19 June 2012
The financial markets have broadly spoken and find the leaders of the Euro-zone patently unable to implement the solutions to the crisis. Knowing what the problem
really is is very important and it now appears that the core structural reforms necessary seem too hard for doctrinaire European thinking. If you keep trying to implement the same solutions and keep getting the same results — namely a sovereign bailout — that is a rational clue that you are doing the wrong thing.
Medical indebtedness is a big part of the problem, as much of the debt arises from state controlled or funded health systems, and therefore the payment from public funds to pharmacists, doctors, hospitals, etc. adds to the debt load. Indeed, going forward, the debt rating of Euro-zone countries may be in part determined by their ability to handle these types of debts. So far, though, the prognosis is not good.
A summary: figures arising in the period February 2012 to date [Sources: Financial Times, Reuters]
- overall, pharmaceutical companies are owed €12 billion in unpaid bills for medicines (debts more than 30 days unpaid).
- about €6 billion of that is apparently in Spain; overdue bills in Spain are approaching 800 days unpaid; recently, though, the Spanish central government found €17 billion euros to pay suppliers of the autonomous communities — 73% of this amount was for unpaid medical bills
- medical device makers are owed about €4 billion
- one device company recently took back about €4 million in unpaid inventory
- an insulin supplier shifted to cash on delivery for Greece and has threatened to withhold new drugs from the market
- many pharmaceutical companies are reprofiling their product portfolio in high risk payment countries, with a focus on medicines where there is no alternative source of supply or where there is higher clinical need
- there is in some cases a broad strategic shift away from customers who don’t pay their bills (e.g. hospitals) to the patients, thereby avoiding high risk local or regional government payers
- many health industry intermediaries are diversifying their business away from this sector
- some companies have written down their debt selling sovereign bonds; amounts in the tens of millions of Euros are involved.
- some of Greek national debt arose from hospital capital expenditure and the failure to properly account for these in national accounts, despite the fact that their hospitals are in poor physical condition; there is a comparable risk associated with capital expenditures across the Euro-zone as it generally involves public bodies and public debt
- and so on….
What does this mean?
Consequences to health systems are unlikely to be short term. The suppliers are bearing the costs of granting credit to governments with increasingly fragile credit ratings. They are going to be more cautious in future, no doubt. But a few consequences can be anticipated based on current actions:
- There is an evident shift from state payers to patients, forcing patients to pay full costs and then recover these costs from payers. This can be serious hardship for some patients. To some extent, increasing copayment/full payment increases price awareness amongst patients, and increases their awareness of true costs and medicines or device availability. Where national policies may act to suppress introduction of innovative products, public salience of this will rise. Increased public salience will have the effect of limiting the ability of governments to act to constrain costs and availability. This alone could lead to calls for radical reform of state controls in health systems.
- Innovative medicines and devices are unlikely to be supplied to at-risk countries until there are assurances of payment. Indeed, medicine reimbursement policies which seek to drive down medicines prices or encourage generic substitutions are likely to have a perverse consequence as industry has the option of restricting to supply to manifest demand, or delaying the introduction of innovative medicines for fear not only that they won’t get paid, but the price paid may be punitive.
- Infrastructure renewal in the healthcare system will come under considerable scrutiny. Do we need to renovate hospitals; should new ones be built or should we be looking at newer ways to deliver healthcare at lower costs (e.g. e-health), and how will the vested interest groups (health professionals) react to far reaching system reform to reduce the capital costs of hospitals?
- Reduction in availability of supplies has a variety of consequences: shortages of medical/surgical supplies delay operations; shortages of gloves can increase the risk of spread of hospital infections (which can cost upwards of €100,000 per incident to clean up, a lot more than gloves cost); general cost containment can compromise linen supply and sterilisation, increase the risky use of reusable surgical instruments and encourage staff to take risks with reusing equipment in general; given the scale of infrastructure, staff shortages (not hiring replacements) can lead to increased patient loads for health professionals and thereby shorten time available for patient care. This list can go on and on.
The point is that healthcare is a system, and shocks to that system, whether unpaid medicine bills, staff shortages, hospital infections, whatever, have consequences throughout and many of these consequences are likely to be far more costly than the savings and could lead to widespread risks to public health.
Solutions? In my view, the time is ripe for the at-risk countries, in particular, to reflect on the cost-drivers in their systems and focus on substantial reform of the delivery system, as well as the financing itself. Long-term sustainability is needed, so short-term or ill-thought through reforms will only make things worse. We’ve already seen the consequences of that with current Euro-zone leadership.
Email me your suggestions and let’s start building a list of possible solutions that protects the integrity of the public’s health without bankrupting the country.