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Outside the box

The EU is growing rapidly and pharma needs to keep on top of funding changes

Europe is an expanding market for the pharmaceutical sector and, as new Member States join the EU, the prospects for growth in central and Eastern Europe look interesting, but are difficult to read in the short term.

Healthcare systems in the established 15 EU Member States are varied, but certain trends are very clear. Populations in the established States are living longer, so the potential burdens of demographic change on healthcare and social care are becoming real problems. In many of these countries obesity rates (especically in children) are rising, bringing with them an increased risk of diabetes and heart disease.

The World Health Organisation (WHO) predicted in 2005 that by 2020 clinical depression and associated risks of suicide would be one of the biggest killers in the developed world, including established EU States. These trends will all conspire to put increased pressure on health budgets and health promotion, with healthier lifestyles becoming an increased priority.

In the newer Member States, such as Hungary and Poland, and in Accession States such as Romania and Bulgaria, demographic change is different, in that life expectancy is not as good and younger people form a greater proportion of the population. Many of the Eastern European countries are dealing with alcohol and drug abuse problems, as well as tackling higher levels of communicable diseases, including sexually transmitted infections.

There are also key differences in funding between the newer EU Member States and Accession States.

EU health spending
How much does the EU spend on health? Data from across the region relating to health spending are offered as bald facts, but beneath the bare figures lie many questions, and the question posed above is not easy to answer. The validity of EU data can be difficult to prove, which is linked to the methodologies used to acquire the data in the first instance.

It is difficult to find a common definition of what is meant by `healthcare' and also `services' across Europe's States. In Hungary, for example, a significant proportion of long-term mental health needs are met by social care homes; therefore, while huge numbers of people are cared for by the social care system, the services are not counted as being part of the health sector.

Data collection methods across the EU also vary massively, as do the structures and organisation of healthcare services. In established States, before recent expansion occurred, total average health spend was equal to approximately 9 per cent of Gross Domestic Product (GDP); this average is likely to fall as poorer States join the EU.

Healthcare expenditure across the region stabilised in the late 1990s and actually declined in some countries. Between 1995 and 1998, GDP grew faster than healthcare expenditure in eight Member States, and in Spain, Portugal, Greece and Denmark health expenditure grew by only a fraction more than GDP.

In the UK, trends are different in that the government has been rapidly increasing the proportion of GDP spent on health, aiming to reach the EU average of 9 per cent by 2010. What is clear is that health-related inflation in the EU is rising at a higher rate than general inflation and all governments are vexed by the need to contain costs.

The fundamental problem that arises in looking at how much countries spend on health lies in the fact that there is little evidence that increased health spending actually leads to a healthier population. A good example of this is Scotland, which has spent more on healthcare than many other EU States for decades. Yet, despite this increased spend, Scotland has some of the highest rates of certain cancers, heart disease and chronic conditions in the EU.

Funding sources
In most of Europe, healthcare services are funded mainly through the public purse, via taxation, social health insurance, or a mixture of both. Significant out-of-pocket expenditure by patients is also a common feature, for example, prescription costs, charges to visit a family doctor or payments to the private sector.

In the established EU States, nations can be sectioned broadly into three groups with regard to the way in which healthcare is paid for. Predominantly tax-funded schemes are found in Denmark, Sweden, Italy, Portugal and the UK. Social insurance models are dominant in Germany, France and the Netherlands. There is a greater mix of both tax and social insurance in Greece, Belgium and Switzerland.

In newer States, credible data is harder to come by, but most appear to be building a social insurance-based system, in line with demands from the international financial community. The use of private health insurance within the EU is relatively low, ranging from around 3.5 per cent of total health spending in the UK to around 17 per cent in the Netherlands.

The EU is, therefore, a highly regulated market for the pharmaceutical industry, with increased pressures to contain costs through taxes or social insurance schemes in which governments are usually key stakeholders. There are also common themes at work in the method and organisation of healthcare across the region, including:

  • A shift from social insurance towards taxation in France

  • Increased insurer competition in the Netherlands and Germany, where it is hoped this will lead to improved cost control and increased quality

  • A lack of any significant increase in the use of private health insurance

  • An increased use of direct charges to citizens and the use of direct payments in several States.

With slow macro-economic growth in recent years and an increasing array of new products reaching the market, every country is confronting high demand. Most EU States have institutionalised models to evaluate the cost and clinical effectiveness of drugs, and attempt to manage prices.

The White House trade representative, while on a recent trip to the UK, berated the government for blocking US pharma companies from gaining easy access for their products in the UK health sector, and for not allowing direct-to-consumer advertising for pharmaceuticals.

If this was a foray into future trade talks between the US and the EU, it suggests that pressure on Europe's States to free up markets is set to increase in the years ahead. This is likely to prove unpalatable for most European governments.

Public policy in the EU generally favours some form of socialised healthcare - an anathema to the US and many other parts of the world, where open markets and private insurance are more common. The EU wishes to ensure universal access to a full range of health services for its citizens, rather than promoting the increased use of private insurance. But this model is likely to be strained as the EU expands eastwards in future years. In all current States, but especially in the richer original 15 countries, the pressure to deliver better value for money and improved outcomes for patients is intense.

New opportunities
As the EU expands, the mix of health systems is likely to increase, with new countries such as Moldova, Albania and Turkey all expressing interest in joining.

The WHO Europe, in a recent report (see www.euro.who.int/document/e8802.pdf), noted, `Substantial similarities and striking gaps in the health status of the people of Europe and in the organisation and development of health systems'.

An understatement if ever there was one! As there are several countries hoping to join the EU in the medium term, it is likely to lead to a growing market for pharma in the decades ahead, with increased diversity across an expanded EU.

The WHO Europe focused on some key questions for potential new Members:

1. What are the demographics of the population?
2. What diseases do people suffer from?
3. Where do the health risks lie?
4. Who are the movers and shakers in the health sector?
5. What resources (human and financial) are available?
6. How are services provided?
7. Who pays, and for what, in the system?
8. How has the reform agenda worked?
9. What are the key lessons learnt by the State in reforming health?

These questions were directed primarily to emerging EU partners and the answers are useful for pharmaceutical companies that are seeking to understand the new opportunities in the expanding EU.

They are also useful as a starting point in understanding some of the key issues in existing EU Member States.

Global change
Healthcare in the EU remains largely the business of the national government of each Member State. While most use public monies to fund health, there will be debate as to the future viability of such models as society grows older and patterns of disease become more complex and challenging.

In Germany and France, two big health spenders in Europe, financial pressures are currently pressing the healthcare systems (which traditionally gave generous benefits to citizens). In the UK, which has been steadily increasing its health spending, there is already some discussion as to the viability of a tax-based universal system in the longer term. Add to this global trends in the health sector workforce and it is clear that the EU faces many challenges in maintaining healthcare for its citizens.

The US is predicting a huge shortfall in qualified nurses by 2020; in trying to fill the labour gap, America will undoubtedly compete for the qualified, if scarce, nurses in Europe. As India and China continue to show staggering levels of growth, and begin to potentially outstrip the economies of the US and EU by 2020, global pressure for quality staff to sustain health systems in Europe will increase still further.

The expanding EU is likely to go one of two ways: it could become a looser network of Member States, leaving domestic policies like health in the hands of the governments. If this happens, the EU is unlikely to become a single market and pharmaceutical companies will need to understand the complexities of funding and policies in each Member State.

Alternatively, as globalisation intensifies, in particular the increased competition from India and China, the EU may become stronger in regulating and harmonising healthcare across all Member States. The European Commission is already exploring the idea of developing common quality standards across acute healthcare and is pushing for common language relating to human rights and standards of care in mental health.

In the decade to come, the EU is facing unprecedented levels of challenge and change. Health will remain a key issue for all citizens, though products alone will not be enough. Europe needs better disease management programmes and improved patient education, especially for longer-term conditions, linked with products that help to reduce reliance on hospital admissions.

The author
Jennifer Garratt is director, healthcare division, Manning, Selvage & Lee, a global PR firm (www.mslpr.com)

2nd September 2008

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