Industry Trend Analysis - Healthcare Reforms To Drive Pharmaceutical Spending Growth - NOV 2017

BMI View: Increasing disease burdens and rising demand for higher quality treatments will place increasing pressures on healthcare systems across the CEE region, posing downside risks to multinational drugmaker opportunities. Many governments will seek to implement reforms to increase spending efficiency or to enable greater access to treatments and the success of which will be a major factor in determining the outlook for medicine sales.

The rising demand for healthcare services as populations age and chronic diseases become more prevalent has placed increasing pressures on healthcare payers to provide adequate levels of care. As such, we have noted a marked increase in healthcare reform proposals by governments across the Central and Eastern Europe (CEE) region to improve the performance of underperforming or outdated healthcare systems. Here we review the reform progress of markets across the region, highlighting the various outperformers and underperformers.

Move Away From Soviet System To Boost Access

The Commonwealth of Independent States (CIS) countries are seeking to exit from the shadow of the Soviet Semashko system, as the highly centralised nature of the system provides inadequate healthcare infrastructure for smaller countries, both in terms of patient access and spending efficiency. The vast majority of these countries have sought to - or plan to - implement a form of a mandatory health insurance system, which is administratively simple to run and enables affordable universal access to basic health services.

At present, healthcare infrastructure and therefore access is concentrated in large cities and towns in these countries. With low levels of urbanisation, drugmakers face considerable headwinds to realise the potential of these markets. In general, we view these reform initiatives as positive for drugmakers given the gains provided by increased access to treatment. Kazakhstan is a prime example of this; it is planning to roll-out its mandatory social health insurance (OSMS) fund at the start of 2018 which will result in an uptick in sales growth and regional outperformance over our five-year (2016-2021) forecast period ( see ' Upside Risks To Medicine Growth Outlook Prominent ' , July 13).

Kazakhstan: A Regional Outperformer
CEE Markets: 2016-2021 Medicine Sales CAGR (loccur)
Source: BMI

Reforms Not Guaranteed To Succeed

We note that these reforms proposals often face unforeseen challenges which may pose downside risk to drugmaker opportunities. For example, Georgia introduced its Universal Healthcare Program in 2013 to provide state-funded basic healthcare to those unable to afford private insurance. While this led to a rapid increase in citizens gaining access to healthcare services, government funds quickly came under pressure, leading to cut-backs in state coverage ( see Universal Healthcare Programme To Experience Funding Issues ' , December 2 2016). In addition, Ukraine's government outlined in 2016 that it planned to implement a national health insurance system given wide-ranging issues facing the sector ( see ' Healthcare Reforms To Drive Long-Term Outlook ' , December 21 2016). However, despite the Cabinet of Ministers approving the package of healthcare reform bills in April 2017, it remains unclear whether the bills will be passed by parliament ( see ' Vital Health Reform Progress Uncertain ' , August 2).

Reform Progress Slower In More Developed Markets

While the CIS markets have been proactive with respect to healthcare reforms, chiefly due to assistance from international organisations such as the WHO and the urgent need given the current basic level of healthcare provision, markets in Central Europe also face considerable challenges. Rapidly ageing populations will lead to a rise in chronic diseases and smaller employee contributions to health systems, leading to ever greater pressures on healthcare financing. A number of markets in this region are already facing considerable pressures due to these dynamics, including Hungary ( see ' Healthcare Financing Issues To Restrict Innovative Medicine Access ' , August 31) and Slovakia ( see ' Healthcare Funding To Remain A Prominent Issue ' , December 15 2016).

These markets have far more advanced healthcare systems and as such require additional funding and reductions to the levels of bureaucracy to improve the efficacy of spending. As such very few of these markets will seek to overhaul their healthcare systems entirely, but move to make gradual improvements. One notable exception is Poland, which is planning to switch from an insurance-based system to a tax-funded system due to the overwhelming dissatisfaction with the National Health Fund (NFZ), which has led to high co-payments and restricted access to treatment. This will boost the access to healthcare services and medicines, providing significant opportunities for drugmakers ( see ' Drug Sales Outperformance Driven By Health Reforms ' , September 20). By contrast, Greece's healthcare system is in dire need of reform as it continues to suffer from the impact of the global financial crisis in 2009; indeed its healthcare expenditure has been in decline every year since 2009. However, the government has instead sought to impose severe restrictions on funding and placing increasingly aggressive clawback taxes onto pharmaceutical firms ( see ' No End In Sight For Ailing Healthcare System ' , January 27).

Health Reforms Drive Growth Outlook
Selected CEE Markets: 2016-2021 Medicine Sales CAGR (loccur)
Source: BMI