Why billion-euro debts mean disaster for Spanish healthcare

Regional governments have run up huge bills with pharmaceutical companies These firms are nowsaying that enough is enough Spending cuts could see an end to the high standards of care in the sector


Spain's hospitals are reportedly in debt to the pharmaceutical companies that supply them with drugs and medical devices to the tune of 12 billion euros. Last week Sagrario Pérez Castellanos, the director general of Basic Services and Pharmacy at the Health Ministry, told reporters that she couldn't confirm the figure, saying that the government didn't have data for hospitals' full costs because regional governments, who are responsible for budgeting their health services, can't - or won't - provide accurate figures.

Farmaindustria, the body that represents Spain's pharmaceutical companies, has a clearer picture of the problem: it says that of the 12 billion euros, "6.4 billion covers medicines, and the rest covers items such as disposable gloves, bandages, syringes, etc." It adds that regional health authorities take between 18 and 26 months to pay their suppliers.

In a bid to reduce its drugs bill, the Health Ministry says that it has already cut subsidies to patients on prescriptions by 11 billion euros a year. But Farmaindustria says that more needs to be done, and paints a stark picture of the challenges facing Spain's national health service. "The current model cannot cover everything. If we want to avoid a collapse, then the budget needs to be increased; if not, then we'll have to establish new criteria for services and who receives them, and on what basis," declares Farmaindustria president Humberto Arnés.

For the moment, the multinational pharmaceutical companies that keep Spain's health services running have not cut supplies, as they have in Greece and Portugal. But the danger is there. In the meantime, the government has announced a 35-billion-euro bailout fund for the regions to keep suppliers paid.

Spain's 17 semiautonomous regions control their healthcare and education budgets. Given that they overspent in 2011, reforms in these two areas are seen as key to improving the country's fiscal position.

Public health spending was 2,336 euros per capita in 2009, below an average of 2,560 per capita in the OECD club of wealthy nations, based on the latest available data.

The Health Ministry has cut subsidies on prescriptions by 11 billion euros a year

Either way, Farmaindustria says that it is fed up negotiating the mounting debt with Spain's regional governments on an individual basis, and wants Madrid to appoint an intermediary, as well as setting out clear guidelines and a timetable for the 12 billion euros to be paid back, with interest, along with guarantees that such a debt will not be allowed to build up again. It also knows that the central government is unlikely to be in a position any time in the foreseeable future to step in again to clear the regions' healthcare debts.

Another sign that the pharmaceutical companies are now playing hardball is that companies such as Bayer, Sanofi, Abbot, as well as other multinationals, are boycotting an auction for suppliers that the regional government of Andalusia has announced, hoping to bring prices down.

So would the multinationals really pull the plug on the health service if they don't get their way? "I don't think so: these players have plenty of cash, and they know that if the health system in this country collapses then they will have lost the goose that lays the golden egg. They will continue to lobby and to make a lot of noise, but they can afford to wait, and they will eventually reach an agreement," says a former senior official in the Health Ministry, who now works in the pharmaceutical industry.

An example of the noise that the sector can make came on February 7, when the Spanish medtech industry association, FENIN, along with Farmaindustria and several European chambers of commerce, published an open letter to the Spanish government warning of the dire economic consequences of Spain's mounting healthcare debt.

Farmaindustria says that it is fed up with negotiating the mounting debt

The thinly veiled threat called the current situation "unsustainable for the pharmaceutical and healthcare technology industries" and responsible for "spoiling the reputation of Spain in international markets." It noted that "economic pressure has prompted some companies to abandon operations or decrease labor forces, which in turn threaten the supply of several products."

The letter described the government's recent statements as "positive" but "insufficient," and called on Rajoy to take measures to more effectively address the debt of Spain's regions and counter the growth of debt across the country.

"The current state of affairs," said the letter, "has created uncertainty and distrust among investors, healthcare companies and the general public. These stakeholders deserve immediate action toward a more sustainable path."

Humberto Arnés says the letter's warning was clear: "A country that cannot pay its debts will find it harder to borrow money on the international markets." He says that Farmaindustria has made its position clear to the Health Ministry, as well as to the health authorities of all 17 regional governments. He says the multinationals are unhappy, for example, that regional health authorities are increasingly opting to save money by buying generic drugs based on their active ingredient, thus bypassing the multinationals' brand names, along with other measures by the previous Socialist Party administration that he says has cost the multinationals five billion euros over the last year, along with five thousand jobs - "That's 10 percent of the sector."

Will multinationals really pull the plug on the sector if they don't get their way?

Spain may only represent two percent of the multinationals' global turnover, but Arnés says that they have "had enough."

"We have reached crisis point. It is hard to maintain investment in Spain; I am having a hard time convincing the board that we should continue investing here," says Marc-Antoine Lucchini, the president and director of Sanofi Iberia.

"Our debt has grown by 56.2 percent in 2010, and then by 41.4 percent in 2011, and by eight percent in the first two months of this year. The head office is telling us that the situation is not sustainable and that we should take every measure we can to get our money back," says Ana Céspedes, the president of Merck Spain. Lucas Urquijo, communications director at Roche, says that his company's priority is to get paid. "We will take measures in response to the replies we get from the regional governments, because this debt cannot be allowed to continue growing. We are owed around one billion euros."

Carlos Gonzalo, of the French Chamber of Commerce in Barcelona, adds: "Until now the big players have not had to cancel any projects, but there are many that are on hold waiting for this situation to be resolved."

"The current state of affairs has created distrust among investors"

The government believes that it can continue to make savings by improving efficiency in the health service, and last week Economy Minister Luis de Guindos mooted the idea of making those on higher salaries contribute toward treatment. According to a law passed last Thursday, the central government can take control of any region deemed to be failing.

A press release on the latest cuts outlined plans for privatization, education and healthcare "reform" and "the elimination of duplication" of large public services. Ana Céspedes of Merck Spain says that the government has three choices: to spend more money on the health system; to reduce the services currently available; or to improve efficiency. So far the government has cut salaries of health staff, and, to the annoyance of the pharmaceutical companies, told the regions to start buying generic drugs rather than brand names.

The next step will most likely be to begin privatizing the management of hospitals, a policy backed by the neocon premier of Madrid, Esperanza Aguirre of the ruling Popular Party.

Science cuts prompt brain drain fears


Spain's scientific community has warned that a 25-percent cut in research and development funding will have dire long-term consequences, delaying the shift toward a knowledge-based economy and greater international competitiveness.

Presenting its draft budget earlier this month, the government announced spending of 6.39 billion euros on scientific investigation, development and innovation in 2012. Of this figure, 5.63 billion euros will be spent on non-military research - that represents a 25.6-percent decrease compared to the 7.58 billion euros allocated in 2011. The remaining 758 million euros will be spent on military research, which will see a 24.9-percent decrease from just above one billion euros in 2011.

Sadly, the cuts come as no surprise to the scientific community. Back in December, the government announced a package of measures that anticipated a 600-million-euro cut in the 2012 research budget. The scientific community has since been lobbying to limit further snips.

Spain slashed spending on research and development by just over one billion euros between the years 2009 and 2011: from 9.662 billion euros to 8.586 billion euros.

The Spanish National Research Council (CSIC), the largest public research institution in Spain, and the third-largest in Europe, will not hire a single scientist this year to work at its 133 centers. Five years ago, in 2007, it hired 250 scientists.

In an open letter to the Spanish government and Congress on March 27 by the Confederation of Spanish Scientific Societies (COSCE), the Conference of Spanish University Chancellors, the grassroots organization Investigación Digna, the Federation of Young Researchers, and major labor unions was backed by more than 40,000 individual signatures. At the time, the estimated cut on the table was 744 million euros, and even then, scientists warned in the letter that it "would cause grave long-term damage to the already weakened Spanish research system, both to its infrastructure and human resources. If Spain does not take urgent action to preserve the scientific workforce of highest quality, the research system will take decades to recover, dragging down the desired shift to a knowledge-based economy," the letter reads.

The letter points out that European economic powerhouses such as Germany and France have boosted their spending research in response to the economic downturn.

"Nations that invest more in science are those that have lower unemployment rates," says Salce Elvira Gómez, the secretary for research and development at Spain's largest trade union, the CCOO.

Last month the union published a major study into the state of scientific research in Spain.

Gómez says that she has noticed the start of a "brain drain," but concrete figures about how many scientists have left Spain or are thinking of doing so are not yet available.

"The numbers trickle in. Researchers finish a project and they leave. We are talking about thousands of researchers," she says.

"We are training great researchers, but then we fail to take advantage of them. They will have to go to other countries instead of staying here to do their work."

Last week's budget cuts were a further disappointment, as the decrease in science money is larger than the average drop in funding across all the ministries, which is around 17 percent.

"It is true that conditions are very difficult," says José Molero Zayas, an applied economist at Madrid's Complutense University, who is in charge of the analysis of the research and development budget for COSCE.

"No one was expecting a spectacular rise, but we would have liked to see a less pronounced decrease [...] to demonstrate a political will to give more priority to investigation, development and innovation."

Spain's scientific community is also concerned that not all of the promised research money will actually materialize. "In other years there have been important parts of the budget that were later not implemented," Molero says. He says that more than half of the Spanish budget for science is usually allocated in the form of loans to companies, but much of it never makes it out of the state coffers. This year, 3.17 billion euros of the 5.63 billion euros for civil research will be given out as loans.

Molero says the practice of some public money for science not being put to use "should be avoided at all costs." Scientists are particularly concerned that this is the third consecutive year that research funding has been cut.

"You just can't wait for five years to investigate what others are already investigating, otherwise you are simply left out of the scientific and technological race," Molero says.

Last week's budget announcement puts science funding "on the same level" as 2005, he says. "And this puts the future into question."

While patent applications from Germany rose by 5.7 percent in 2011 over the previous year, applications from Spain fell by 2.7 percent, figures from the Geneva-based World Intellectual Property Organization show.

In one of the most dramatic examples of the impact of the spending cuts, in November a flagship biomedical research facility in Valencia, the Prince Felipe Research Centre, fired 108 of its 258 workers - including 79 scientists - and pulled the plug on its research into 14 diseases, including cancer.

The center was able to hire back one scientist who did research into diabetes - but that was only after the mother of a girl who has the disease raised nearly 8,000 euros through raffles and selling snacks and t-shirts to continue paying the researcher's salary.

"I don't know what I would have done if it wasn't for this," the scientist, 37-year-old Silvia Sanz, said at the time, adding: "Many of my co-workers who lost their jobs have gone to the United States."

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