The Office for the Protection of Competition advises

Public procurement of medicinal products in the Czech Republic is one of the most complex and critical areas of public procurement. Hospitals and other healthcare providers spend billions of crowns from public budgets each year on the purchase of medicines that are essential for the provision of proper medical care. This area is strictly regulated by Act No. 134/2016 Coll., on Public Procurement (hereinafter referred to as the “ZZVZ”), and is supervised by the Office for the Protection of Competition (ÚOHS). Despite this legal framework, healthcare providers often face significant challenges arising from the specific nature of medicines, the dynamics of the pharmaceutical market, and constant legislative changes.

Author of the article: Mgr. Antonín Hajdušek, LL.M., ARROWS (office@arws.cz, +420 245 007 740)

The Public Procurement Act (ZZVZ) and its application in healthcare

The ZZVZ sets out the basic rules for public procurement, which are based on the principles of transparency, proportionality, equal treatment, and non-discrimination. For healthcare providers, who are in most cases public contractors, it is crucial that they cannot purchase goods or services arbitrarily, but must follow formal procedures regulated by law.

From the perspective of the ZZVZ, medicinal products are considered supplies that are essential for the functioning of hospitals and the provision of healthcare services, falling into the category of “direct procurement.” Their availability and price directly affect the cost of care provided and the overall profitability of a healthcare facility.

One of the recurring problems in public procurement in healthcare is the correct determination of the estimated value of a public contract, especially for contracts of a regular nature, such as the purchase of medicines and medical supplies. The estimated value is determined on the basis of the actual price paid over the previous 12 months or accounting period, adjusted for expected changes in quantity or price over the following 12 months.

It is necessary to add together the estimated values of public contracts if there is a functional and temporal link between them in order to prevent illegal splitting of contracts and circumvention of higher procurement procedures. The ÚOHS actively enforces this principle, as demonstrated by the case of the Bohnice Psychiatric Hospital, which was fined for purchasing medicines from different suppliers without a proper tender procedure, with the ÚOHS explicitly stating that medicines belonging to the same ATC group at the lowest level are considered to be supplies of the same type and must be aggregated.

The amendment to the Public Procurement Act, effective from April 3, 2025, introduces significant changes to the financial limits for small-scale public contracts (VZMR). For supplies and services, the limit is increased from CZK 2 million to CZK 3 million excluding VAT, and for construction work from CZK 6 million to CZK 9 million excluding VAT. These increased limits will apply to contracts concluded after the effective date of the amendment.

The immediate applicability of the amendment, even to ongoing procurement procedures that were initiated before its entry into force, poses a significant challenge for contracting authorities. The lack of transitional provisions requires rapid adaptation of internal processes and increased attention to avoid legal uncertainty and the risk of non-compliance during the transition period. The increased limits for VZMR will also apply immediately to changes in contractual obligations under Section 222(1) of the Public Procurement Act, even for contracts concluded before the amendment came into force.

Another new feature is the rules on foreign subsidies, which require participants in the procurement procedure to make a solemn declaration that they have not received such subsidies or, conversely, to provide proof of their receipt if they exceed the specified limit.

This new framework, in line with European regulations, is intended to ensure that a participant who has obtained an unlawful financial advantage from support from third countries is not selected for the performance of a public contract. For hospitals, this means updating their supplier verification procedures, particularly for international pharmaceutical companies, to ensure that competitive advantages are not obtained by illegal means.

Classification of medicinal products and its importance for procurement

An understanding of the Anatomical Therapeutic Chemical (ATC) classification is key to the effective and transparent procurement of medicinal products. This is an international classification system for medicinal products that has been in use since 1976 and divides medicinal substances into groups according to the organ systems on which they act and also according to their therapeutic, pharmacological, and chemical properties. The system has five levels and a total of seven characters that uniquely identify each individual medicinal substance.

• Level 1: Anatomical main group (one letter, e.g. A – Digestive tract and metabolism).
• Level 2: Main therapeutic group (two numbers, e.g. A10 – Drugs for diabetes).
• Level 3: Therapeutic-pharmacological subgroup (one letter, e.g. A10B – Antidiabetics, excluding insulins).
• Level 4: Chemical-therapeutic-pharmacological subgroup (one letter, e.g. A10BA – Biguanides).
• Level 5: Specific medicinal substance (two numbers, e.g. A10BA02 – Metformin).

A key aspect for contracting authorities is the possibility to compete for the active substance (active ingredient) instead of the brand name (specific trade name of the medicine). A necessary condition for this approach is the interchangeability of medicinal products. Competing at the 5th level of the ATC classification, which identifies a specific medicinal substance, is the least risky option for hospitals in terms of their ability to justify their own approach and the subject matter of the public contract.

This approach maximizes the pool of potential suppliers, including generic and biosimilar products, thereby promoting competition and potentially leading to significant cost savings.

However, it is important to note that therapeutic interchangeability within an ATC group does not necessarily imply interchangeability in specific clinical practice. For example, while ibuprofen has multiple ATC codes depending on the route of administration, there are also more complex cases. It is therefore essential that a very thorough assessment of clinical interchangeability is carried out before a public contract is awarded, so that contracting authorities have relevant reasons for narrowing the terms of the contract.

Excessively broad specifications could lead to bids for clinically unsuitable medicines, while overly narrow specifications without sufficient justification could restrict competition and lead to sanctions from the ÚOHS. Contracting authorities must carefully define the scope of tenders for medicines, using ATC codes as the primary tool, but supplementing them with precise functional or performance specifications where necessary to ensure clinical suitability and maximum competition.

Dynamic purchasing system (DPS) for medicinal products

The dynamic purchasing system (DPS) is a modern and flexible tool for repeated public procurement that has proven to be very beneficial for the purchase of medicinal products. The DPS is a fully electronic process and consists of two phases:

1. Introduction of the DPS: This phase takes the form of a restricted procedure, which is the only procurement procedure that the contracting authority must carry out within the DPS. The DNS is open throughout its duration to all suppliers who meet the criteria for inclusion.
2. Awarding individual public contracts: Under the established DNS, contracting authorities invite suppliers to submit tenders in so-called mini-tenders.

The main advantages of DNS for the procurement of medicines are:

• Long-term nature and flexibility: Unlike framework agreements, the contracting authority is not limited in the duration for which it implements DNS. The system is flexible for suppliers, who can join at any time if they meet the qualification criteria.
• Time savings and reduced administration: Hospitals with several years of experience with DNS, such as the Central Military Hospital in Prague and the University Hospital in Ostrava, confirm that the system speeds up public procurement and reduces the administrative burden.
• Uniform methodology and clarity of interpretation: DNS helps to unify and clarify previously fragmented and inconsistent interpretations of general legal terms relating to the procurement of medicines, such as the use of ATC classification to describe the subject matter of a contract. The structured nature of the DNS electronic environment leads to more consistent and legally sound application of these concepts.
• Support for small and medium-sized enterprises (SMEs): Thanks to its simple process, the DNS is a suitable means of making public procurement accessible to SMEs, which can have a positive impact on local employment and the diversification of the supplier base. Contracting authorities can divide the DNS into categories (e.g. by subject matter or geographical scope), which further increases the involvement of SMEs.

Despite its advantages, DNS faces one major challenge, which the ÚOHS has identified as a problem for its wider use in the procurement of medicines: the 10-day deadline for submitting bids in mini-tenders under Section 141(2) of the Public Procurement Act. Given the dynamics of the pharmaceutical market and the urgency of some needs, this deadline may be too long. The ÚOHS therefore proposes three ways to overcome this limitation:

1. Shortening the deadline based on the written consent of all suppliers included in the DNS or its relevant category.
2. Use of electronic catalogs: The contracting authority may notify suppliers included in the DNS that the contract will be awarded by selection from electronic catalogs. The notification must be sent at least five working days before the selection of data, and the selection may take place at regularly recurring intervals.
3. Conclusion of contracts with a framework element: This procedure allows for more flexible contractual arrangements.

These mechanisms represent strategic adaptations to the procurement process that enable hospitals to ensure timely access to essential medicines while complying with legal requirements.

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Framework agreements and electronic catalogs

In addition to DNS, framework agreements are also recommended for repeat purchases of medicinal products. These agreements allow contracting authorities to conclude a contract with one or more suppliers for supplies over a certain period of time under pre-defined conditions, which simplifies subsequent partial performance without the need to repeat the entire procurement procedure.

Electronic catalogs are another tool that can streamline the procurement process, especially for standardized items. As already mentioned, their use within the DNS makes it possible to overcome the time limits of mini-tenders and ensure faster deliveries. It is important for contracting authorities that electronic catalogs can be designed so that selection takes place at certain regular intervals, which further increases efficiency.

Joint (centralized) purchasing is a strategic approach that complements the use of DNS and framework agreements. Its aim is to reduce waste of public funds and strengthen the application of the principles of economy, efficiency, and effectiveness (the 3E principles). For medicines, especially common generic products or high-volume items, centralized purchasing (e.g., at the regional or national level) can take advantage of economies of scale and increase purchasing power, leading to lower costs and standardized specifications. However, this requires coordination and may limit the autonomy of individual hospitals in their purchasing decisions.

Most common violations of the ZZVZ and decision-making practice of the ÚOHS

Although the procurement of medicines in hospitals is specific, public procurement rules apply without exception. The ÚOHS is uncompromising in this area and fines for errors are common. The most common violations of the ZZVZ leading to sanctions include:

• Unjustified restriction of competition: Contracting authorities may not restrict competition without justification. An example is a narrow definition of the subject matter of a public contract that refers directly or indirectly to specific products, brands, or manufacturers, unless justified by exceptional circumstances. The ÚOHS examines whether the specified tender conditions could have restricted competition by unjustifiably disadvantaging potential suppliers. Although the contracting authority may request a specific product if it can justify this, if this means that only one supplier can provide the service, this constitutes a violation of the law.
• Illegal division of contracts (fragmentation): A common problem is failure to comply with the obligation to add together the estimated values of public contracts that are functionally and temporally related. The ÚOHS considers supplies of medicines belonging to the same ATC group at the lowest level to be supplies of the same type, even if they have different trade names, forms of administration, or quantities of active ingredients.

The Bohnice Psychiatric Hospital was fined for purchasing medicines from different suppliers without conducting a tender procedure, even though these were regular purchases that should have been aggregated. The case of the Motol University Hospital, where there was a “continuation of an offense in the procurement of medicinal products,” suggests that some hospitals are facing systemic problems in compliance with regulations.

• Unjustified changes to contractual obligations: The ÚOHS strictly interprets Section 222 of the Public Procurement Act concerning changes to contractual obligations. The extension of the original performance of a public contract is considered to be the award of a public contract outside the tender procedure. Even seemingly minor changes, such as payment terms or extension of the performance deadline, may be considered substantial changes, the value of which may be based on the total contract price for the purposes of calculating the fine. The maximum fine for an offense can be up to 10% of the public contract price.

Violations of the ZZVZ may result in high fines, contract termination, leading to disruptions in the supply of critical medicines, and damage to the reputation of the healthcare facility. In addition, the ÚOHS issues methodological recommendations and opinions aimed at increasing the predictability of its decisions and providing contracting authorities with clear guidance on how to avoid problems.

Internal processes and best practices for minimizing risks

To minimize risks and ensure compliance with the ZZVZ, hospitals must implement robust internal processes and best practices:

• Proactive planning and accurate estimation of the estimated value: Hospitals must have systems in place to monitor drug consumption and forecast future needs so that they can correctly aggregate contracts and determine the appropriate procurement procedure. This requires close cooperation between clinical departments, the pharmacy, and the public procurement department.
• Robust internal guidelines and ethical culture: Hospitals should have detailed internal guidelines for all stages of the procurement process that are in line with current legislation and the methodological guidelines of the Office for the Protection of Competition. It is essential to promote a culture in which illegal or unethical conduct is unacceptable and to strengthen the moral behavior of employees. This includes clear codes of ethics, regular training, and mechanisms for anonymous reporting of suspicious conduct.
• Multidisciplinary cooperation: Effective procurement of medicines requires close cooperation between the purchasing department, the pharmacy, doctors, and the legal department. For example, assessing the clinical interchangeability of medicines before issuing a tender is key to ensuring both compliance with legislation (competition for the active ingredient) and clinical suitability.
• Documentation and transparency: Contracting authorities are required to keep all documentation relating to public contracts for a period of 10 years. Transparency is also ensured by the mandatory publication of information on the contracting authority's profile, the limit for which has been increased to CZK 1 million excluding VAT by the amendment. Ensuring that the contracting authority's profile is up to date and comprehensive is a basic requirement for transparency and compliance with regulations.
• Procurement of unregistered medicinal products: Hospitals must have clear internal protocols for the procurement and use of unregistered medicinal products. Although this process does not fall under standard procurement procedures, it carries significant legal (liability of the physician and provider), financial (reimbursement by the insurance company, additional payment by the patient), and logistical risks (long delivery times, verification of distributors). It is essential to obtain the patient's informed consent and proper documentation for possible approval of reimbursement by the health insurance company. Thorough verification of distributors' authorizations is key to ensuring the quality and authenticity of medicines.

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The role of external consulting and compliance programs

The complexity and dynamics of the public procurement legal environment, constant legislative changes, and the specific nature of the pharmaceutical market mean that hospitals' internal capacities may not always be sufficient to cover all aspects of compliance and risk management. This is where the strategic value of external legal and consulting services comes into play.

External legal advisors can provide specialized, up-to-date knowledge and “broad perspective and insight” to navigate complex, high-risk, or new situations. This is particularly valuable on issues such as assessing abnormally low tender prices, the impact of international sanctions, or the implementation of environmentally responsible procurement. External experts can help with the detailed setting of evaluation criteria that take into account not only price but also quality, even in cases where internal regulations favor price weighting.

Hospitals should invest in developing strong internal capacities, but at the same time strategically use external support for:

• Comprehensive legal analysis: For cases where in-depth legal interpretation and risk assessment are necessary.
• Training and development: Continuous training of employees in the area of public procurement and related regulations is essential.
• Audit and verification: External audits, including clinical audits and ISO certifications (e.g., ISO 9001 for quality management systems, ISO 13485 for medical devices), can provide independent verification of processes and strengthen overall risk management. Na Homolce Hospital, which boasts a number of ISO certificates and external clinical audits, demonstrates this holistic approach to quality and risk management.

Extensive compliance programs, such as those of large pharmaceutical companies (e.g., Novartis, with an emphasis on ethics, training, and monitoring), serve as a benchmark for the level of ethical and legal rigor expected of all healthcare players. Hospitals should draw inspiration from these programs and build their own robust compliance frameworks to minimize the risks of fraud and corruption.

Principles and implementation of RPP

Responsible public procurement (RPP) is an approach that goes beyond the purely economic perspective and seeks to achieve maximum value for money while contributing to society and the economy and minimizing negative impacts on the environment. PP is not an end in itself, but seeks to address issues at several levels: at the level of public procurement (elimination of poor performance, illegal work, late payments), at the level of the contracting authority (addressing unemployment, local environmental issues) and in a broader relationship with society (supporting national priorities and sustainable development goals).

ESPP has been present in the European Union for more than 20 years and its principles have been enshrined in Directive 2014/24/EU on public procurement, which has become the basic legal act for taking into account socially and environmentally responsible procurement and the use of innovation.

The Czech amendment to the Public Procurement Act, effective from January 1, 2021, introduced the obligation of socially and environmentally responsible public procurement “wherever possible in view of the nature and purpose of the contract.” This principle applies to all contracts, including VZMR and contracts awarded directly.

The implementation of public procurement requires a balance to be struck between the principles of public procurement and the 3E principles (economy, efficiency, effectiveness), with the principle of proportionality appearing to be key. The Ministry of Regional Development (MMR) has issued a methodological opinion on the newly introduced principles.

The international standard ISO 20400 (Sustainable Procurement), adopted in 2017, provides guidance and integrates sustainability into the procurement process. Although it is not possible to obtain a certificate as with ISO 9001, it is possible to request a compliance audit. The European Union also offers methodological assistance for the implementation of Green Public Procurement (GPP), including manuals and thematic GPP criteria for various groups of products and services. These criteria are divided into “basic” (with minimal verification effort) and “comprehensive” (for the best environmental products, requiring more effort and costs).

In the healthcare sector, medicinal products are classified as “safer chemicals” under the GPP. This means that, in the context of foreign projects, the environmental impacts (water, air) of the chemical substances themselves or by-products arising during production are analyzed and evaluated. Programs such as “Safe Chemicals” and “Safe Pharmaceuticals” implemented by HCWH Europe focus on this issue.

For hospitals, this means that they should consider not only the price and effectiveness of medicines, but also their environmental impact and ethical aspects throughout their entire life cycle, from production to disposal. This represents another level of complexity in defining tender specifications and evaluating bids.

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Dynamics of the pharmaceutical market and competitive environment

The pharmaceutical market in the Czech Republic is characterized as highly oligopolistic, meaning that it is dominated by a few large players in both the manufacturing and distribution stages. This market structure may limit effective competition, despite existing public procurement rules. The ÚOHS actively monitors the market and identifies distortions and risks of unfair competition practices, which have shifted towards manufacturers following changes in distribution.

For hospitals, this means that they must be particularly vigilant against practices that may distort competition:

• Artificial exclusivity: Contracting authorities must be careful not to create artificial exclusivity in the market, especially for patented medicines. The ÚOHS is uncompromising in this regard and punishes agreements to influence bids or strategies that prevent competitors from entering the market.
• Competition between generics and biosimilars: Generics and biosimilars are a key source of price competition, which can reduce drug costs by up to half and free up funds for innovative medicines. Although biosimilars have been available in the Czech Republic since 2019, their consumption still falls short of the European average. Hospitals should actively seek competition between them, given that biosimilar medicines cannot compete for patent-protected indications but can be used for unprotected indications.
• Therapeutic vs. clinical interchangeability: As already mentioned, therapeutic interchangeability within an ATC group does not necessarily mean interchangeability in specific clinical practice. Before issuing a public tender, it is necessary to carefully assess whether all chemically equivalent products are clinically suitable in order to avoid compromises in patient care or unjustified restrictions on competition.
• Incentive programs: Some health insurance companies offer hospitals incentive programs for the use of biosimilar products, for example in the form of a rebate on the price difference between the original drug and the prescribed biosimilar product. These programs can motivate savings, but they must be taken into account in the overall purchasing strategy.

Hospitals must develop advanced market knowledge and negotiating skills to counter oligopolistic tendencies and ensure fair prices. This includes carefully assessing bundled offers that may exclude other suppliers and considering innovative approaches such as competing on the level of the trade margin.

Ensuring supply chain resilience and crisis management

Pharmaceutical supply chains are global and vulnerable to a range of risks, such as pandemics, geopolitical events, or natural disasters. As emergency-sensitive facilities, hospitals must be prepared for crisis situations and ensure the continuity of pharmaceutical supplies. Although the ZZVZ emphasizes competition and transparency in normal operations, there are exceptions for urgent needs that can be used in crisis situations.

To ensure supply chain resilience and effective crisis management in the field of medicines, it is necessary to:

• Crisis planning documentation: Hospitals should have comprehensive crisis planning documentation that reflects realistic risks and preparedness. This documentation should include specific protocols for emergency procurement of medicines that would allow for the rapid and legal acquisition of supplies in the event of a disruption in supply.
• Integration with crisis management: Plans for the procurement of medicines in crisis situations should be fully integrated into the hospital's broader crisis plans, which are governed by laws on crisis management and economic measures for crisis situations.
• Diversification of suppliers and strategic stocks: To minimize the risk of dependence on a single source, it is advisable to diversify suppliers and maintain strategic stocks of key medicines.
• Pre-negotiated emergency contracts: Having pre-negotiated contracts with key suppliers for emergency supplies can significantly reduce response times in crisis situations.

Conclusion and recommendations

Public procurement of medicinal products in the Czech Republic is a complex and dynamic area that requires a high level of expertise, flexibility, and a proactive approach from hospitals and other healthcare providers.

Changes in the Public Procurement Act, in particular the increase in limits for VZMR and the introduction of rules for foreign subsidies, together with the constant supervision of the ÚOHS and the dynamics of the oligopolistic pharmaceutical market, are constantly shaping the environment in which drug purchases are made. Success in this area depends on the ability of contracting authorities to navigate effectively between legal requirements, economic pressures, and clinical needs.

To ensure compliance with legal regulations, optimize processes, and minimize risks, the following is recommended:

1. Strengthening internal capacities and multidisciplinary cooperation: Hospitals should invest in developing internal expertise in public procurement, including legal knowledge and knowledge of the pharmaceutical market. Close and systematic cooperation between the purchasing department, pharmacy, clinical departments, and legal department is key, especially when defining the subject of the contract and assessing the clinical interchangeability of medicines.
2. Strategic use of innovative tools: The implementation of a Dynamic Purchasing System (DPS) and framework agreements should be a priority for repeat purchases of medicines. Hospitals should actively use mechanisms to shorten deadlines in mini-tenders (supplier consent, electronic catalogs) to ensure fast deliveries.
3. Proactive risk management and compliance: The introduction of robust internal guidelines, regular staff training, and thorough documentation of all stages of the procurement process are essential to minimize the risk of fines and disputes. Contracting authorities should carefully follow the methodological recommendations of the Office for the Protection of Competition and ensure that their procedures are in line with the latest interpretations, particularly in the area of contract aggregation based on ATC classification.
4. Emphasis on transparency and ethics: Maintaining an up-to-date and comprehensive profile of the contracting authority is the basis for transparency. Hospitals should actively promote an ethical culture that prevents corruption and unfair practices and introduce mechanisms for reporting unethical conduct.
5. Integration of responsible public procurement (RPP) principles: In view of the RPP obligation, hospitals should systematically consider social and environmental aspects in the procurement of medicines, including the environmental impact of medicine production. This requires defining relevant criteria and taking them into account in the evaluation of tenders, in balance with the 3E principles.
6. Ensuring supply chain resilience: Given the risks of supply disruptions, it is essential to have contingency plans in place for the procurement of medicines that allow for a rapid and legal response in emergency situations. Diversification of suppliers and consideration of strategic stocks should be part of this strategy.

Consistent application of these recommendations will enable hospitals not only to fulfill their legal obligations, but also to optimize costs, ensure stable supplies of quality medicines, and contribute to broader social and environmental goals.

Who can help? Specialized lawyers and consulting firms for public procurement operate in this area. The lawyers at ARROWS Law Firm have long been involved in the issue of purchasing medicines under the Public Procurement Act and have helped a number of hospitals set up their tender procedures to avoid penalties and lengthy inspections. Based on their practical experience, such a partner can identify weaknesses in the draft contract or tender conditions and propose amendments before the contract is launched. The hospital can then compete with greater peace of mind that everything will go smoothly.

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