In brief
The Investigating Authority of the Federal Economic Competition Commission (COFECE) published on 2 March 2023, the notice of initiation of an investigation for alleged horizontal monopolistic practices, also known as cartel practices, consisting in agreements between competitors to coordinate their bids in tenders by the Mexican Public Health sector to acquire radiological equipment and related products.
Cartel Practices in the public health sector have been consistently considered by COFECE as a serious offense, as such acts have a direct impact on the number and quality of medical supplies purchased with public resources by government institutions for the care of the population.
If the existence of this cartel or concerted practices is proven, the responsible companies (or undertakings) could be fined up to 10% of their revenues generated in Mexico, and those who have participated or induced these practices may be sanctioned. Individuals that participated in the execution or performance of this illegal conduct may be sanctioned under the Federal Mexican Criminal Code, and may be subject to up to ten years in prison.
Recommended actions
- In this type of proceedings, it is normal for the antitrust authority to request information and documents from the companies offering products and services related to the market under investigation. In the event of receiving a request for information from the antitrust authority, it is essential to respond to such request; otherwise, the defaulting company will be subject to a fine.
- In some cases, the antitrust authority considers it pertinent to subpoena individuals who are presumed to have knowledge of the market under investigation, e.g., technical personnel or managers of companies that offer products and services related to the market under investigation. In case of receiving a subpoena, it is recommended to consult with an attorney specialized in antitrust & competition matters.
- COFECE is empowered to conduct dawn raids (on-site unannounced visits at the company's offices, through which they may request information and/or photocopy documents related to the market under investigation). In these cases, it is recommended to contact the company's legal counsel, and seek immediate advice from an antitrust & competition lawyer. Obstruction or failure to comply with a dawn raid may result in fines and/or criminal penalties.
Background
- The investigation should not be understood as a prejudgment, but rather as an action by the authority to verify compliance with the Federal Economic Competition Law.
- Horizontal monopolistic practices are anti-competitive contracts, agreements, or arrangements between competing economic agents, among themselves, whose object or effect is price manipulation ("price-fixing"), restriction, limitation of supply or demand, division or segmentation of markets, manipulation or coordination of bids in tenders ("bid-rigging"), as well as the exchange of information between them to carry out any of the above behaviors, and, in this particular case, a collusive behavior consisting in market arrangement or coordination.
- This antitrust investigation was initiated on 26 August 2022, and the investigation period may last up to 120 business days, which will be counted from the above mentioned date. Please note that the investigation period can be extended four times for additional periods of 120 days each.
Comments
- The health sector is a priority matter for COFECE, given that cartel practices in sales to the public health sector affects the general public, and its access to medical supplies. As an example, due to the COVID-19 pandemic, in 20201 the families spent 40.5% more on health with compared to what they spent in 20182. This data illustrates the crucial role the health sector plays in our society and the Mexican economy.
- The market under investigation affects the quantity and quality of medical supplies to which the population has access, which are purchased with public resources. Therefore, the population will have a more limited access and fewer funds available for health services.
- COFECE's interventions in the healthcare sector have been consistent. For example, from 2017 to 2020, COFECE has sanctioned several health supplies companies for engaging in cartel practices in public tenders for laboratory tests and blood banks by the Mexican Institute Social Security (IMSS) and the Institute of Security and Social Services of the State Workers (ISSSTE), and lawsuits were filed against several companies (integrators in the market) and individuals found responsible for being involved in cartel practices.
- COFECE ultimately imposed fines to 11 companies and 14 individuals in the medical diagnostic market for a total of approximately USD 27.5 million, which are the maximum fines that could be imposed according to the Mexican Competition Law, for coordinating bids for comprehensive services of the laboratory studies and blood banks acquired by public health institutions. This created a shock wave to the medical device sector. See our previous report here.
- There have also been several other investigations and sanctions in the sector in the past few years, which demonstrates the increased scrutiny the healthcare industry has been receiving from the Mexican competition authority3.
- COFECE reaffirmed its commitment in its Strategic Plan for 2022-2025, to keep the health market as a key priority sector for the competition authority4.
- Last year, COFECE published a study of competition and free market access in insurance of medical expenses5, and investigated cartel practices in the private drug market. The drug and healthcare market is relevant due to its impact on the health and life of people, since it impacts in a way household spending is significant and it is very important for the national economy. For this reason, the health sector was included as a priority both in the Strategic Plan 2018-2021 and the 2022-2025 Plan, and we expect for it to continue being a priority for COFECE in the years to come.
We foresee continued enforcement in the healthcare and pharmaceuticals market, and recommend that those companies involved in the sector develop internal policies and controls around interactions with competitors and downstream providers, and continue to evaluate their antitrust compliance policy and programs, to ensure their employees are aware of how to avoid anticompetitive conducts which may create antitrust risks for their business.
Please do not hesitate to get in touch with us if you wish to discuss how this development may impact your business operations in Mexico.
1 According to the results of the National Survey of Household Income and Expenses 2018 and 2020 published by INEGI, Mexican families allocated 40.5% more in the health care category that includes: medicines, hospital and primary or ambulatory care
2 According to the 2018 National Household Income and Expenditure Survey published by INEGI, the share of spending on medicines (prescription and non-prescription drugs and healing material) accounted for 28% of spending on health care.
3 In 2020, companies that colluded in the supply of polyethylene gloves were fined over USD 1.34 million; In 2019, the Board of Commissioners found that 3 companies coordinated and fixed bids for toothbrushes sold in the public health sector, and the Commission imposed a total fine of almost USD 1 million; In 2018, suppliers of condoms and latex catheters were sanctioned approximately USD 6 million; In 2017, 5 companies that supply latex gloves were sanctioned approximately USD 13 million: In May 2016, COFECE investigated possible practices absolute monopolistic in the market of the production, distribution and marketing of medicines in the national territory
4 COFECE Strategic Plan 2022-2025 SPANISH
5 COFECE Study on Competition and Free Market Access in Insurance of Medical expenses
