As austerity measures across Europe lead to healthcare spending cuts, hospitals in Portugal, Italy, Greece and Spain are delaying paying for drugs by up to three years.
Swiss pharmaceutical giants Roche and Novartis are examining whether to limit supplies to some of the worst culprits.
While European finance ministers shuttle between crisis meetings, the consequences of the debt problems continue to extend across the eurozone.
“The on-going financial crisis and its resultant drag on economic growth continues to impact the debt burden of many economies, most notably in Europe, where Greece is facing possible default of its sovereign debt obligations, and countries such as Spain and Italy have had their sovereign debt obligations downgraded,” said Novartis spokeswoman Isabel Guerra.
The debt crisis has also given rise to concerns that some countries may not be able to pay for Novartis’ products, she added.
Portugal, Italy, Ireland, Greece and Spain – the so-called PIIGS nations which face similar economic challenges – have agreed with Brussels to implement draconian austerity programmes to lower public debt, requiring the elimination of all non-essential expenditure.
“If you have cutbacks in the public sector, one way to save is not to pay or to delay payment of your bills,” Peter Zweifel, an economics professor at Zurich University who specialises in health matters, told swissinfo.ch.
“But if you do that in the medical field, there will be a political backlash. It is assumed that international pharma companies have deep pockets.”
This view is shared by Ignazio Cassis, vice-president of the Swiss Medical Association, and a centre-right Radical parliamentarian.
“For the past two or three years the situation has become more dramatic as the debt levels of some countries have become unsustainable. A number of public hospitals and state insurance schemes are close to bankruptcy. But before being unable to pay staff salaries they stop paying suppliers,” he explained.
According to the European Federation of Pharmaceutical Industries and Associations (EFPIA), European states owe €12-15 billion (SFr14.4-18 billion) to the pharma industry, which includes groups like Roche and Novartis.
“On December 31, 2011, the group’s combined trade accounts receivable with public customers in southern Europe [Spain, Italy, Greece and Portugal] was equivalent to SFr2.1 billion,” Roche spokeswoman Claudia Schmitt told swissinfo.ch.
The number of unpaid bills from Spain, Portugal and Italy increased last year, while those from Greece fell as a result of ‘zero coupon bonds’ issued by Athens, she explained.
Novartis declined to give any figures.
Farmaindustria, the Spanish Pharmaceutical Industry Association, said that the Spanish health system last December owed €6.3 billion to pharma companies – up 36 per cent on 2010.
On average late bills were paid after 525 days, rising to 800 days for certain autonomous regions.
“In Spain, there are several hospitals that have not paid their bills for up to three years. Roche is evaluating a change to its commercial policy for the worst paying hospitals. This would mean to set a credit limit per hospital and drugs would only be delivered if the credit limit were not exceeded,” said Schmitt.
In 2011 Roche reduced the supply of certain medicines to Greek hospitals.
Novartis is also examining whether to make changes, said Guerra.
“Deteriorating credit and economic conditions and other factors in these countries have resulted in, and may continue to result in an increase in the average length of time that it takes to collect these accounts receivable and may require us to re-evaluate the collectability of these receivables in future periods.”
For now the company is focusing on the issue of cash payments, she said. It is also developing contingency plans and schemes like factoring and insurance policies to facilitate payments.
The decision whether to reduce supplies remains a sensitive one.
“Pharma companies are private. In a liberal, democratic society respect for private property is a fundamental value,” said Cassis, who believes private firms are the only ones able to weigh the pros and cons of stopping the supply of certain medicines.
“A firm must maintain a good image for its customers and for the public to ensure it has a market when the crisis is over. It’s therefore in its interest to put in place ad hoc strategies like reducing drug prices temporarily,” said the Swiss Medical Association vice-president.
“But the real problem will be if the crisis drags on. Without profit there is no innovation, and without that no future.”
Zweifel agreed, but felt companies had little room for manoeuvre as “governments can kick you out of the market, and you can be accused of endangering the health of millions of citizens”.
An international pharmaceutical lobby group representing Roche, Novartis, Pfizer, AstraZeneca and other firms is currently negotiating with the Spanish government to try to get it to issue government bonds.
The aim is to for the pharma industry to recover up to €5.8 billion in unpaid bills from the state hospital system.
Last summer the Athens government launched a scheme to pay outstanding pharmaceutical bills with zero coupon bonds, which are bought at a price lower than their face value.end of infobox
Western European nations spend 8-12% of GDP on healthcare, which has remained stable despite the crisis, according to the Organization for Economic Cooperation and Development.
But the pharmaceutical sector is suffering because cutting prices for drugs is an easier way to reduce spending compared with cutting money for hospitals or restructuring health care systems.
According to Business Monitor International, a company in London that follows the pharmaceutical industry, in 2011 pharmaceutical sales to pharmacies and hospitals declined 2.2% in France, 3.1% in Italy and nearly 9% in Spain.end of infobox