Bad times for pharma in Spain
Contenidos e Información de Salud
During the past few years, Spain has witnessed a rapid increase in healthcare spending at a rate faster than economic growth. Healthcare expenditure rose from 8.4% in 2007 to 9.0% in 2008 as a share of GDP (gross domestic product). Some of the factors that have contributed the most significantly to this trend are an aging population, easy and free access to medicines for retired people, an absence of significant co-payment and massive immigration.
A worsening of public finances due to the current economic downturn has forced the government to approve a package of measures to reduce the public deficit, which at the end of 2009 had reached 11.4% of GDP. Some of these measures have been geared towards a cut in prices of numerous medicines despite the fact that, in Spain, they are already among the lowest in the European Union.
Due to decline in 2011
It’s no surprise that the entire pharmaceutical industry is currently going through the most difficult period of time in its history. In the case of Spain the two new decrees passed in the first half of this year makes the situation even worse and has begun to affect the sector considerably. The first decree modified the method to calculate the reference prices and introduced price cuts of generic drugs by 25 % on average.
“…these new measures endanger the viability of many pharmacies across Spain due to the strong impact on their profitability.”
The government introduced the generic reference pricing system in Spain more than a decade ago as a cost containment tool. Now for each homogeneous set of drugs the price is that of the cheapest drug instead of the average of the three cheapest as far as it had been to date. On the other hand rebates applied by pharmaceutical companies to pharmacies have been capped to 10 per cent for generic drugs and 5 per cent for branded products.
The second law has imposed a 7.5 % discount on patented medicines financed by the National Health System. These aggressive cost-containment measures will continue to limit growth in the overall Spanish market. IMS expects retail growth to decline in 2010, and then to continue to fall to about -3 % in 2011.
Farmaindustria, the Spanish Association for the Pharmaceutical Industry, criticized the measures and warned it will also result in losses for many drug makers, wholesalers and pharmacies. As a consequence of its application, these new measures endanger the viability of many pharmacies across Spain due to the strong impact on their profitability. This undoubtedly will bring an important loss of jobs in a traditionally stable sector.
As the generics sector is suffering the most cuts their representatives have expressed particular concerns over its future, which could bring the closing of companies and a deeper consolidation of the sector.
“As the generics sector is suffering the most cuts their representatives have expressed particular concerns over its future.”
According to IMS estimates, the total bill for hospital pharmacies in Spain accounts for 5,500 million euros. This figure by itself hardly says anything unless it is compared with the amount that the National Health System owes pharmaceutical companies. Spain’s public hospitals owe pharmaceutical firms an estimated 3,400 million euros (62 % of hospital spending on medicines for a year), carrying the debt on their books over nine months on average. And this figure continues to increase year-on-year.
To solve the serious problems that these delays are causing to the pharmaceutical sector, the President of Farmaindustria, Jesús Acebillo, urged the authorities to take steps to achieve further rationalization of the portfolio of services offered by the National Health System. However the progression of hospital debt shows no signs of improvement. While at the beginning of this decade the debt was slightly over 900 million euros, now it has almost quadrupled.
But it seems a solution is now on the way. A new regulation recently introduced (Law 15/2010) to combat late payment that could cause serious harm in commercial transactions would force the public administration to settle debts to its suppliers within a maximum term of 60 days. The law does not allow negotiating terms of payments over the fixed maximum. However, a transitional regime has been established to gradually reduce the maximum terms from current 85 days to 60 days from January 1st 2011 onwards. Given the current public deficit affecting Spain those adjustments seem quite a challenge.
About the author:
Miguel Tovar is Associate Manager at Contenidos e Información de Salud (www.contenidosdesalud.es), a multimedia publishing company specialised in health care that provides products of interest to physicians, pharmacists and the general public. For direct enquires he can be contacted at email@example.com Miguel writes a column in El Global (www.elglobal.net) where he covers a broad range of issues on the pharmaceutical business.
What next for the pharma industry in Spain?