Pharma Fights Healthcare Cost-Containment Policies

The ongoing economic crisis in Europe has accelerated healthcare cost-containment measures targeting the price of pharmaceuticals, but the pharma industry is not giving in without a fight.
Feb 01, 2013

Nathan Jessop
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.

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).