PharmExec Blog

European Pharma Bets on Greek Salvation

The French philosopher Pascal calculated that it was better to believe in God than to disbelieve. After offering the country a €2.88 billion cap on drug spending, it looks like European pharma is taking that view with regard to Greece. Reflector reports.

The European pharma industry looks like it is accepting Pascal’s Wager in Greece. It was Blaise Pascal, the seventeenth-century French philosopher and mathematician, who calculated that it was a better bet to believe in God than to disbelieve. His reasoning was that if a deity existed and there was an afterlife, believers would be duly rewarded (and non-believers duly punished). And if not, nothing, in any case, was lost.

In Greece, where the situation for the pharmaceutical industry has been going from bad to worse for years now, the latest attempt at damage limitation appears to be based on a similar calculation to Pascal’s. If the deal now being finalised between industry and government works, then the industry stands to gain some benefit. And it doesn’t work, then the situation will be not be any more damaging than it is at present.

The essence of the projected deal is now well known. A framework agreement will commit companies to pay back any sales made that drive reimbursement above €2.88 billion for 2012. In return, the Greek government will commit to paying companies the full amount of outstanding debts of hospitals and insurance companies, and will avoid any relapse into arrears.

Sceptics have been quick to point to flaws in the logic. Above all, they allege that industry has set a trap for itself by agreeing to any cap on government spending on reimbursement. The most outspoken critics claim that this is tantamount to industry capitulation. To collude in setting a cap is accepting a principle that flies in the face of the spirit of the market and the interests of patients, they say. Worse, it is offering a concession in order to obtain repayment of an outstanding debt — something that is due to the industry by right. They depict industry as kneeling meekly before the executioner, rather than battling heroically, even if the odds are overwhelmingly against it, for freedom and justice.

The more knowledgeable among the critics have identified what they see as another, more subtle, flaw in the deal. They have observed that the €2.88 billion reimbursement cap that the industry is advancing as a noble concession in the common interest is, in fact, no more and no less than the control already imposed on the government — and hence on the industry —by far more powerful forces. The drug-spending cap is just one of the many conditions that the Greek government has been subjected to in the context of the much broader negotiations on international bail-outs to save its economy from the ignominy of bankruptcy – and to spare the European economy the massive disruption that would be caused by Greece dropping out of the eurozone. In other words, the drug industry is — to put it politely — turning a necessity into a virtue, claiming merit for something over which it had, in reality, no choice.

The sceptics may not be altogether wrong. But at the same time, they may be overlooking the smaller print in the deal that the industry and the Greek government are working on. It could be argued that some the terms in the draft come close to offering the nearest thing to heaven on earth that drug manufacturers are likely to encounter this side of paradise.

For a start, the Greek government is committing itself to saving industry elsewhere in Europe from the perils of reference pricing. For years the industry has railed against the use of comparisons with Greece — with its notoriously low prices —in national pricing decisions in richer countries. Over recent months, as the Greek crisis has dragged prices down still lower, these complaints by companies have crescendoed in chorus. Now, if the deal goes through, Greece will formally request drug pricing authorities in other countries to exclude Greece from the basket that they may use for reference pricing. At a stroke, this could end a practice that has caused deep grief right across the European industry, and might put a smile on the faces of pharmaceutical executives from Berlin to Barcelona, and from Lisbon to London. This is a move which could set a precedent that might be applied in other low-price markets too — mitigating the downward pressure on European drug prices that comes from a vicious spiral of referencing to the lowest level.

That’s not all! The Greek government will also act to put a legal limit on parallel exports. This would be not merely a revolution in national policy, but a complete reversal of one of the fundamental tenets of the European Union. Free movement of goods — the principle on which parallel trade is based — has been one of the central dogmas since the European Economic Community was set up more than 50 years ago. The rigid adherence of the EU institutions to this principle has been a constant bone of contention for drug manufacturers, since time and again middlemen have exploited free movement of goods to make a profit out of buying medicines cheap (in Greece or Portugal, for instance) and selling them dear (in Germany or the UK, for instance) — with a consequent erosion of profit for the manufacturers.

Greece is now preparing to commit itself to overturning decades of standard practice, by introducing national regulations that will prohibit export of all medicines subject to price control. This could be valuable in itself. It could, conceivably, also set another precedent, in other markets where extreme conditions have resulted in abnormally low prices and have promoted arbitrage. Taken together, the reference-price exclusion clause and the parallel export ban could represent the first real cracks in the dam of EU orthodoxy that has prevented any account being taken of European economic realities in the setting of national prices.

However, as Eddie Cochrane famously intoned, there are three steps to heaven — and the drug industry and the Greek government are currently only at the first of those steps. A deal is on the table, but has not yet been signed — still less implemented.

Apologists for the deal believe that it is the best that can be obtained from the present chaos. They accept that the figure of €2.88 billion coincides with the target imposed by the international financial community. But they assert that the industry is still making a meaningful offer, by agreeing to clear rules on how any over-run will be met by industry. Without the agreement, the availability of the €2.88 billion envelope would be in jeopardy, and the operation of the associated clawback would itself be at risk of incoherence. With the agreement in place, the cap and the clawback can be run in a transparent manner, with clear rules on exactly which company owes what amount for which period. This should help to overcome the obstacle that was described by one executive close to the negotiation as “the big gap between what is law and what is practice in Greece”.

The suggestion that the industry is being led like a lamb to the slaughter is similarly challenged by advocates of the government-industry pact. Far from surrendering freedom, the industry claims that it is achieving in Greece what has been the norm in many countries for years: the possibility of sitting down with the authorities to discuss how to balance the rival claims of economy and innovation. Everywhere in the EU there are spending constraints, irrespective of whether countries are subject to bail-out conditions, and there is a long tradition of industry and government conferring to work out together —through negotiation, and with clear rules of the game – how to assure access to innovative products in the face of healthcare budgetary limitations. In this case, industry believes it has won valuable compensation — in the shape of the reference pricing and parallel exporting clauses — for its readiness to show understanding to a government in severe funding difficulties.

Belief is, of course, at the heart of this exercise. Which brings us back to Blaise Pascal. If the Greek government signs up to the terms, and manages to do what it promises to do, then the pious commitments of the industry could lead to some celestial bliss. If, however, the government does not sign up, or signs up and does not honour its own commitments, the industry may be no worse off than if it had never entered into the negotiations.

This entry was posted in Europe, Global, Guest Blog and tagged , , , , , , . Bookmark the permalink. Trackbacks are closed, but you can post a comment.

Post a Comment

Your email is never published nor shared. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

  • Categories

  • Meta