IHS Global Insight Perspective | |
Significance | Estonia's Social Health Ministry is asking pharmaceutical companies to implement a blanket 15% price cut on all medicines, and has suggested that wholesalers and pharmacists should reduce their margins as well. |
Implications | The pharma industry estimates that such a move would reduce Estonia’s pharmaceutical market value by 32%, and has warned that many drug-makers would leave the country if their return on sales shrinks to such a level. |
Outlook | As the Ministry has not yet made the 15% cut mandatory, producers still have a chance to negotiate a better deal for themselves. However, some form of cutback will be unavoidable as the national health insurer struggles to keep within its 20% budgetary spending limit for drug reimbursement with considerably less funding than anticipated. |
Ministry Implores Industry to Keep Drugs Affordable
Estonian Social Affairs Minister Hanno Pevkur has issued a direct appeal to pharmaceutical companies operating in the country, asking them to reduce their drug prices by an average of 15%. The plea comes as national public health insurer, Eesti Haigekassa, is having to rethink its operations after receiving nearly 1 billion kroon (US$89.5 million) less than anticipated in annual funding derived from the social tax (see Estonia: 23 December 2008: National Health Insurer to Receive Less Funding from Estonia's Social Tax in 2009). According to Estonian newspaper Postimees, Pevkur is specifically looking for medicines’ reimbursable price to be reduced by 15%. In line with this, he has also appealed to wholesalers and retailers to work toward a 15% cut in drugs’ consumer prices by way of lower margins.
The minister has taken his request to the Association of Pharmaceutical Manufacturers in Estonia (APME), an industry association which represents the interests of some 24 member companies in the brand-name and generic pharma sectors. However, APME Director Erki Must has warned that many producers would be forced to leave Estonia if they were made to adhere to a blanket 15% price-cut, as their return on investment would be unsustainable. Must went on to say that price-cap policies have already contributed to a reduction of nearly 10% in medicine prices over the past seven years, and that lowering the price of all drugs by the exact same amount could even be in violation of Estonian competition law. APME’s official view of the proposed price-cut is that it would shave some 450 million kroon (or 32%) off Estonia’s total pharmaceutical market value, which the association has pegged at 1.4 billion kroon.
Pevkur insists that the price-cut is a measure of last resort, and says that the greatly-reduced budget for public healthcare has left him with no alternative but to make cutbacks in the fastest-growing area of government expenditure (see Estonia: 22 January 2009: Public Healthcare Budget for 2009 Set at US$1.1 bil. as Estonian Parliament Makes Final Cut). Wholesale spending on medicines grew by nearly 10% year-on-year during 2008, despite the beginnings of an economic slowdown (see Estonia: 14 May 2009: Estonia's Pharmaceutical Market Closes 2008 with 9.6% Y/Y Jump).
Outlook and Implications
At this stage, the Ministry is asking—rather than ordering—the industry to reduce its drug prices. This distinction provides an important advantage to pharmaceutical players operating in Estonia, as it gives them some space and time in which to begin negotiating with the Ministry for a better deal. After all, until the financial crisis took hold, state policy on medicines had made provisions to subsidise a crop of innovative biotech drugs and generally raise the standard of available medical treatment. Neither side has offered any details publicly as to their next steps, but from the APME’s point of view, options to pursue could include lowering the level of the price cut, reducing its application to off-patent treatments, or seeking a time limit on it.
As with other Central and Eastern European states to have joined the EU within the past five years, Estonia has seen an influx of innovative brand-name medicines arriving for sale in its pharmacies, often at prices that are not much lower than in Western European countries, a significant factor behind its pharmaceutical market growth. However, Eesti Haigekassa is bound by law to spend no more than 20% of its annual budget on reimbursing prescription drugs. With a big chunk of its tax-based funding for 2009 now gone, the insurer will be even less able to accommodate drug price growth. Greater use of generic medicines could eventually be another avenue explored by government, as there are currently no mandatory regulations on generic prescribing or substitution by pharmacists. As the second half of the year approaches, however, the Ministry will need to take some sort of action reasonably soon if it is to avoid a hefty rise in the public healthcare deficit.