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OPINION
ROS KAZAKOV
A flagship reform
Bulgaria changed radically to meet EU calls, but low funding blights its healthcare
N
obel Prize winner George Akerlof
wrote in his 1971 article, The market
for lemons (an exploration of the imperfect
information in America's used car market),
that buyers and sellers commonly possess
different, not identical, information.
It is widely acknowledged today that
the economics of asymmetric information
affect almost every market, proving that
market equilibrium does not exist.
This, unsurprisingly, is completely true
of the healthcare market, resulting in the
increased corrective role of government
regulation, the most commonly known
adverse Selection Phenomena (ASP) of
health insurance market failures, as well
as the agency relationship phenomena of
the supplier-induced demand for health/
therapy services.
One might assume that the used car,
'lemon', market differs substantially from
the pharmaceutical market, but the truth
is that, in both cases, buyers and sellers
have unequal levels of information.
In pharmaceuticals, apart from the
buyer and the seller, the decision to
buy is influenced by a third party, the
licensed medical consultant who makes
decisions on behalf of the health service
consumer. Each of the three parties acts
on information unequal in both volume
and value, while the real purchaser and
user of the product and the service the patient - is in the least favourable
position, blighted by a lack of scientific
knowledge and sufficient awareness of
available drug substitution alternatives.
The supplier-induced demand is a causeand result-driven exercise where doctors
prescribe, and pharmacists dispense drugs
to patients influenced by medical reps'
detailing and by their own business interests. This often results in prescribing and
dispensing malpractice, which leads to
the adverse selection phenomena and the
'spending more for less' formula by public
budget holders.
FREER WAYS
Such failures are often a big problem in a
country in transition like Bulgaria, where
there is extremely high demand from
the public for effective cost-containment
policies for pharmaceutical products,
reflecting the low purchasing power of an
ageing and ailing population, which must
rely exclusively on a highly restricted state
budget for either whole, or partial, reimbursement of any treatments.
Change is another phenomenon which
has affected the socio-political character
of Bulgarian society deeply. Since the
fall of the Berlin wall in 1989, Bulgaria
has undergone major political changes
and social and economic disruptions that
continue in the lead up to EU accession,
pending until 2007. The transition from
communism to democracy, from planned
economy to market economy, and from
a propagandistic way of thinking to such,
based on entrepreneurship has also
had an impact on the development of
the local pharma industry, which formerly
depended exclusively on the regional
decisions of the Soviet-run Union for
Economic Co-operation.
Nevertheless, Bulgaria's pharmaceutical
industry has made enormous steps since
the decentralization and privatization
processes started in the late 1990s. The
former state-owned production and export
co-operative with the legendary trade
mark, "Pharmachim", sold its drug
factories
OPINION
to prominent local and foreign investors.
Two of these are competing for local
market leadership - the 72-year-old
flourishing domestic company, Sopharma,
and the Icelandic firm, Actavis (formerly
Pharmaco), which started its ascent to a
.top-five global generic company position
by buying three of the most prolific
drug factories in Bulgaria. A number of
Pharmachim satellites succeeded in
keeping and developing their production
facilities, and most are now members of
the Association of the Bulgarian
Pharmaceutical Manufacturers (ABPhM),
having formed a new sector landscape and
given jobs to more than 10,000 direct
employees, plus an approximate further
80,000 engaged in related industries. The
biggest tax payers and investors in the
economy come from the local pharma
industry. Yet, there is a major problem with
the national health policy: a lack of
sufficient budgetary resources. To find an
effective way to provide essential treatment
for all patients in need within such a
constrained public budget of, on average,
only 4.2 per cent of GDP since 1999,
would challenge any government brave
enough to try! With a GDP of €19.5bn for a
nation of 7.8 million people, with more
than 100,000 immigrating each year, a
negative birth ratio, the lowest life
expectancy in the EU, and only €100 for
healthcare expenses per capita per year,
the national healthcare policy has become
the major reason for public discontent and
political criticism and could easily see
ministers lose their jobs and governments
subsequently lose their majority support.
HARMONISATION
Healthcare reform started immediately
after the fall of the Iron Curtain in 1989
and was characterized by high levels of
I information asymmetries, one National
Health Insurance Fund, and a number of
interrelated "lacks", which include:
 Lack of rational- and resultoriented healthcare policy
 Lack of efficient health insurance
system for optimized budget
administration
 Lack of sufficient regulatory
agency capacity
 Lack of sufficient budget
resources for healthcare
 Lack of a single national health
insurance information system F
Lack of hospital privatization
process

Lack of incentives for
development of a
 private health insurance funds
market
 ... and, a lack of Health
Management Organizations to
act as cost-containment advisory
bodies to patients.
On adoption of the Human Medicines
and Pharmacies Act in 1995, and its
Phirmaceutical M a r k e t i ng Eu r o p e
Summer 2006
amendment in 2003, Bulgaria managed
to gradually phase in all relevant EU
pharma directives and regulations, most
of them well ahead of other accession
countries, without any transition periods
for the local industry.
This contrasted with what were seen
as the less smooth' examples of Poland
and Hungary, which negotiated extended
transition periods for updating old drug
dossiers up to 2008 and asked for up to
15 years of transition for implementation
of the new 10 + 1 years data exclusivity
rule of Directive 2004/83/EC.
The big issue now is the draft for the final
review of the national Pharma Law, which
is currently shuffling across the corridors
of the Council of Ministers, waiting to be
kicked off like a ball towards the penalty
area of the health commission (which
is quite appropriate seeing as the 2006
World Cup has just begun).
'There is a lot to be
done - let's hope it is
done for the sake of
patients, and not for the
sake of sheer politics"
However, it is worth mentioning some
of the key changes drafted in the final
project for the amendment of the current
legislation, which we believe could bring
all stakeholders closer to the practice of
rational thinking.
These include (mentioning only a few):
updating the reimbursement list at least
twice a year, instead of just once as it is now,
merging the Positive and Reimbursement
Lists into a single formulary for subsidized
drugs, implementing a cost-containment
system based on a pharmacoeconomic
evaluation, granting newly registered drugs
timely access to market, the application for
price registration and inclusion in positive
and reimbursement drug lists processed
in one go, the discontinuation of patent
linkage, as well as a rigorous promotion
of generic medicines through legislative
and other incentives.
If the government wants to find and
apply the right reform formula for the
healthcare system, it should definitely
consider radically improving healthcare
budget models (and including doctors and
pharmacists in the process), implementing
a single national health insurance information system, which will cope with the ASP
and ensure a quick and effective hospital
privatization process, and developing the
private health insurance funds market.
Last, but not least, the government
needs to implement generic prescribing
by the doctors, generic substitution by
the pharmacists and educate its medical
and pharmacy students in generic, rather
than brand, names. The state should
also allow room for the development of
health management organizations.
MARKET CHANGES
In the last six years, Bulgaria's pharma
market has seen increased competition
from foreign multi-national and generic
entrants. They have achieved a 75 per
cent total value share of the €400m 2005
EX-MNF market (40 per cent in volume),
a decreased consumption of local generic
brands equal to 25 per cent in value (60
per cent in volume), and a drugs budget
deficit of €200m out of the allocated 2.2
per cent of GDP, the latter not being a
precedent at all.
Overall, drug consumption has grown
more than threefold since 1999; retail sale
figures for 2005 are around €600m.
Local manufacturers have tried to balance
performance between market strategy
and the socio-political change. They have
improved their operations management
by building new production facilities, and
maintaining GMP and other quality assurance standards, amounting to more than
€150m in investment. They have also cut
costs by raising the standards of professional expertise and strengthening their
financial management results.
Consolidation has resulted in market
synergy through backward and forward
integration and strategic partnerships on
a local and international scale (Sopharma
business model), and the geographical
expansion- and pipeline development
through MBtA for rapid inorganic growth,
and outsourcing R&D and production
(Actavis business model).
Life cycle management diversified the
generic portfolios through many new
examples on the market, in-licensing
agreements and OTC switches. Every year,
local producers tend to register between
20 and 30 new generics on the market.
So, what can we say as a conclusion to
the above brief expose? All's well that ends
well? Bulgaria will become an EU member
and so will its pharma industry, but what
will the government say to patients who
still will not be able to provide for their
treatment due to the budget deficit and
healthcare system failures?
There is much more work to be done
but let's hope it will be done for the sake
of the patients and not just for the sake of
sheer politics.
THE AUTHOR
Ros Kazakov is an executive director of the
Association • of Bulgarian Pharmaceutical
Manufacturers (ABPhM)