BMI View : Pharmacy owners in Hungary have largely avoided the drastic cuts to expenditure that the pharmaceutical sector has faced. In order to prevent consolidation within pharmacies, the government has mandated that pharmacists take on equity in their businesses. There are very few options for pharmacies to expand their business in the Hungarian market, and we believe the retail pharmacy market will continue to be subdued in the medium term until public and private drug expenditure returns to growth.
Representatives of pharmacists' associations discussed the current situation facing the pharmacy sector in Hungary at a roundtable meeting by the GKI Health Research Institute. According to a survey of the institutions, pharmacies have had to cut back their margins on reimbursed drugs by almost 70-80%, since the implementation of the Széll Kálmán Plan. In 2012, pharmacy revenues tumbled by HUF5.1bn (US$22.7mn) to support the government's discounts and due to the imposition of strict margin limits on pharmacies.
However, in 2013, the implementation of even harsher margin limits on reimbursed drugs, mandated discounts and blind bidding auctions threatens to erode revenues even further for beleaguered pharmacies. Pharmacists expect earnings to fall by HUF8.5bn (US$37.8mn) in 2013; while these drops may seem large, we note that the pharmacy sector has been relatively shielded from the harsher measures being imposed on the whole pharmaceutical sector.
The pharmacists' associations also stated that generic substitution, liberalisation of the pharmacy sector and blind bidding auctions had negatively impacted the trade amongst members, despite reforms pushing through longer opening hours and price competition. The sole beneficiary, according to the trade associations, is the National Health Insurance Fund, who has benefitted both from increasing patient co-payments towards the cost of prescriptions and the lowering of retail prices of reimbursed medicines.
In 2014, new rules will come into effect forcing pharmacists to own up to 25% equity in the pharmacies they operate. This has turned to be a bit of headache for pharmacists as they are unable to access credit from Hungary's banks without punishing interest rates. Although the government has come out and offered cheap loans to pharmacists, the reality is that many pharmacists do not want to own the pharmacies they work in as a result of the restrictive business environment for the pharmacy sector, the thin margins they operate on and the need to raise external financing. Combined with the fact that a return on investment cannot be guaranteed for the risk taken on, it is not difficult to see why many pharmacists are weary of the forced ownership.
|Shifting Burden Onto Consumers|
Needless to say, Hungarian pharmacies will likely face further shielding from the impact of drastic cuts to pharmaceutical expenditure as the burden of drug consumption is shifted onto consumer and drug manufacturers. This safety will come at the expense of fixed margins, limiting their growth opportunities from reimbursed drugs. The focus for profit-taking will therefore shift onto over-the-counter medicines, non-reimbursed prescription medicines and securing wholesale discounts from suppliers. Sales of these medicines are closely tied to levels of private consumption. Our Country Risk analysts expect private consumption to face another year of decline in 2013 and real wages to decline. Therefore, 2013 will continue to be a challenging year for pharmacies. While the forced ownership rule will make it very difficult for a large chain to consolidate within the pharmacy market, blocks of independent stores may form limited partnerships to acquire economies of scale.