can thus serve an exploratory purpose (Saunders et al, 2007). When the media search was conducted, I came across the Uldum pharmacist who entered a commercial partnership with the Danish retail chain, Matas. Several actors react strongly against this partnership, which intrigued me to further explore the dynamic at play in. The case study is a business case of how the Uldum pharmacist seeks a greater customer base through the partnership with Matas. Whereas the media dramatically labelled it ‘The Pharmacy War’, I objectively label it ’The Uldum case’. The Uldum case serves as example of how the pharmacy monopoly has been challenged from within. As Saunders et al explain case studies are especially beneficial to new research where existing theory is insufficient (Saunders et al, 2007). The Uldum case is an example of this scenario. Though an interview with the Uldum pharmacist and surrounding actors, the Uldum case reveals the limitations of the Principal-Agent (PA) theory, as it fails to explain all the dynamics at play. Hence, the case study sets precedence because it showcases a larger problem there exists in the sector. In turn, the Advocacy Coalition Framework (ACF) has been added. As a consequence of the PA-theory’s drawbacks, most attention will be given to the ACF in the analysis.
3 These actors involve e.g. Danish Regions (Danske Regioner), Danish Patients (Danske Patienter), PharmaDanmark, DSI Institute of Health (Institut for Sundhedsvæsen), Nomeco, Coop etc.
12
Data sample The initial interview sample was based on the opinion catalogue combined with the degree of visibility in public debate (see appendix III) and degree of political influence (see appendix IV). Appendix III is a rough estimate of the frequency of the media appearance of each specific actor and appendix IV is a rough estimate of an actor’s level of political influence combined with interviewees’ acceptance of this position. I acknowledge that this method is flawed in several ways, but nevertheless useful as initial guidance for the preliminary selection of interviewees. The section was based on a non-random basis the subjective judgment of which actors would contribute with valuable information to my study (Saunders et al, 2007). Through fist-hand interviews, each key actor contributed with new knowledge, which encouraged me to contact new interview subjects. The data sample was complete, when actors from all different stakeholder positions had been interviewed.
A total of 11 semi-structured interviews were conducted of which one was facilitated through a presentation at a networking event and one was via email correspondence. The interviews were conducted from July 24 - November 10, 2014, and were mainly face-to-face or phone interviews. All interviews were conducted in Danish and audio recorded (see enclosed CD-ROM for audio recordings and full question frames in Danish). The main questions and answers have been translated into an English summary in appendix V-XV.
Since the pharmacy monopoly is a highly political topic and the decision-making process takes place at the highest level in the Ministries, it has been hard to gain access to all relevant actors. However, when the first choice of interview subject declined the offer to be interviewed, a satisfactory replacement was found. Sometimes it was even more useful to interview formerly involved actors, since they were more open to answering politically sensitive questions. Each interview was conducted on the basis of an individual question frames fitted to the particular actor’s position and the information I was seeking at the time. Since I was learning throughout the entire process and changes were taking place at the political scene (the Modernisation proposal was released, final hearings submitted, etc.), the question frames were revisited accordingly.
13 Figure 2: Overview of interviewees within the stakeholder map of the pharmacy sector Source: Author’s own construction based on findings
Data analysis After all interviews were conducted, I listened to the recordings and highlighted main arguments which fitted into the coding frame developed in accordance with the ACF by Sabatier “it is assumed that actors can be aggregated into a number of advocacy coalitions composed of people from various organisations who share a set of normative and causal beliefs” (Sabatier, 1987, p. 652) By extracting quotes expressing policy core beliefs, it allowed me to make a classification of which coalition group each interviewee belonged to. The grouping of advocacy coalitions with similar beliefs was in line with the hypothesis made by Sabatier & Jenkins-Smith stating that “Actors within an advocacy coalition will show substantial consensus on issues pertaining to the policy core, although less so on secondary aspects” (Sabatier & Jenkins-Smith, 1999, p.124), The coding was structured around pre-made question frames (see CD rom), which assured that certain topics were addressed. More specifically, open-ended questions allowed me to place each interviewee in the fitting belief system. This included questions such as: (1) Which actors do you see as collaborators/competitors?; (2) What are benefits and drawbacks of the current monopoly structure?; (3) Why do you think we have the current structure? (looking for PA-assumptions); (4) How to change the current structure? (looking for ACF assumption);
14 (5) What is your view upon the future of the pharmacy monopoly? These questions enabled me to divide all actors into different overall categories of Guardians who advocate for stability, Reformists, who advocate for change and Doubters are undecided. Instead of making detailed codes in advance, as the ACF coding prescribes, a set of rather broad codes was made to include all valuable information through an exploratory data analysis (Saunders et al, 2007). Hence, the interviews were systematically coded by extracting carefully selected codes e.g. actors mentioned, attitudes towards actors/events/policies, ideologically linked reasoning, main arguments, perceived influential/dominant actors, level of coordination with other actors, knowledge about the political process especially regarding the Modernisation proposal etc. The codes were used to manage and organise the empirical data to help the interpretation and conformation/disconfirmation of certain connections (Crabtree, 1999). The exploratory data analysis made the coding strategy more open and flexible and allowed to incorporate unplanned knowledge, which the research was not initially designed to test. (Sauders et al.) This resulted in an additional subdivision depending on the actors’ main focus, whether it was health-, industry-, commercial- societal- or competition focus. As well as adding more layers to the analysis, the expressed policy core beliefs made it clear what kind of policy initiatives different actors favoured, depending on whether they supported monopoly, modernisation or liberalisation (see figure 4). Central quotes were extracted from each interview and carefully selected as representative for the viewpoints expressed by the interviewees. Again, the insights presented in this thesis are sought weighted equally in order for all coalition groups to be represented. All central quotes have not been included in the thesis, but viewpoints that expressed similar beliefs have been incorporated. Some interviewees managed to express views held by various actors more clearly, which is why some actors have been quoted more frequently than others. However, this does not mean that some coalition groups have been given preferential treatment, more so that one interviewee may have been selected as main spokesperson within a particular coalition group.
Time horizon Since this study seeks to explain how the pharmacy sector has managed to protect its monopoly, I have chosen a time horizon of ten years in order to capture the development over the past decade, understand why the monopoly has been a critical topic on the political agenda and which actors have advocated for which outcome over time. The ACF also recommends a time period covering no less than a decade based on a premise of analysing a full policy-cycle (Sabatier & Jenkins-Smith, 1999). Furthermore, the longitudinal study allowed me to discover whether coalition groups have changed, which proposals for change have been put forward and how they have been received.
15 One interview (with Carsten Koch who was the Minister of Health from 1998-2000) has exceeded the time frame. This interview has been included since he was the first Minister of Health who looked closer at a major liberalisation of the sector and thus started the liberalisation wave from a ministry, which until then was –and to some extent still is- known for protecting the current monopoly. The table below provides an overview of the time frames of the selected case study and what time horizon the primary and secondary data covers. A detailed time frame for when the different interviewees (except Carsten Koch) were involved in the pharmacy sector is also outlined. As illustrated; some actors only hold insider-knowledge from a certain point in time, however much overlap in time do exist amongst the interviewees.
Figure 3: Primary and secondary data collection arranged by year within time horizon for research scope Source: Author’s own construction based on findings
2.3.2 Limitations Opposing opinions in categories: In the stakeholder map (figure 2), which categorizes the different actors that constitute the pharmacy sector, I realize that different interest exists within the same grouping. Looking back at the findings from the opinion catalogue in figure 1, this is the case between the Ministry of Business and Growth (Reformists) and the Ministry of Health (Guardians). The same holds true when it comes to the Competition Authority (Reformist) and the Danish Medicine and Health Authority (Guardians) etc. This will evidently be elaborated on in the analysis section. For now, it is important to state that I have not found it necessary to interview two opposing actors within the same category, since the opposing view appears when interviewing the counterpart. Instead, I sought to evenly weight the pro and the con side, so opposing opinions were represented equally. Six of the interviewees favour liberalisation, whereas five supports the current monopoly structure.
16 Declines: The following actors declined the offer to be interviewed: • Annette Vilhelmsen, former Minister of Business and Growth • Agnete Gersing, chairman of the Competition Authority However, the questions I wanted to ask these actors were indirectly answered by other interviewees and supported by official documents. Thus, assigning these actors to an advocacy coalition group was reasonable, despite the refusal to actively participate in this study.
Data collection: The media search that formed the opinion catalogue does not include all articles related to the topic of investigation, since the exact term ‘pharmacy monopoly’ may not have been used. Therefore, the opinion catalogue is merely useful as initial overview, but cannot form the basis of any further analysis. Since all the interviewees are high profile people, some interviews were cut short and not all questions were possible to get answered; either because of time constraints or confidentiality issues, which is a major drawback when collecting sensitive data. Nevertheless, all interviews have contributed to the analysis and the collected amount of data proved sufficient to place all actors into advocacy coalition groups, which was the main aim of the interviews.
2.3.3 Credibility The issue of credibility needs to be examined to ensure that this study reaches valid conclusions. In a research study, credibility consists of two elements; reliability and credibility.
Reliability refers to whether the data collection techniques and analysis generate consistent results by other researchers using the same methods (Saunders et al, 2007). Due to the nature of personal interviews, it is not realistic that other researchers can identically replicate these findings as interviews are highly contextual; a product of a certain time, place and interaction. As a researcher, my subjective view and understanding of the data collection will inevitably be reflected in the interpretation of the dynamics within the pharmacy sector. Thus, it needs to be acknowledged that there is more than one way of interpreting the different phenomena addressed in this study and thus the conclusions are not universal since other researchers may arrive at a different conclusion (Saunders et al, 2007). However, I have attempted to improve reliability by making the interviews available on CD, and used direct quotes to increase transparency within my interpretation of the findings. The exact Danish wording has been included as a footnote in order not to loose any nuances in the translation process of the quotes. Moreover, all direct quotes used in this thesis have been verified and approved by the originator to avoid any mix-up in references as well as to ensure consent.
17 Ideally, a second researcher would also have coded the interviews to reassure that the coding strategy revealed no discrepancy, however the more than 8 ½ hours of interview made it too time-consuming to crosscheck the coding results, which decreases reliability.
Validity is the degree to which the data collected accurately shows the concept that the researcher tries to measure. The validity of the interviews is ensured by using a hybrid approach of both deductive and inductive approaches, which allows me to move from data to theory and vice versa. By continuously revisiting and optimizing my data and theories, I increase the validity of my findings through abduction. Furthermore, I was constantly aware that the research population was highly biased by their belief system in their responses. I had to filter for this subjectivity by using triangulation to verify whether different sources suggested consistent conclusions. This was also considered when extracting quotes that a particular belief was representative, if not the entire research population, then at least for the specific belief system under analysis. This continuous crosschecking of statements between and amongst belief systems increases the validity of the different views presented in this study.
Due to the vast usage of qualitative data, the critique is often put forward that the study represents a snapshot of reality and does not allow for generalization and causal analysis is often hard to pursue (Abbott, 2004). By crosschecking the findings with actors who were involved at different times in the process (see figure 3), the study incorporates developments over the path of ten year. Ideally, one can argue that if time and resources allowed, the validity of this thesis would improve if more actors who have been involved in the pharmacy sector policy within the past 10 years had been interviewed to avoid missing any detail or development. However, since the interviewed sample overlaps in time and represents every position within the stakeholder map, I assume the sample provides a representative picture of the interests at play in the pharmacy sector. Furthermore, the assumption is made that central topics and events have been highlighted by the interviewed sample, although acknowledging that some information have been left out, either due to confidentiality, forgetfulness or trivial matters.
By incorporating both primary and secondary data into the study, the credibility increases (Cresswell, 2003). The usage of triangulation intends to bridge the gap between the methods’ shortcomings. If just applying one single method, the project would lack substantial information. David Lake argues in these lines: “No single theoretical or epistemological approach deserves hegemony. Diversity of theory and method is necessary, at least at this stage of our intellectual development. Intellectual monocultures are rightfully feared” (2011, p.478) Using
18 triangulation increases validity because it allows me to look at the same research area from different angles by using more than one data collection method on the same topic. Triangulation was conducted in two ways; first multiple sources of official documents were collected to corroborate the same fact (the existence of competing beliefs), second, qualitative data was collected from different sources that addressed different facts (different beliefs held by different coalitions)
To counter for the pitfalls involved when pursuing an interpretivistic epistemology, the empirical findings have been crosschecked with several actors from different positions in the stakeholder map in order to assure my interpretation of the data is reliable. As a lecturer once said “Knowledge is justified true beliefs” (McGovern, 2014). Stated differently, knowledge is the ability to hold your own belief in relation to other knowledgeable people. By presenting my beliefs about the knowledge, the findings and interpretations are justified.
Although the findings based on the empirical data may not suffice to make universal conclusions, the study nevertheless points to some general theoretical patterns and trends of how actors collaborate and interfere in political processes and affect policy change. By limiting the pitfalls of the methodology applied, I argue that the conclusions reached in this study have a rather strong predictive power and provide a representative and trustworthy picture of why the pharmacy monopoly is still maintained and under which conditions is liberalisation of the pharmacy monopoly most likely to occur.
3. THEORETICAL FRAMEWORK
This section presents the two theories that will be applied in this thesis to help guide and answer the two overall research questions. First part of the research question will be explored through the Principal-Agent Theory, while second part of the research question is sought answered through the Advocacy Coalition Framework. This section elaborates on why these two theories have been chosen, what their main assumptions are and which theoretical challenges they entail.
3.1 Principal-Agent Theory In order to answer the first part of the research question ‘Why is the pharmacy monopoly still maintained?’ this thesis relies on a theory that can help explore the relationship between the Danish state and the pharmacies. The Danish state has outsourced some responsibilities by
19 making the privately owned pharmacies part of the Danish health sector. As argued by Larsen et al., the relationship resembles a corporate agreement. So why not use a corporatist theory? Firstly, corporatism exists between multiple actors, whereas the Principal-Agent Theory makes assumptions about how two actors interact. Since the thesis at this point focuses on investigating the relationship between the Danish state and the pharmacies, the PA theory is deemed suitable in this context. Secondly, this study further explores the relationship and tries to uncover if there are additional -and perhaps more accurate- reasons than the ‘strong historical ties’ and ‘accessibility to the central political decision-makers’ to explain the resilience of the Danish pharmacy monopoly.
Agency theory, as applied in disciplines such as sociology, political science and public administration, is essentially a theory about contractual relationships between two actors. As described by Charles Perrow:
”In its simplest form, agency theory assumes that social life is a series of contracts. Conventionally, one member, the 'buyer' of goods or services is designated the 'principal,' and the other, who provides the goods or service is the 'agent'-hence the term 'agency theory.' The principal-agent relationship is governed by a contract specifying what the agent should do and what the principal must do in return. ”(in Waterman, 1998, p. 224)
This notion of ‘contractual agreement’ laid an important role in Mitnick's formulation of the PA model. However, rather than focusing on buyers and sellers in an exchange in a market place, Mitnick examined the relationship between agents in the regulatory bureaucracy where focus is on policy rather than profits (1973 and 1975). To help understand the relationship between principal and agent in a regulatory context, the standard framework for understanding executive power, delegation, and discretion in political science needs to be presented. Political scientists use the PA framework to study delegation of responsibilities to specific actors. The relationship between the principal and the agent is described by Hix & Høyland as: ”a principal, the initial holder of executive power, decides to delegate certain powers to an agent who is responsible for carrying out the task” (Hix, 2011, p.23).
The key challenge of this relationship is for the principal to ensure that the agent carries out the assigned task as intended by the principal and thus does not drift to carry out tasks of own interest or own policy preferences. Agents are motivated by different inputs. Firstly, lobbying on behalf of actors affected by the task may influence the agent. Secondly, agents may want to increase their own influence over the policy process (Hix, 2011). Collectively, agents may wish
20 to diverge from the principal’s original policy intention (e.g. conduct the task which was out- delegated to the agent by the principal as intended) and thus pursue a policy drift away from the policy most preferred (ideal point) by the principal. In sum, the degree of autonomy between executive agents and the principal’s policy intention depends on the degree of policy agreement or disagreement between the principal and the agents.
In the ideal scenario, the principal would select agents whose ideal point corresponds identically to that of the principal. In practise, however, this scenario is close to impossible to find, since various actors often have different ideal points (Hix, 2011). Thus, in order to limit a potential policy drift pursued by agents, the principal has a last mean to obtain the policy intention: control. The principal can monitor how well the agents are fulfilling their assigned tasks and punish them when they pursue policy drift to lessen the incentive for further policy drift. Using Mitnick’s terminology “When bureaucratic activities stray from the principal’s preferences, policy makers can apply sanctions or rewards to bring agents back into line” (p. 177 in Waterman, 1998). Hence, monitoring devices become a solution to ensure that the agents are following the principal’s desired objective. By keeping strict control with the agents, the principal can limit the agent’s policy drift.
3.1.1 Theoretical assumptions The PA theory has three main assumptions. Firstly, it assumes that goals conflict between principals and agents and thus results in a policy drift pursued by the agents away from the principal’s policy intent. In line with the assumptions made by the classical Rational Choice Theory, it claims that any actor wants to optimize self-interest and thus agents pursue a policy drift towards their own preferred outcome. Next, it assumes that agents possess more information than their principal, since the agents carry out the delegated tasks, which results in information asymmetry. These two key elements; the goal conflict and the information asymmetry are the spark plugs that power the theory. Finally, the PA theory assumes that the agents are unitary actors, and all have the same interest which conflicts with the principal’s ideal point (Waterman, 1998).
Box 1 summarizes the assumptions made about the Principal-Agent relationship. Assumptions Goals conflict between the principal and the agents Information is asymmetric and skewed towards the agents Agents are unitary actors
3.1.1 Challenged theoretical assumptions While the PA model has been widely used in political science, its assumptions have rarely been questioned or analysed. Previous PA literature has paid little attention to investigating the
21 validity of the theory’s key elements. Information asymmetry and goal conflict have in most literature been treated as constants in the model. As a result, the theory becomes static rather than dynamic. Waterman questions the validity of all of the assumptions made of the Principal- Agent relationship. Next section briefly outlines why Waterman challenges PA’s basic theoretical assumptions when applied in a bureaucratic/institutional setting.
Goals do not always conflict In the market place, principals and agents clearly have different goals and/or preferences. Agents want to increase profits while principals want to pay as little as possible. But in the bureaucratic setting, where focus is on policy instead of profit, goal conflict may not always exist between principals and agents. At its very core, PA theory describes the relationship between one principal and one agent. However, this dyadic relationship is unrealistic according to Waterman. By only assuming that one principal is influencing the agent, PA-theory excludes externalities which agents can be influenced by. In reality, several actors compete to influence the agents. Interest groups, public opinion, politicians etc. can be labelled ‘principals’ as well according to Waterman. A simple dyadic PA model is therefore incapable of capturing this dynamic interaction between multiple principals and a set of agents.
The possible existence of multiple principals strongly indicates that not all principals will agree on the same goals. As a result, the relationship between multiple principals and the agents becomes exceedingly complex. Agents end up finding themselves caught in a web of conflicting interests or alternatively the goals of the principals and agents are in consensus. The introduction of multiple principals thus challenges the assumption about goal conflict between the principal and agent (Waterman, 1998). Furthermore, if goals do no longer conflict, is there then a motive for agents to hold back information?
Information is not always purely asymmetric Waterman further argues that the existence of multiple, competing principals, means that the assumption of pure information asymmetry is unlikely to occur and would rather involve a high level of transparency. Waterman provides the following example “In those cases where principals do not share the agents' goals, agents would have a clear incentive to leak information to competing principals. The end result would be a breakdown of a pure information asymmetry” (Waterman, 1998, p. 180)
22 Agents are not always unitary actors Realizing that goals do not always conflict between principals and agents, Waterman explores how goal conflict occurs between agents. Waterman finds competing agents within an agency; an occurrence, which is ignored by conventional PA theory. The unitary actor assumption, along with the dyadic presentation of the PA model, violates a great deal of what we know about both political actors and bureaucrats (Waterman, 1998). To consider a bureaucracy as a unitary actor has long been rejected by scholars (Simon 1947; Downs 1967 in Waterman, 1998). The existence of competing agents within an agency further adds to the implications for the PA relationship, which leads Waterman to expand on the existing PA model, where the assumptions about goal conflict, information asymmetry and unitary agents are altered.
3.1.2 Expansion of theory Waterman’s expansion of PA theory seeks to encounter and modify the key elements of goal conflict/consensus and information level of the principal/agent.
If goal conflicts between the principal and the agent, and both actors have a high level of information, competing advocacy coalitions will develop. In this situation, no single actor has the sole technical expertise because different contributors provide information. On the other hand, if there is goal consensus between the principal and the agent, and information level is still high, the occurrence ‘policy subsystem’ will be seen. In the policy subsystem, goals are shared with little challenge as long as all members of the subsystem are kept reasonably happy. In such a subsystem, principals and agents are interacting over long periods of time.
Since political actors, whether politicians or bureaucrats, learn over time about policy and politics; goals also develop correspondingly. The PA framework is supposed to be dynamic, not static, to encounter for these changes. The expanded model suggested by Waterman allows the nature of the relationship to move from goal conflict to goal consensus depending on the principals’ and agents’ goals and information level. The fundamental point being that as the level of conflict/consensus increases/decreases when provided with information, Waterman expects the political relationships between the two sets of actors to change as well.
The existence of competing agents within an agency has critically important implications for the PA relationship. As Waterman notes, the existence of competing agents makes the bureaucratic model approximate the Advocacy Coalition Framework where goals conflict, rather than a traditional Principal-Agent relationship (Waterman, 1998). Hence, this framework needs to be introduced to account for Waterman’s findings and expand the analysis to include more actors.
23 3.2 Advocacy Coalition Framework In order to investigate the second part of the research question “Under which conditions is liberalisation of the pharmacy monopoly most likely to occur?,” this thesis needs to uncover what fosters policy change and what the main causal factors are in order to understand the complex process which changes public policy. As discovered in the methodology section, many independent variables affect the dependant variable ‘policy change’. In order for liberalisation to occur, a policy change within the pharmacy sector is required. Hence, policy change is at the core in answering this part of the research question.
In the late 1990s, the Network Approach began to win impact when studying policy change in political science (Dowding, 1995, Klinjn, 1997, Marsh, 1998, Marsh & Smith, 2000 in Adam & Kriesi, 2007). The concept of policy networks evolved from research on interest groups and agenda-setting. Although at first sight a network approach seems highly relevant when studying diverging interests in the pharmacy sector in Denmark, the evidence to show whether and how network analysis improves the understanding and policy outcome and policy change is still lacking (Adam & Kriesi, 2007). Since it still remains to explore whether policy networks indeed are relevant in shaping public policy, the Network Approach is consequently dismissed. Instead, the Advocacy Coalition Framework is deemed highly relevant and applicable. Originally developed by Sabatier in 1988 the ACF has been the anchor for studying policy changes over time. Many extensions and adjustments have since been added, both by Sabatier himself and contributing scholars (Sabatier & Jenkins-Smith 1993, 1999; Sabatier 1998, Kübler, 2001, Fenger & Pieter, 2001, Sabatier & Weibler, 2007), but the core of his framework remains the same and hence proves its significance (see overview of ACF in appendix XVI).
The framework serves as an analytical toolbox that helps explain what causes policy change over time (Sabatier, 1988). It specifically focuses on beliefs as important factors in the process of policy change and assumes that actors and coalitions strategize to maintain or change policy in convergence with their so-called ‘policy core beliefs’. According to ACF, advocacy coalitions aim at implementing their own beliefs by influencing the content of governmental decisions. Advocacy coalitions have been repeatedly defined as “people from a variety of positions (elected and agency officials, interest group leaders, researchers, etc.) who share a particular belief system - that is, a set of basic values, causal assumptions, and problem perceptions - and who show a non- trivial degree of coordinated activity over time' (Sabatier, 1993 p. 25 in Fenger, 2001). In other words, an advocacy coalition is a set of actors who are actively concerned with an issue and regularly seek to influence public policy related to it (Kübler, 2001).
24 3.2.1 Prerequisites for Policy Change Two main factors influence policy change (the dependant variable); namely policy learning and external shocks. These will now be elaborated as main paths to policy change:
Policy learning One of the prominent characteristics of the ACF is the integration of policy learning in the explanation of policy change. If information and knowledge have fostered a change in belief, policy learning has occurred. According to the ACF, policy learning “involves relatively enduring alterations of thought or behavioural intentions that result from experience or new information and which are concerned with the attainment or revision of the precepts of the belief system of individuals or of collectivises (such as advocacy coalitions)” (Sabatier & Jenkins-Smith, 1993 p. 42). Hence, policy learning occurs when actors present government authorities or opposing coalitions with information and knowledge in order to influence their beliefs about the policy area of their interest. Scientific and technical information play an important role in modifying beliefs of policy participants. Experts who possess knowledge and coalitions having not only the resources to produce information, but also the political access are more likely to facilitate policy learning. For information to reach the policy-makers accessibility a netural prerequisite.
External shocks In addition to policy learning, external shocks can also serve as a stimulus to policy change. The ACF argues that external shocks are necessary for major policy change to occur. These external shocks include changes in socio-economic conditions, changes in governing coalitions, changes in public opinion and international events. However, not all external shocks lead to major policy change, but can also result in minor change or no policy change at all (Moyson, 2011). The link between external shocks and policy change initiatives is more complex than a simple stimuli– response sequence. Shocks may stimulate policy change in a number of ways, although the specific dynamics vary from one case to another (Nice & Grosse, 2001; Hermann, 1990 in Mayson, 2011). For example, what caused policy to change towards liberalisation in Sweden and Norway may not result in the same policy change in Denmark. Hence, external shocks are necessary, but not a sufficient condition for policy change. ACF argues that minor policy changes are the result of policy learning, and major policy change requires external shocks. Why this is the case, needs to be explored through the so-called ‘policy subsystem’. All policy changes take place within the policy subsystem and are thus the core of the analysis. In its simplest form, the policy subsystem consists of two competing coalitions, Coalition A and Coalition B. In the middle of these two opposing coalitions is a policy broker - often linked to the decision-makers - who seeks to reach a compromise/mutual agreement
25 between A and B and thus facilitates a policy solution. Coalition A and B regularly seek to influence governmental authorities according to their belief, which, if successful, leads to a new set of regulatory rule. The desired policy change will then have new and improved policy impacts on the winning advocacy coalition group (Kübler, 2001).
Since the ACF views the policy process as a competition between coalitions of actors, it is often used to explain stakeholders’ behaviour and policy outcomes in conflicting political contexts, with two or more coalitions pursuing different policy objectives (Carboni, 2012). As we have already realized, a central conflict existis between those who support policy stability (monopoly) and those who favour policy change (liberalisation), but also that the stakeholder map of the pharmacy sector perhaps indicates more nuanced groupings of coalitions than just the simple pro/con-division.
Belief systems The ACF argues that actors relate to the world through a set of perceptual filters composed of pre-existing beliefs that are difficult to alter (Sabatier & Weible, 2007). These beliefs serve as guidance for how a problem is viewed upon and how it should be dealt with, a so-called belief- system. In the case of public policies, such guidance is provided by belief systems about how a given public problem is structured, and how it should be addressed. Sabatier and Jenkins-Smith distinguish between three levels of beliefs in the belief system of a coalition (1993):
• Deep Core beliefs: fundamental values there are stable over time and ontological assumptions about the world • Policy Core beliefs: causal perceptions and policy positions serving to translate the deep core into political practice • Secondary aspects: empirical beliefs/instrumental considerations on how to implement the policy core
It is assumed that these levels of belief systems show decreasing resistance to change, with the deep core beliefs displaying the most resistance, and the secondary aspects the least (Kübler, 2001) Since deep core and policy core beliefs (in short, core beliefs) are assumed to have the highest level of resistance to change, the ACF argues that policy-oriented learning is most likely to concern only secondary aspects of a belief system, leaving the policy core intact, and thus only able to bring about minor policy change. On the contrary, major policy change, i.e. a change in policy cores, is thought to be unlikely in the absence shocks external to the subsystem (Kübler, 2001). The belief system is the glue that holds the coalitions together. Since core beliefs are hard to
26 influence, it is argued that the policy subsystem is made of up rather stable coalitions over periods of a decade or so. The emergence of new coalitions is only likely to occur, when actors are too unsatisfied with the opinions represented by the already established coalitions that an additional counter-coalition is formed (Sabatier, 1988).
At last, the ACF further incorporates stable and unstable parameters, which both influence and are influenced by the policy subsystem. Stable parameters include the Pharmacy Act, which only changes little over time and through a rigid bureaucratic policy process, where unstable parameters can include changes in public opinion, change in governing coalitions and changes in socio-economic conditions. The unstable parameters are external system events and account for the possible external shocks that by definition occurs outside the control of the subsystem’s actors (Sabatier & Weible, 2007).
3.2.2 Theoretical assumptions Box 2 below shows an overview of the various assumptions made by the ACF: Assumptions Coalitions hold strong beliefs and are motivated to translate those beliefs into actual policy Coalitions form around shared beliefs, particular policy core beliefs Scientific and technical information plays an important role in modifying beliefs of policy participants Policy learning and external shocks are main factors to influence policy change Coalitions tend to be stable over time (decade) The three levels of beliefs are decreasing in resistance to policy change
3.2.3 Critique of framework While most of previous studies have focused on the descriptive validity of the ACF, more work is needed to critically examine its assumptions about policy change in various contexts (Smith, 2000). Only the work by Larsen et al has previously applied the ACF on the pharmacy sector in Denmark during a limited time period. Further studies need to investigate whether their conclusions are applicable across time or if their findings only hold true in the specific context studied.
One of the most prominent critiques put forward are the issues of coalition formation and collective action, which was first pointed out by Schlager (1995). Schlager argues that advocacy coalitions in the ACF are supposed to develop more or less automatically out of shared belief systems. Almost exclusive attention is devoted to explaining the structure, content, stability, and evolution of belief systems in ACF. Little or no attention is given to account for how actors with similar beliefs overcome the collective action problems and cooperate to pursue common strategies and common goals. Sabatier fails to sufficiently explain how actors who share a
27 particular belief system cluster together in advocacy coalitions, thereby overcoming problems of collective action. Neither does ACF distinguish between strong/weak coordination nor between strong/weak conflict between one or more coalition groups. These may also be important factors in explaining policy change.
Also, the two main routes to policy change are challenged; policy leaning and external shocks. The need for a more through explanation of the role of defection linked to the policy learning process i.e. ‘When evidence change, I change my mind’ is put forward. When is the tipping point reached and when is a learning process accomplished? Furthermore -and strongly linked to collective action- how does coalition activity influence how the government’s response to external shocks? An exploration of the type of interaction between coalitions that shared beliefs and which strategies they implement are highly interesting and relevant issues, which ACF simply leaves unaddressed (Schlager, 1995).
Despite the outlined drawbacks of the chosen theory and framework presented, no other analytical tools have been deemed more suitable to uncover this research field. Bearing in mind the theoretical limitations of both PA theory and ACF, the Danish pharmacy monopoly can now be approached through the lens of the introduced theoretical frameworks.
4. THE EMPIRICAL CONTEXT OF THE PHARMACY MONOPOLY
Before advancing the research questions of this thesis, it needs to be outlined exactly what a monopoly is and why there is said to be a pharmacy monopoly in Denmark. This section presents a brief introduction of pure monopoly and perfect competition in order to better understand the argumentation that rests upon economic characteristics and assumptions made about the two structural market contrasts. Thereafter, a description of which components the Danish pharmacy monopoly consists of is outlined and the three central terminologies of ‘monopoly’, ‘modernisation’ and ‘liberalisation’ are defined. Lastly, an international outlook is included to situate Denmark in the right context.
What is a monopoly? The fundamental enabeler of pure monopoly is barriers to entry. A monopoly exists when one actor controls the market, protected by high entry barriers that prevents other actors from entering the market and offer competition. Two main forms of monopoly exist: a monopoly where a single actor holds the exclusive ownership of a key resource and a state-centric monopoly where the state gives a single actor the exclusive right to produce or sell a good or service (Mankiw & Taylor, 2006).
28 The Danish pharmacy monopoly is classified the latter, namely a state-created monopoly, where the Danish state gives selected pharmacists the exclusive business license to sell prescription medicine in a certain geographical area. Since the state (or more specifically the Ministry of Health) determines the location of the pharmacies across Denmark, each pharmacist can be classified a local monopolist. In areas where the density of pharmacies is higher, the competition can be labelled monopolistic competition (Sørensen & Whitta-Jacobsen, 2005). To summarize, a pure monopoly is characterized by imperfect competition since one or a few actors control the market, entry barriers are high and the monopolist has the ability to set and control prices (Begg, 2008).
What is perfect competition? Perfect competition has the opposite characteristics to pure monopoly; competition is high as entry barriers are low and thus many actors compete within the same sector. A basic economic assumption is that a firm always seeks to maximize profits. Since there is no competition in a monopolistic market, actors can set prices above marginal costs and increase profits to a larger extent than what would have been possible in a competitive market (Sørensen & Whitta- Jaconsen, 2005). Hence, Mankiw & Taylor criticise monopolies from profeting at the expense of the public as prices are likely set at the highest level at the expense of overall social welfare (2006).
Due to the obvious drawbacks in a monopolistic market, neoclassical economists use the notion of ‘perfect competition’ to refer to their preferred market structure, an ideal (Buch-Hansen, 2014). The neoliberal discourse assumes that competition inherently enhances welfare. Since competition is thought to drive innovation, efficiency and productivity, the more competition, the better (Buch-Hansen, 2014). The laissez-faire economic philosophy lies behind the neoclassical belief that a free market is able to regulate and optimize itself. Hence, regulatory state intervention is undesired. Put in popular terms, the invisible hand is preferred over the visible hand (Smith, 1776). On this basis, it makes sense that neoclassic economists perceive perfect competition as the desired market structure. However, this view is questioned by Stanford, who argues that it is unwarranted to simply take for granted that more competition in a market or a society is always desirable (Standford, 2008). The concerns raised by Stanford become relevant when looking into the Danish pharmacy sector. As the following section argues, the pharmacy monopoly in Denmark is composed of extremely complex structures; a construction which actually limits some of the monopoly’s disadvantages as mechanisms have been put in place to counter for some of the inefficiencies of the state-created monopoly.
29 4.1 The Danish Pharmacy Monopoly The pharmacy sector in Denmark is a part of the Danish health sector and is restricted by public regulation within certain areas. The Pharmacy Act states which obligations the pharmacist has and under which conditions a pharmacy can be run. The main operating regulations are outlined in the fact box below and will help understand the regulatory constraints at play. The overall goal of the current legislation is to ensure accessibility, price equality, responsible distribution and skilled counselling as well as reasonable operational costs allocated from the public expenditure budget (Pharmacy Act, § 10).
Licencing system In order to become a proprietor pharmacist a licence must be obtained from the Minister of Health, who also appoints new proprietor pharmacists. In practise, it is the Danish Medicine and Health Authority (DMHA) who advertises a pharmacy licence when it becomes vacant. This typically occurs when the present proprietor pharmacist retires. Interested pharmacists can then apply for the licence. In order to be considered eligible, the applicant must first and foremost possess the appropriate professional qualifications; i.e. hold a pharmaceutical master’s degree. This requirement is to ensure consumers a high level of counselling. On top, the applicant must have managerial skills and be experienced in the operation and financial management of pharmacies. Today, there are 221 appointed pharmacy proprietors in Denmark. Every proprietor can own up to four pharmacy units (see appendix XIX for different units descriptions). In total, there are 312 pharmacy units in Denmark where prescription medicine is sold.
Gross profit regulation The Danish Health and Medicines Authority allocates how much the pharmacies receive from public expenditure to cover operating costs. Every second year, the Pharmacy Association (the interest organization which represents the pharmacies) and the Ministry of Health negotiate the gross profit, which must cover the costs of operating the pharmacies and the proprietor pharmacists’ own salaries. Today, the gross profit is set at DKK 2,6 billion. The authorities use the gross profit as a financial tool to control the public expenditure assigned to the pharmacy sector.
Price regulation The prices of pharmaceuticals that are sold only at the pharmacies are controlled centrally. Thus, the price the consumers pay for pharmaceuticals is the same across the country. Every two weeks a new price list is published. The producer, who can offer the pharmaceutical at the lowest price, ‘wins’ the market for the next two weeks. Thus, prices are kept low and consumers always have to be asked if they wish to purchase the cheapest available generic of the drug, which is called generic substitution. Regardless of what prescription medicine is sold, the profit earning is set at DKK 14,71 per product. This fixed price profit is to insure unbiased product advisory.
As from 1 October 2001 the pharmacies no longer have a monopoly to sell certain types of OTC medicine. It is now also possible for supermarkets, petrol stations and other parts of the retail sector to sell certain medicines, and it is therefore possible to compete on price. Thus, uniform prices for OTC drugs have disappeared.
Equalisation scheme Easy access to medicine for all citizens regardless of geographical location is one of the major
30 objectives of pharmacy legislation. To ensure pharmacies in rural areas where the population base is small and the possibility of operating a profitable pharmacy is limited compared to urban areas, there is an equalisation scheme among the pharmacies. This means that pharmacies with a relatively large turnover pay a sales tax to the pharmacies that do not have such high earnings.
There are very considerable differences in the turnover of the individual pharmacies. The turnover is largest in urban areas (Region Hovedstaden) where the turnover is lowest in rural areas (Region Nordjylland). Around DKK 37 million are redistributed annually as a consequence of this scheme, and about 30% of all pharmacies receives equalisation subsidies. In 2012, the average surplus per pharmacy was DKK 1.4 million after the equalization.
Economic responsibility Pharmacists privately own their pharmacies. This means that the proprietor pharmacist is economically responsible for the financing of the pharmacy and its operation. Thus, it is important to note that the equalisation scheme does not guarantee the pharmacies a certain profit, but a compensation for low turnover.
Sales structure It is estimated, that around 78 pct. of the turnover comes from sale on prescription medicine, 11 pct. from the sale of OTC drugs, and 11 pct. from the sale of free trade goods (non- pharmaceuticals).
Sources: DMHA, 2013, Pharmacy Association.dk, sst.dk, Pharmacy Law, Modernisation report, 2014, Kristensen, 2014).
This regulatory framework and licensing system of the Danish pharmacy sector create high entry barriers and limits competition, which signifies monopolistic market characteristics. However, the fixed pricing structure does not allow the pharmacy proprietors to set high prices as expected in a monopolistic market and thus the structure has no negative price-effect on overall social welfare. The fixed profit earning ensures unbiased advisory and the equalization scheme assures easy access to medicine, including rural areas.
4.2 Definitions In the context of the Danish pharmacy sector this study will use different terminology linked to the degree of state-control over the sector. By outlining what the three different terminologies entail, it also clarifies the different actors’ ideas of what the pharmacy sector should look like. The definitions are mainly anchored in the ownership structure and the educational background as prerequisite for ownership.
4.2.1. Monopoly In its simplest form, the significance of the ‘pharmacy monopoly’ is strongly linked to the ownership structure. Pharmacists play a key role in the delivery of health care and thus is it stated in the Pharmacy Act that only a pharmacist can own and run a pharmacy. Entry is thus controlled on the basis of education (cand.pharm.) and furthermore through the state-
31 controlled licencing system. Pharmacists have the exclusive right to sell prescription medicines and is as noted above, secured with a state-created monopoly. Advocates in favour of the monopoly justify the heavy regulation by claiming that the current monopoly structure ensures and facilitates easy access to pharmaceuticals, whilst guaranteeing price-equality, skilled and safe provision of pharmacy services. Other scholars label these advocates being in favour of ‘public control’ (Larsen et al, 2006) By protecting the pharmacy monopoly, the pharmacy sector remains an important an integrated part of the Danish public health sector.
4.2.2 Modernisation The recent modernisation formulated in the ‘Modernisation report’ from June 2014 lays the foundation for the new pharmacy law proposal and addresses some minor adjustments to the current ownership structure. It suggests that one pharmacist can open up to 8 sub-units within a distance of 75km, while still upholding the current licensing system. The aim of the increase in sub-units is to facilitate greater competition amongst pharmacies as well as to encourage greater access overall. The Modernisation report also proposes the establishment of the so- called shop-in-shop concept, where pharmacists are still the owner of the pharmacy, but can operate their pharmacy within a supermarket (shop-in-shop). Finally, certain economic privileges allocated to the pharmacy proprietors are removed (Modernisation report, 2014). Although the proposal attempts to counteract for some of the inefficiencies of the monopoly by encouraging more competition, the modernisation initiative does not introduce major changes to the current structure.
4.2.3 Liberalisation When certain actors are favouring a liberalisation of the pharmacy sector, this is often linked to an abolishment of the state-controlled ownership structure and establishment rules. Although the vast majority agrees that properly educated staff should be employed in pharmacies to ensure the right counselling, the advocates for liberalising the ownership structure argue that it is irrational that only a pharmacist can own and operate a pharmacy. The salient point is that commercial actors, for example supermarkets can own and operate a pharmacy equally well. As long as properly educated staff is employed, it has no negative implications for the delivery of quality health care at the pharmacies. By liberalising the ownership structure and thereby allowing more actors to enter the market, it is believed that competition stimulates innovation, productivity, and efficiency. Furthermore, a total liberalisation seeks to abolish all remaining state-interference with the market. This would allow for competition on price, quality of service, location, product range etc. and subsequently enhance social welfare. Other scholars label these advocates as favouring ‘market mechanisms’ (Larsen et al, 2006). By dissolving the pharmacy
32 monopoly and opening up for a free ownership structure, the pharmacy sector is expected to increasingly become part of the retail sector instead of the public health sector.
4.2.4 Comparison of monopoly, modernisation and liberalisation Using the Advocacy Coalition Framework’s terminology, the figure below outlines what policy core beliefs and secondary aspects are represented by the three different approaches to the pharmacy sector and what they entail when in comes to the five central elements of the current regulation.
Figure 4: Policy Core beliefs: monopoly, modernisation, liberalisation Source: Author’s own construction based on findings
Monopoly Modernisation Liberalisation
Policy Core Beliefs
Educational background as Maintain Maintain Abolish prerequisite for ownership
State control over number and Maintain Maintain Abolish location of pharmacies
Fixed pricing structure Maintain Maintain Change
Secondary aspects
Fixed number of pharmacies a Maintain Increase Increase proprietor can own
Fixed gross profit regulation Maintain Minor change Abolish (renegotiated every 2 years)
As figure 4 illustrates, there is complete opposing beliefs between those who support a monopoly and those who favour liberalisation when it comes to policy core beliefs as well as secondary aspects. The difference between the ‘monopoly’ and ‘modernisation’ is that they agree on the policy core beliefs, but secondary aspects are diverging. The supporters of the modernisation seems to represent a middle-ground for the two counter points, however skewed towards maintaining most factors constituting the monopoly structure. In a spectrum representing the three categories’ degrees of state control over the pharmacy sector, these diverging beliefs are placed as follows:
Figure 5: Scaling the degree of commitment to maintain, change or abolish the current structure Source: Author’s own construction based on findings
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Figure 6 illustrates an overview of the characteristic components the different categories entail in terms of ownership structure and how actors in the pharmacy sector can compete. Furthermore it includes what underlying assumptions constitute the three categories in terms of the overall goal of the current regulation to ensure easy access, equal prices, and responsible and skilled counselling and reasonable public expenditure.
Figure 6: Structural implications and assumptions: monopoly, modernisation, liberalisation. Source: Author’s own construction based on findings
Monopoly Modernisation Liberalisation
Policy Core Beliefs Ownership structure Pharmacists Pharmacists All actors Competition factors - Service level - Service level - Service level - Non- - Non- -Non- pharmaceuticals pharmaceuticals pharmaceuticals - Location (within - Location 75km) -Prices Competition outcome Limited competition Competition Competition ensured among existing increase among by new entrants, pharmacies existing and new both pharmacies and pharmacies commercial actors Assumptions Access Ensured in selected Ensured in selected Mostly ensured, but locations locations, but urban clustering and greater access in risk of closure of urban areas within pharmacies in rural 75 km areas. However, longer opening hours. Prices Uniform Uniform Different prices – lower in urban areas, higher in rural areas Responsible Ensured Ensured Mostly ensured distribution/skilled counselling Public expenditure on sector Controlled, but high Controlled, but less Controlled, but low high
4.3 International liberalisation experiences As seen above, liberalisation in the pharmacy sector is often connected to certain common expectations, as explained by Lluch:
“The rationale behind deregulation in the pharmacy sector is the expectation that liberalisation will increase competition and thus succeed in lowering, or at least containing (public) expenditure, while access to quality pharmacy services will remain stable, if not improved, by the opening of new outlets. In sum, deregulation
34 claims to make the market more efficient whilst key areas like equity and access are not compromised.” (Lluch, 2009, p.26-27)
The most recent OECD report from March 2014 explores the actual effects of liberalisation in the pharmacy sector based on case study examples from European countries with a liberalised pharmacy sector. The paper explores whether and how liberalisation actually satisfy the above outlined expectations. More specifically, it looks into the impact on medicine prices and availability of medicines, both in terms of access to pharmacies and medicines supply in pharmacies.
Like in Denmark, most European countries apply statutory provisions to regulate the establishment of new pharmacies. Typically, demographic criteria (e.g. minimum number of persons supplied by the pharmacy) and geographic criteria (e.g. minimum distance to pharmacies) are taken into consideration. However, these establishment rules were abolished in Norway in 2001 and in Sweden in 2009. Hence, their pharmacy sectors are liberalised since there are no entry barriers in terms of establishment of new pharmacies. Also the ownership regulation, which relate to who is allowed to become a pharmacy proprietor was liberalised in Norway and Sweden. In regulated environments, like in Denmark, only pharmacists may own a pharmacy. In a liberal environment, any individual or legal entity may, in principle, own a pharmacy. In Sweden and Norway certain stakeholders are however excluded from ownership; doctors are not allowed to own a pharmacy due to a possible conflict of interest as prescribers, and pharmaceutical producers are also excluded from pharmacy ownership (OECD, 2014).
The section will provide a brief overview of how the liberalisation of the establishment rule and ownership regulation in Sweden and Norway has impacted their pharmacy sector.
4.3.1 Impacts of liberalisation in Sweden and Norway The increase in accessibility was an intended aim of the liberalisation of the pharmacy sector in both Sweden and Norway. Both countries experienced a substantial increase in the number of newly established pharmacies, particularly shortly after the liberalisation: In Norway, between January 2001 and March 2004, a total of 128 new pharmacies (a 32% increase) were established. Sweden saw an increase of 330 pharmacies (a 36% increase) from the introduction of the reform in 2009 till September 2012 (OECD, 2014). Nonetheless, in European comparison the number of inhabitants served per pharmacy continues to be high in Norway and Sweden. Where the EU average is 4.503 inhabitants per pharmacy, the number is 9.893 in Sweden, 7.300
35 in Norway. In Denmark where establishment rules still are in place, the number is 17.252 (OECD, 2014).
Although the intended aim of enhancing accessibility through an increase in the overall number in pharmacies was reached, new pharmacies tended to establish in urban areas, whereas no or few pharmacies were opened in rural localities. In Sweden, all new 330 pharmacies were located in urban areas and no pharmacies established in rural areas. That new pharmacies only established in urban areas is also referred to as urban clustering. Urban clustering was also seen in Norway. To counter for this urban clustering, policies were put in place to prevent the r