Filenews 8 January 2023
By Nikos Kapsalis*
The public debate in Greece at this time revolves around the problem of shortages that occur daily in a multitude of pharmaceutical preparations, resulting in patients having difficulty finding medicines, especially at a time of exacerbation of seasonal infections. For Greece, this is not something new, as the policy on medicine, especially after the implementation of the memorandum requirements, favours the phenomenon, even in formulations related to chronic diseases, as many of them are in permanent shortage.
Could what is happening in Greece affect Cyprus? Can any decisions taken by the Greek government have an impact on Europe in general? This concern stems from the main cause of these shortages, parallel trade within the EU. Parallel Trade or Parallel Exports is defined as the cross-border sale of goods within the EU, by traders outside the manufacturer's distribution system and without the manufacturer's consent.
The commercial logic behind parallel trade is to be able to buy goods in one EU Member State at a relatively low price and then resell them in another Member State, where the price is higher. In the case of medicinal products, this is encouraged by the significant variations in the prices of medicines between EU Member States. The Commission considers that parallel exports increase price competition, as importing goods from a lower-priced country forces sellers in the destination country to lower prices - this is the fundamental principle on which the single market is based - and this in turn has a positive impact on consumers. But in the case of the drug, things are more complicated.
The pricing of the drug
Throughout Europe the drug is priced. This means that its price is not formed by the laws of the market but is clearly defined by law. Both wholesale and retail prices are usually predetermined and arise everywhere in a specific way, which of course varies from country to country. There are cases where some countries act as reference countries for others, in terms of the price that each preparation will receive there, with the result that several drugs will never be marketed in them, so as not to affect the price in larger, more attractive markets.
Cyprus, before the era of GHS, could be such an example, as, at that time, a large part of the needs were covered after tenders announced by the Ministry of Health, depending on the needs. If the prices it achieved were made public - since they were probably lower than the corresponding wholesale price in many European countries - they could drag down prices, e.g. in Greece, resulting in the pharmaceutical company losing huge revenues overnight due to this reduction. The differences in price from country to country, therefore, gives room for the emergence of parallel trade in medicines as well.
In Greece, prices are determined by the average of the three lowest prices of European countries. This means that among the countries of Europe, Greece in each formulation is more expensive at most than two others. This price results in an additional reduction for those drugs whose patent has expired and generics are marketed, which are priced at 65% of the value of the original. Under the same pricing policy, each time a new price bulletin is issued, the price of a medicine cannot fall by more than 10%, even if the average of the three lowest countries resulted in a greater reduction. This pricing policy applies to the vast majority of medicines, even those that are not prescribed.
One would expect this to translate into lower private spending on patients, but that is not the case. Data from the Foundation for Economic and Industrial Research (IOBE), as of 2020, show that private pharmaceutical expenditure, i.e. the money spent directly by the citizen on medicines, is €1.8 billion per year. Around half of expenditure on medicines comes from direct private payments, which account for the largest share of expenditure on direct private payments by a household, at 13% compared to 5.5% in the EU, or 58% higher than the European average.
In a corresponding analysis by the OECD, the ratio of public / private expenditure per capita in the EU for 2019 was €310 / €132 while in Greece €198 /€ 170. Similar data for Cyprus would not be reliable at the moment, as the market is still at its inception and no firm conclusions could be drawn.
Pharmaceutical wholesalers
Parallel trade in medicines leads to shortages in cheap countries. With the exception of Hospital Medicines, the distribution of medicines from companies to pharmacies is done through pharmaceutical warehouses. A pharmaceutical wholesaler cooperates with all pharmaceutical companies, acting as a transit centre in this distribution chain. Pharmaceutical wholesalers are private companies and often pharmacy cooperatives, with these pharmacies being at the same time their customers and shareholders. Within this distribution chain, parallel exports are mainly carried out.
The people affected by parallel trade seem to be the pharmaceutical companies, as it is obvious that they have significant lost profits from sales that they lose in more expensive countries, as their extra profit from the price difference is lost in parallel exports.
In order to limit these lost profits, they have proceeded to check the quantities they place on the market, based on sales data from previous years. At the European level, this seems to have started in 2000, when Bayer applied it to France and Spain for a strategic, at that time, antihypertensive formulation exported to Great Britain, where its price was higher. Now, all pharmaceutical companies manage in a similar way the quantities they distribute in countries where the price is significantly lower, balancing dangerously within the limits of legality, both at national and European level.
The price domino effect, Greece and the risk for Cyprus
In this interdependent environment, the recent announcement by the Greek Minister of Health that he intends to increase the prices of some medicines to address the shortages in pharmacies, should be of concern to the whole of Europe, even Cyprus. Such a development will certainly drag up prices in some EU countries that have Greece as an indicator for their own prices.
One of these countries is Cyprus, where Greece is in the "basket" of cheap countries - along with France and Portugal. According to the current situation, the lowest price from the group of cheap countries is taken into account, among other things, for the formation of the final price. As a result, some preparations that are currently cheaper in Greece than France and Portugal, and therefore this price is taken into account, will increase, with the result that either the new increased price of Greece or the price of another country, which will now be cheaper to form the final price in Cyprus, will be taken into account. In any case, this will lead to an increase in price. Sounds confusing? It can become even more complicated if we look for the effect of the revaluation in Greece on other countries that are taken into account in Cyprus, such as Belgium, Austria or Italy. The only thing that is certain is that this political decision can only lead to an increase in prices. An increase that may vary in percentage on a case-by-case basis.
The butterfly effect and the market
Devotees of chaos theory, in an attempt to show the sensitivity of a dynamical system from the initial conditions, spoke of the butterfly effect: "If a butterfly moves its wings in the Amazon, it can bring rain to China."
It is, of course, a schematic way of formulating the human impossibility of calculating the effect of an infinitesimal change in the flow of events, which leads, after a sufficient period of time, to a different development from that which would have taken place had it not occurred. The case of the forthcoming domino effect on drug prices, at a Pan-European level, as a result of a ministerial decision that is to be taken because of the refusal of those responsible to understand the real cause of the problem of drug shortages, that is, the uncontrolled prevalence of the harsh laws of the market, as defined by the EU, is a clear determinism. A determinism clearly defined by the laws of the Market.
* Phileleftheros Associate
