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A Flagship reform

Bulgaria changed radically to meet EU calls, but low funding blights its healthcare

Nobel Prize winner George Akerlof wrote in his 1971 article, The market for lemons (an exploration of the imperfect information in America's used car market), that buyers and sellers commonly possess different, not identical, information.

It is widely acknowledged today that the economics of asymmetric information affect almost every market, proving that market equilibrium does not exist.

This, unsurprisingly, is completely true of the healthcare market, resulting in the increased corrective role of government regulation, the most commonly known Adverse Selection Phenomena (ASP) of health insurance market failures, as well as the agency relationship phenomena of the supplier-induced demand for health/therapy services.

One might assume that the used car, `lemon', market differs substantially from the pharmaceutical market, but the truth is that, in both cases, buyers and sellers have unequal levels of information.

In pharmaceuticals, apart from the buyer and the seller, the decision to buy is influenced by a third party, the licensed medical consultant who makes decisions on behalf of the health service consumer. Each of the three parties acts on information unequal in both volume and value, while the real purchaser and user of the product and the service - the patient - is in the least favourable position, blighted by a lack of scientific knowledge and sufficient awareness of available drug substitution alternatives.

The supplier-induced demand is a cause- and result-driven exercise where doctors prescribe, and pharmacists dispense drugs to patients influenced by medical reps' detailing and by their own business interests. This often results in prescribing and dispensing malpractice, which leads to the adverse selection phenomena and the `spending more for less' formula by public budget holders.

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Freer ways
Such failures are often a big problem in a country in transition like Bulgaria, where there is extremely high demand from the public for effective cost-containment policies for pharmaceutical products, reflecting the low purchasing power of an ageing and ailing population, which must rely exclusively on a highly restricted state budget for either whole, or partial, reimbursement of any treatments.

Change is another phenomenon which has affected the socio-political character of Bulgarian society deeply. Since the fall of the Berlin wall in 1989, Bulgaria has undergone major political changes and social and economic disruptions that continue in the lead up to EU accession, pending until 2007. The transition from communism to democracy, from planned economy to market economy, and from a propagandistic way of thinking to one based on entrepreneurship have also had an impact on the development of the local pharma industry, which formerly depended exclusively on the regional decisions of the Soviet-run Union for Economic Co-operation.

Nevertheless, Bulgaria's pharmaceutical industry has made enormous steps since the decentralisation and privatisation processes started in the late 1990s. The former state-owned production and export co-operative with the legendary trade mark, Pharmachim, sold its drug factories to prominent local and foreign investors. Two of these are competing for local market leadership - the 72-year-old flourishing domestic company, Sopharma, and the Icelandic firm, Actavis (formerly Pharmaco), which started its ascent to a top-five global generic company position by buying three of the most prolific drug factories in Bulgaria.

A number of Pharmachim satellites succeeded in keeping and developing their production facilities, and most are now members of the Association of the Bulgarian Pharmaceutical Manufacturers (ABPhM), having formed a new sector landscape and given jobs to more than 10,000 direct employees, plus an approximate further 80,000 engaged in related industries. The biggest tax payers and investors in the economy come from the local pharma industry.

Yet, there is a major problem with the national health policy: a lack of sufficient budgetary resources. To find an effective way to provide essential treatment for all patients in need within such a constrained public budget of, on average, only 4.2 per cent of GDP since 1999, would challenge any government brave enough to try!

With a GDP of Ä19.5bn for a nation of 7.8 million people, with more than 100,000 immigrating each year, a negative birth ratio, the lowest life expectancy in the EU, and only Ä100 for healthcare expenses per capita per year, the national healthcare policy has become the major reason for public discontent and political criticism and could easily see ministers lose their jobs and governments subsequently lose their majority support.

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Harmonisation
Healthcare reform started immediately after the fall of the Iron Curtain in 1989 and was characterised by high levels of information asymmetries, one National Health Insurance Fund, and a number of interrelated lacks, which include:

  • Lack of rational- and result-oriented healthcare policy

  • Lack of efficient health insurance system for optimised budget administration

  • Lack of sufficient regulatory agency capacity

  • Lack of sufficient budget resources for healthcare

  • Lack of a single national health insurance information system

  • Lack of hospital privatisation process

  • Lack of incentives for development of a private health insurance funds market

  • ... and, a lack of Health Management Organisations to act as cost-containment advisory bodies to patients.

On adoption of the Human Medicines and Pharmacies Act in 1995, and its amendment in 2003, Bulgaria managed to gradually phase in all relevant EU pharma directives and regulations, most of them well ahead of other accession countries, without any transition periods for the local industry.

This contrasted with what were seen as the `less smooth' examples of Poland and Hungary, which negotiated extended transition periods for updating old drug dossiers up to 2008 and asked for up to 15 years of transition for implementation of the new 10 + 1 years data exclusivity rule of Directive 2004/83/EC.

The big issue now is the draft for the final review of the national Pharma Law, which is currently shuffling across the corridors of the Council of Ministers, waiting to be kicked off like a ball towards the penalty area of the health commission (which is quite appropriate seeing as the 2006 World Cup has just begun).

However, it is worth mentioning some of the key changes drafted in the final project for the amendment of the current legislation, which we believe could bring all stakeholders closer to the practice of rational thinking.

These include (mentioning only a few): updating the reimbursement list at least twice a year, instead of just once as it is now, merging the Positive and Reimbursement Lists into a single formulary for subsidised drugs, implementing a cost-containment system based on a pharmacoeconomic evaluation, granting newly registered drugs timely access to market, the application for price registration and inclusion in positive and reimbursement drug lists processed in one go, the discontinuation of patent linkage, as well as a rigorous promotion of generic medicines through legislative and other incentives.

If the government wants to find and apply the right reform formula for the healthcare system, it should definitely consider radically improving healthcare budget models (and including doctors and pharmacists in the process), implementing a single national health insurance information system, which will cope with the ASP and ensure a quick and effective hospital privatisation process, and developing the private health insurance funds market.

Last, but not least, the government needs to implement generic prescribing by the doctors, generic substitution by the pharmacists and educate its medical and pharmacy students in generic, rather than brand, names. The state should also allow room for the development of
health management organisations.

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Market changes
In the last six years, Bulgaria's pharma market has seen increased competition from foreign multi-national and generic entrants. They have achieved a 75 per cent total value share of the Ä400m 2005 EX-MNF market (40 per cent in volume), a decreased consumption of local generic brands equal to 25 per cent in value (60 per cent in volume), and a drugs budget deficit of Ä200m out of the allocated 2.2 per cent of GDP, the latter not being a precedent at all.

Overall, drug consumption has grown more than threefold since 1999; retail sale figures for 2005 are around Ä600m.

Local manufacturers have tried to balance performance between market strategy and the socio-political change. They have improved their operations management by building new production facilities, and maintaining GMP and other quality assurance standards, amounting to more than Ä150m in investment. They have also cut costs by raising the standards of professional expertise and strengthening their financial management results.

Consolidation has resulted in market synergy through backward and forward integration and strategic partnerships on a local and international scale (Sopharma business model), and the geographical expansion and pipeline development through M&A for rapid inorganic growth, and outsourcing R&D and production (Actavis business model).

Life cycle management diversified the generic portfolios through many new examples on the market, in-licensing agreements and OTC switches. Every year, local producers tend to register between 20 and 30 new generics on the market.

So, what can we say as a conclusion to the above brief exposÈ? All's well that ends well? Bulgaria will become an EU member and so will its pharma industry, but what will the government say to patients who still will not be able to provide for their treatment due to the budget deficit and healthcare system failures?

There is much more work to be done but let's hope it will be done for the sake of the patients and not just for the sake of sheer politics.

The Author
Ros Kazakov is an executive director of the Association of Bulgarian Pharmaceutical Manufacturers (ABPhM)

2nd September 2008

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