Pharma Fights Healthcare Cost-Containment Policies

The global economic downturn has had a devastating effect on most countries. In Europe, the impact has been particularly severe and has led to questions being asked about the viability of the European Union (EU) and the competence of its governing institutions. As a single market, the EU represents a major world trading power and has a GDP that exceeds that of the US. It is the world’s biggest exporter and the second biggest importer.

Nathan Jessop

Different predictions have been made for the European economy in 2013. Recently, the President of the European Commission, José Manuel Barroso, declared the euro crisis to be over (1). Similarly, the European Central Bank Vice-President, Vitor Constancio, has predicted that European economies will begin to recover by mid-2013 (2). However, many others do not share this optimism. A report by Ernst and Young stated that the heaviest impact of the crisis will hit Europe this year (3).

These economic dynamics are profoundly troubling for the pharmaceutical industry. The ongoing crisis has led to renewed cuts in public services and accelerated cost-containment policies in healthcare, such as imposed price cuts. Unfortunately, there is a general impression among politicians, the public and the media that the pharmaceutical industry is a “rich” sector that can afford to bear the brunt of these policies. For example, the European Federation of Pharmaceutical Industries and Associations (EFPIA) says that its member companies spend €27.5 billion on research and development and generate an EU-trade balance surplus of €48.3 billion (4). The scale of such figures may reinforce the illusion that the pharma industry has plenty of money and will not be as hard hit by the crisis as other sectors.

The industry strikes back

This belief that the industry is not being affected by the economic crisis has caused great anger among pharma companies of all sizes. Recently, leaders in the pharmaceutical industry have focused on publicly challenging cost-cutting measures that they consider unfair and highlighting examples of how the economic crisis is distorting the pharmaceutical market. In June 2012, Sir Andrew Witty, President of EFPIA, issued an open letter to European Heads of States and Governments. In a familiar message, he pointed out the vital economic role that the pharmaceutical industry played in the region and that pricing and reimbursement policies were threatening its competitiveness and contribution to healthcare (4). However, on this occasion, the letter heavily emphasised how flexible the pharmaceutical industry had been in trying to assist European governments in coping with the financial crisis. According to the letter, in Greece, Ireland, Italy, Portugal and Spain alone, the pharmaceutical industry had contributed, through price cuts and discounts, more than €7 billion in 2010 and 2011. As this figure represents more than 8% of the industry’s turnover in those markets on a yearly basis, it was clear that EFPIA wanted government recognition for its cooperation rather than being used as scapegoat for further cuts.

The major concern for European pharma companies is that accepting price cuts in certain countries could lead to major financial blows throughout the region because many European governments observe costs in other countries when calculating national pharmaceutical prices. The pharma industry has been seeking recognition for the fact that reduced pharmaceutical prices in certain countries are part of efforts to help nations cope with the economic crisis rather than “normal” prices. However, governments are instead using the low prices seen elsewhere in Europe as a way of cutting costs in their own countries.

In Greece, pharmaceutical companies have had to bear considerable price cuts as part of the country’s austerity measures, but the impact has been widespread. EFPIA contends that a 10% price cut in Greece cost the industry €299 million in the national market, €799 million in Europe and more than €2 billion worldwide because of the rereferencing of Greek prices through formal and informal links (4).

Unpaid debts

Another major problem for pharmaceutical companies is that although they have continued to supply drugs for the European market, there is a growing level of unpaid bills by governments. According to some media reports, austerity measures leading to healthcare spending cuts for hospitals in Portugal, Italy, Greece and Spain have meant delays in payments for some drugs of up to three years (5). According to EFPIA, its member companies are owed between €12 billion to €15 billion.

Most of the attention has been focused on Greece, where the unpaid debt stands at €1.7 billion (6). In November 2012, EFPIA offered to cap the amount the Greek government pays for outpatient prescription drugs in exchange for payment of all outstanding debts to the industry and a commitment to avoid future debts accumulating (6). EFPIA has also signed similar pharmaceutical stability deals with Belgium, Ireland and Portugal.

One country where the pharmaceutical debt problem has been growing in severity is Spain. According to Farmaindustria, the Spanish industry trade association, companies were owed between €4 billion to €6 billion in 2012 (6). On average, hospitals were paying bills 430 days late and some pharmacists closed their premises over unpaid bills (7, 8). Roche reportedly stated that several hospitals had not paid their bills for two years, causing the company to insist upon strict credit terms with 12 hospitals in Spain’s 17 autonomous regions (7). In Valencia, pharmacists complained that the regional government had not paid for any drugs dispensed in the area for nearly five months (7).

In June 2012, the government was forced to act to address debts to a cross-industry list of service providers and announced that it would pay €17 billion to suppliers of its autonomous communities (8). Spain’s autonomous regions are responsible for half of public spending, but have vastly overshot their deficit targets since the start of the economic crisis. Data from the Bank of Spain show that they owe twice the amount that they owed in 2007 (7).

According to the Deputy Prime Minister, Soraya Saenz de Santamaria, approximately 40% of the money provided by the government was to be used for healthcare bills, but participation in the plan was optional and three regions did not request funds (8). In July 2012, it was reported that a Spanish government payment scheme had settled about 96% of the pharmaceutical debt in the country (7). The Spanish Association of Health Technology Businesses was reported as being satisfied with the scheme, which resulted in 90% of its members’ debts being settled, but it warned that new debts exceeding €2 billion were accumulating in various Spanish regions (7). These concerns were also shared by Farmaindustria, but regional government officials were said to be surprised by the industry’s worries, although they did not challenge the debt data provided to the Spanish media (7).

Summary

After several years of acceptance, the pharmaceutical industry is challenging European governments to address the problems that the economic crisis is causing companies. Many pharmaceutical trade associations have made representations at the highest political levels to limit the continuing drive to introduce price cuts and to ensure that they are paid for supplying medicines. The scale of the unpaid bills in European countries, particularly in Spain and Greece, is at a record level that may force companies to take drastic measures. In Greece, for example, Merck KGaA was reported as having halted supply of its cancer drug Erbitux (cetuximab) to public hospitals due to unpaid bills (7). This is a course of action that some of the leading companies have publicly stated that they do not favour, but behind the scenes the leaders of the pharmaceutical industry must be working on strategies to persuade governments to take the sector’s views more seriously.

References

The Guardian website, “The Euro Crisis is Over, Declares José Manuel Barroso,” www.guardian.co.uk, accessed 15 Jan. 2013.

Reuters website, “Europe Economic Recovery Seen Mid-2013 — ECB,” http://uk.reuters.com, accessed 15 Jan. 2013.

The Telegraph website, “Europe’s Bad Debts ‘Will Bite in 2013’,” www.telegraph.co.uk, accessed 15 Jan. 2013.

EFPIA website, “Letter from EFPIA President, Sir Andrew Witty, to European Heads of States and Governments,” www.efpia.eu, accessed 15 Jan. 2013.

Swiss Info, “Recession-Hit Nations Owe Pharma Firms Billions,” www.swissinfo.ch, accessed 15 Jan. 2013.

PharmaTimes website, “Drugmakers Tell Greece: “We’ll Cap your Medicines Bill,” www.pharmatimes.com, accessed 15 Jan. 2013.

Business Week website, “Spain Drugmakers Plan $7 Billion Unpaid-Bill Securitization,” www.businessweek.com, accessed 15 Jan. 2013.

Chicago Tribune, “Spain Coughs Up Billions to Keep Regions in Medicine,” http://articles.chicagotribune.com, accessed 15 Jan. 2013.