Portugal: Riding the Wave of Economic Reform

Apr 01, 2007

Ask any senior executive to outline the Portuguese pharmaceutical industry's current set of rules, and you'll hear a tale of disorientation, even overwhelming confusion. The government represents around two-thirds of total pharmaceutical sales in the country - to the tune of 2.8 billion (US$3.7 billion) - accounting for more than 2% of Portugal's gross domestic product. And although the pharmaceutical industry doesn't seem to overlook its role in assisting its biggest client in a critical moment of health budget constraints, it is certainly not happy about the way things have turned out. "The situation in Portugal is not unique; it is normal that governments with budget constraints seek to restructure the health system. Portugal has been relatively calm for several years, and now the government is trying to do everything in a couple of years," says J. Miguel Noriega, general manager of Organon Portuguesa, a company under the Akzo Nobel organization that is well known for contributing to the initial steps toward family planning in Portugal 35 years ago.

Emerging from the Dark

Having taken office in 2005, the current Socialist "center left" government is facing a daunting array of issues and spending all of its political capital on promoting the country's long-delayed economic reforms. To begin with, by 2005, Portugal was facing a 6.1% budget deficit increase in terms of its GDP, far beyond the 3% recommended by the European Union's Stability and Growth Pact. As a result, the Portuguese government has agreed to embark on an aggressive three-year budget deficit-reduction program that includes a range of severe measures. As the drama unfolds, the rising healthcare costs are being identified as a natural target of the state cost-containment initiatives.

Naval combat Off the coasts of Lisbon, by Theodore de Bry
The financial recovery, combined with the job of increasing the population's access to medication, is under the strict hand of the Portuguese Minister of Health, Antonio Correia de Campos. "It is not easy. There is a lot of pressure from pharmaceutical companies, pharmacies, diagnostic tests, efforts in hospital management, extra time for doctors and nurses and so on, but I am very optimistic," says the minister, who is returning to the job five years after his first assignment as Minister of Health. "The 2007 budget for the health sector can only be controlled under certain conditions. One of them is the reduction of pharmaceutical prices by 6%; another one is the reduction of co-payments by the national health system on different levels, depending on the classes of reimbursement," he adds.

The first set of price cuts, introduced in September 2005, targeted all prescription medicines. "Price reduction has been fair in comparison with other European countries. France has decreased prices by 20%, and Spain by 12%; it is always a very difficult situation for the industry, but both sides are trying to be reasonable," continues Correia de Campos, justifying the country's second price reduction of 6% on pharmaceutical products. This price reduction, enforced in February of 2007, is a burden also shared by the pharmaceutical distributors for the first time. The efforts don't stop there; the Ministry of Health has decided to collect a daily fee of US$6 per intern patient and US$13 for each ambulatory surgery and has frozen its investments in diagnostic tests. By reducing pharmaceutical purchases in hospitals by 6% in 2006, followed by another 6% in 2007, the government expects to save up to US$65 million. This is in addition to efforts to reorganize the health system's workforce, such as cracking down on extra hours worked by doctors and nurses, which should save the country about US$26 million.

On top of that, the country's remarkable efforts to introduce generic drugs - which achieved a 16% market share in a four-year period - are now expected to be transferred to the non-prescription segment, as Portugal authorizes the sale of over-the-counter drugs in non-pharmacy outlets. The move should boost the OTC market share by 4% or 5% in the next couple of years and increase the sales of medication outside the government's reimbursement scheme.

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