By Faiz Kermani
Healthcare can be an emotionally charged subject. Therefore, it comes as little surprise that most governments around the world struggle to implement a healthcare policy that is acceptable to all.
A growing component of healthcare expenditure is spending on pharmaceuticals, and this feature of medical care has received considerable attention.
Providing healthcare is expensive and requires ongoing investment. Governments have become alarmed at how much they must spend as their populations grow, and as demand for the newest medicines increases.
Furthermore, the rising elderly population and falling birth rates place a great strain on funding for public healthcare. As the elderly population grows, the number of potential workers whose tax contributions can help support their care will decline1.
The Organization for Economic Co-operation and Development (OECD), has warned that many countries are underestimating the future impact that such factors will have on healthcare spending. In a 2001 study OECD revealed that the over-65 age group accounted for 40-50% of healthcare spending and that their per-capita healthcare costs were three to five times higher than those under 652.
In some countries, economic problems have shifted some costs to patients. However, some patients may not be able to afford such treatments. As these patients delay seeking help, their healthcare status will worsen.
The richest, industrialized countries are not the only ones affected by such trends. Many developing countries are attempting to increase access to healthcare and their citizens have high expectations3. Regardless of the healthcare policies these governments implement, they will face problems of addressing social inequalities if their capacity for spending is outpaced by the demand from population growth and ageing3. These countries are already trying to reverse decades of underinvestment in healthcare. Shifting costs to patients will be deeply unpopular.
Most patients want lower prices for their medicines, but the issue of affordability does not exist in isolation.
The pharmaceutical industry that produces medicines is a commercial entity and requires profits to drive future research and development (R&D). The pharmaceutical industry is also an important contributor to most national economies, and it is thus in a government’s interest to provide the industry with incentives to remain in that country4. If government’s decision over healthcare allocation is driven purely by expenses, many of the exciting and novel healthcare treatments currently in development may not reach the patients that need them.
From an industry standpoint, the risks to innovate outweighs what little incentive remains. Developing a new drug takes 10 to 12 years and there is no guarantee of commercial success. For every tale of a “blockbuster” there are numerous examples of companies that failed with their products.
According to Tufts University’s Center for the Study of Drug Development, a new prescription medicine costs an average of US$802 million and takes up to 15 years to gain FDA approval. A Blockbuster Drug is a pharma industry term used to describe a product that has generated over US$1 billion in sales.
Striking a balance
So far, no government has found a policy solution that provides sufficient incentives for companies to balance R&D innovation with affordable medicines for patients. In fact, the variations between different countries in how they approach healthcare has often made the situation more difficult to resolve.
In the United States, pharmaceutical companies are relatively free in how they may price drugs. This has led to increasing complaints from patients about affordability. Yet the US market is a key market for companies to launch innovative new medicines. During the 2004 US election, the affordability of healthcare was seen as a key issue amongst voters1.
In Europe, many governments have introduced cost containment policies to drive down healthcare spending. This has resulted in companies steadily shifting their R&D investment out of the region and towards the US and emerging countries4. According to figures from the European Federation of Pharmaceutical Industry Associations (EFPIA), in 1990, pharmaceutical R&D investment in the US represented less than 70% of that in Europe, but by 2001 R&D investment in the US had overtaken that in Europe5. The lack of incentives for pharmaceutical companies has persuaded them to look elsewhere when making new investments4. A number of European governments are now trying to reassure companies with policies to promote pharmaceutical innovation4.
Interestingly, European cost containment policies often fail to satisfy patients as they focus too narrowly on overall healthcare costs.
In the United Kingdom, there has been considerable public anger over the phenomenon of “postcode prescribing” where patients in one area of the country are denied access to drugs that are available to those living in other regions. In 2001, a survey of British doctors revealed that many were unable to prescribe the drugs they wanted for patients with rheumatoid arthritis due to healthcare funding issues6.
In France, patients have resisted attempts by the French government to change the nature of their healthcare system in an effort to control spiraling costs. In 2000, the French healthcare system was declared to be the best in the world in the World Health Organization’s Ranking of Healthcare Systems. The public is deeply concerned that proposed government measures would impact on the quality of healthcare available to them1.
The situation is similarly complex in emerging markets.
For example, many governments in Latin America believe that the current prices charged by the pharmaceutical industry for their medicines act as a barrier in widening healthcare access to the poor. The Brazilian government has been at the forefront of such approaches. It has taken a strong line with pharmaceutical companies that it believes are intransigent in their pricing and has even threatened to strip the patents of their products and have them manufactured locally.
Although this has made medicines more affordable, investment in Brazil became less attractive to the international pharmaceutical industry. Mexico has recently surpassed Brazil as the main Latin American pharmaceutical market and is drawing increasing investment from foreign pharmaceutical companies3. Brazil is still recovering from its economic problems of 2002 and foreign investment is desirable.
OECD has outlined that investing in and encouraging innovation should be as desirable as is ensuring the affordability, quality and sustainability of healthcare systems6. It is encouraging discussion between healthcare representatives from its member countries to deliver greater convergence between healthcare priorities and the direction of healthcare innovation. Linking the two goals in a more defined and public manner within government healthcare strategy is the challenge that faces future healthcare policymakers.
- Kermani F. (2005). Ageing And Healthcare Demand. Contract Services Europe. June 2005.
- Hoxley H. and Jacobzone S. (2001). Healthcare expenditure : a future in question. OECD Observer. December 2001. Organisation for Economic Co-operation and Development (OECD). http://www.oecdobserver.org/
- Kermani F. (2005). Mexicoâ€™s Pharmaceutical Potential. Chiltern International.
- Kermani F. (2004). Pharma R&D in Europe: Past, Present and Future. Chiltern International.
- Anon (2002). The Pharmaceutical Industry in Figures. European Federation of Pharmaceutical Industry Associations (EFPIA). http://www.efpia.org
- Anon (2001). Arthritis postcode prescribing revealed. BBC News.
- Anon (2005). Biotechnology, Innovation And Health (PDF). OECD Health Update. July 2005.