Government Austerity Measures Hit The Pharmaceutical Industry

BMI View : Public consumption in France will decline in 2014 and 2015 as the government attempts to bring the fiscal deficit within the EU's deficit reduction target of 3.0% of GDP by 2015 - affecting expenditure on pharmaceuticals and healthcare as a part of the government's fiscal consolidation plans. However, the new government of Manuel Valls has indicated it may seek to further delay its deficit cutting commitments and this may result in the healthcare sector being a continued target of austerity, particularly as health expenditure growth for 2015, 2016 and 2017 has been capped at 2.1%, 2.0% and 1.9%, respectively and additional measures may be required to rein in spending.

Aligning with our long-term view that the French government will engage in more concerted fiscal consolidation (with a heavy focus on the pharmaceuticals and healthcare sector) as a result of the country's lacklustre economic activity, [1] France's new prime minister Manuel Valls has unveiled details as to how the government aims to extract EUR50bn (USD69bn) in savings between 2015 and 2017, including proposals to slice EUR10bn (USD14bn) of healthcare spending.

Manuel Valls said his top priority is curbing France's government spending, which is among the highest in the world at 57% of the country's GDP and to help France meet EU deficit targets. 'We cannot live beyond our means,' Valls said after a Cabinet meeting. BMI notes that this plan is the biggest state spending reduction in France in half a century.

Austerity Measures Target Debt Reduction
France: Government Debt

BMI View : Public consumption in France will decline in 2014 and 2015 as the government attempts to bring the fiscal deficit within the EU's deficit reduction target of 3.0% of GDP by 2015 - affecting expenditure on pharmaceuticals and healthcare as a part of the government's fiscal consolidation plans. However, the new government of Manuel Valls has indicated it may seek to further delay its deficit cutting commitments and this may result in the healthcare sector being a continued target of austerity, particularly as health expenditure growth for 2015, 2016 and 2017 has been capped at 2.1%, 2.0% and 1.9%, respectively and additional measures may be required to rein in spending.

Aligning with our long-term view that the French government will engage in more concerted fiscal consolidation (with a heavy focus on the pharmaceuticals and healthcare sector) as a result of the country's lacklustre economic activity, [1] France's new prime minister Manuel Valls has unveiled details as to how the government aims to extract EUR50bn (USD69bn) in savings between 2015 and 2017, including proposals to slice EUR10bn (USD14bn) of healthcare spending.

Manuel Valls said his top priority is curbing France's government spending, which is among the highest in the world at 57% of the country's GDP and to help France meet EU deficit targets. 'We cannot live beyond our means,' Valls said after a Cabinet meeting. BMI notes that this plan is the biggest state spending reduction in France in half a century.

Austerity Measures Target Debt Reduction
France: Government Debt

The Plan: A Focus On Health Insurance

The National Health Insurance Expenditure Target (ONDAM) rose by 2.4% per year in 2012 and 2013, as opposed to 4% on average over the past 15 years. For 2014, government health expenditure has been capped at EUR179.1bn (USD246.2bn) (a growth rate of 2.4%) and health expenditure growth for 2015, 2016 and 2017 has been capped at 2.1%, 2.0% and 1.9%, respectively.

  • Savings of EUR3.5bn (USD4.8bn) are to come from lowering drug prices and the increased consumption of lower value generic medicines. The government is aiming for spending on generic medicines to account for 25% of the French pharmaceutical market by 2017.

  • Savings of EUR2.5bn (USD3.4bn) are to come from the cost-effective consumption of medicines and making treatment more appropriate in order to reduce the use of unnecessary interventions.

  • Savings of EUR1.5bn (USD2.1bn) are to come from organising patient pathways better by strengthening primary care, developing outpatient surgery, making it easier for patients to return home after hospitalisation and improving follow-up for elderly people who risk losing their independence.

  • Savings of EUR2.0bn (USD2.7bn) will also come from hospitals improving and sharing their purchases and to reduce the excessive use of temporary physicians which are too costly for public hospitals.

LEEM: Voicing Concerns

The LEEM (French Association of Pharmaceutical Companies) has voiced concerns regarding the government's focus reducing expenditure on medicines, stating that the measures pose a direct threat to the pharmaceutical industry workforce of 100,000 people. The association also stated that drug expenditure only accounts for 15% of healthcare expenditure; however, the pharmaceutical industry has borne the brunt of the government's cost saving efforts.

National health insurance data published by the LEEM reveals that between 2005 and 2013, cost containment policies implemented in the healthcare sector resulted in the greatest savings being achieved in pharmaceutical spending (EUR1.14bn, USD1.52bn) on average annually compared to other areas of insurance expenditure - hospitals and clinics (EUR422mn, USD562mn), clinical laboratories (EUR97mn, USD129mn), medical devices (EUR60mn, USD80mn), healthcare transport facilities (EUR56mn, USD74mn) and physiotherapy (EUR25mn, USD33mn).

The domestic pharmaceutical industry in France is well developed and many companies are focused on the development of novel drugs. Sanofi, Ipsen and Servier are the leading French-based drugmakers and France also boasts a large number of smaller biotechnology firms that account for a smaller market share. We believe that while measures targeting the pharmaceutical industry have not been as harsh as they could be in order to protect the local industry, the data highlights the challenging situation facing drugmakers in France and the rest of the region and the relative ease with which governments can target the pharmaceutical sector, rather than pursuing less politically-friendly cuts such as reducing hospital beds.

Europe is renowned for having heavily government-financed pharmaceutical spending compared with many emerging markets and the dire fiscal situations faced by governments in the region and the urgent need to contain costs have led to the implementation of a series of complex cost-containment measures by administrations across Western Europe, including price cuts and freezes on medicines, realignment of reference systems or alterations to medicine reimbursement systems, forcing patients to increase out-of-pocket payments.

[1] Industry Trend Analysis - A Strong Focus On Drug Prices - France - Pharmaceuticals & Healthcare - 14 Nov 2013.

Read the full article

This article is tagged to:
Related sectors of this article: Pharmaceuticals & Healthcare
Geography: France
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.