Partial privatisation shakes up pharma market in Spain

The privatisation of hospitals and primary care management in Madrid marks the start of a major shake-up to the healthcare system in Spain. New opportunities may have arisen from market liberalisation but the pharma industry is still struggling with unpaid drug bills, price cuts and other draconian cost-containment measures. On the flipside, patients fear they will lose access to free healthcare and public sector health workers have been protesting against the reforms. 

The plan for partial privatisation in the autonomous region of Madrid initially involved six hospitals and 27 health centres (10 per cent of services) and it’s been pushed forward by Ignacio González, the region’s premier, his health commissioner, Javier Fernández Lasquetty, and Antonio Burgueño, director general of Madrid’s hospitals.

The conservative government (Popular Party) in the Madrid region introduced a euro charge on every prescription last year which, compounded with other austerity measures, met with strong opposition. The outsourcing of prestigious hospitals to private companies has angered public sector workers and patients even more. Several doctors’ and health workers’ strikes have taken place in recent months, with thousands of appointments being cancelled.

The six hospitals (Infanta Leonor, Infanta Sofía, Infanta Cristina, del Henares, del Sureste, and del Tajo) had already privatised their auxiliary services. Another four hospitals in Castilla la Mancha (Almansa, Villarrobledo, Tomelloso and Manzanares) will also outsource catering cleaning and other services. Some 20 per cent of hospitals in Valencia are privately managed: a trend set to continue. And tentative steps are being taken in other autonomous regions.

A controversial law approved in April last year changed the way the healthcare system is funded, tying it to social security contributions, instead of taxation. Illegal immigrants have already been excluded and those who are not employed or earn above €100,000 per annum could soon become ineligible for free healthcare.

Risky and unpopular move
The official buzz word is ‘sustainability’ but the concern is over ‘back door privatisation’. Patients may have to start paying €4 for some hospital drugs if the plan goes ahead, which will add to the current financial woes of most Spaniards. The reform is also expected to lead to significant job cuts (around 9,000) in the public health sector, which will take place this summer. 

“It is a risky move for the Madrid regional government […] The scenario seems particularly apocalyptic in a country stricken with high debt levels, unemployment in the healthcare sector, and a deep crisis of the pharmaceutical sector. While it may create temporary relief for the government’s budget, it is likely to contribute to a steady deepening of the country’s healthcare crisis,” IHS Global Insight’s pharma analyst Chiara Cochetti stated in a research note.

She added: “Considering Southern Europe has a long-established tradition of relatively efficient and free at-the-point-of-delivery healthcare, the Spanish government’s plans are quite ambitious and not realistic given the country’s already fragile public healthcare system and the country’s traditional mentality that radically opposes such a shift to privatisation. The move to a total privatisation of the public healthcare system is again, very unlikely.”

Madrid may well set an example that other regions may follow, particularly along party lines. The Catalonian regional administration was a pioneering champion of a mixed public–private health system with many hospitals run by private companies and Valencia also has a consortium of private operators providing primary and secondary care, claiming it led to savings of 20 per cent (Alzira model).

The Madrid regional government aims to save €200m by putting hospitals and clinics under private management. 

The Spanish national health system (Sistema Nacional de Salud) was set up in 1986 to provide universal coverage to all citizens and ranks highly in Organisation of Economic Cooperation and Development (OECD) terms, as an efficient and well-regarded institution. However, the system is highly decentralised and services vary from region to region.

Austerity bites and debts start mounting
Apart from increases in co-payment, prescription charges, delisting of drugs, mandatory prescriptions by active ingredient and dispensation of the cheapest generic versions, Spain has introduced a new centralised purchase system that started on a trial basis. In Madrid, a specialised body the Purchasing Committee of Madrid’s Health Service, (SERMAS) is managing the service. Some regions, however, such as Andalucia, have retained their own system for bulk buying. 

With the new centralised drug purchases, the government is expecting to reduce pharmaceutical expenditure by €150m in 2013. 

Regarding mandatory co-payment, patients pay according to their income levels and those who are retired are no longer exempt.

The cost-containment policies have boosted the generics market by volume and according to Farmindustria sales of prescription medicines have been falling. IMS Health figures show that drug sales in Spain dropped 11 per cent in 2012.

The Spanish pharmaceutical market has been severely affected by the economic recession and euro debt crisis. The 17 autonomous regions unable to cope with accumulated debts to pharmaceutical companies and other suppliers have tapped into a special loan fund created by the central government. However, public hospitals already owe over €3bn to suppliers and take on average 250 days to pay according to the industry body Farmaindustria. This is an improvement on the €6bn owed in 2011, thanks to the credit line from Madrid.

Madrid, Valencia, Andalucia, Galicia and Catalonia are the most indebted regional governments as far as the pharma industry is concerned.

According to El Pais, Cat Salut, the health authority in Catalonia, announced in February that it is unable to repay accumulated pharmacy debts mounting to €300m. The Catalan College of Pharmacists say that 14 pharmacies had to close across the region due to unpaid bills.

Silver linings in the healthcare market
A recent report by consultancy firm KPMG concluded that the pharma industry in Spain needs to adapt to a hostile regulatory environment fast if it is to survive. Some 96 per cent of pharma executives surveyed said that sales are down but the majority are still investing in R&D. The report forecasts a strong trend towards international disinvestment in Spain in non-strategic areas and more consolidation, partnerships and joint ventures.

IMS Health’s forecast for the Spanish market is gloomy, pointing to no recovery until 2016.

Despite the recession and turmoil, Spain remains one the largest markets for healthcare products in Europe and privatisation is expanding across the country with tender processes being carried out.

Even after successive budget cuts and cost-containment measures, healthcare expenditure in Spain has more than doubled over the last 15 years.

Private health insurance has also been increasing with 20 per cent of Spaniards now covered and there are signs that this sector is growing particularly in the current climate of less available public services.

A potential liberalisation of the pharmacy sector is also on the horizon, which could lead to more points of sales and more OTC products being available outside pharmacies. E-Health and telehealth strategies area are also gaining a foothold in the Spanish market. Andalusia and The Basque Country are leaders in the adoption of these technologies and with Spain’s ageing population the demand for related goods and services is likely to increase.