Spain sugarcoats pharma-purchasing medicine with payment guarantee

Spain is back at the pharma-cuts drawing board. After the industry balked at a centralized pricing plan late last year, the government is circling back to the same plan--but with some added incentive for drugmakers. Officials now say they will guarantee regional government payments to pharma companies, insulating the industry from the blow of bad debt.

Spain has already been squeezing its pharma costs. But with the biggest budget deficit in the E.U., the country now wants to shave more from its drugs budget. The idea is to use centralized purchasing on behalf of the regional governments. Officials are targeting savings of €400 million, or about $525 million, from the first wave. To mollify the industry, it's offering guaranteed payments.

The drug-tender plan is an attempt to help get Spain's finances in check. As in other cash-strapped European nations, Spanish officials have turned to drug spending for savings. Spain has been cutting back its drug spending month after month, with the biggest declines coming last year. In July 2012, drug outlays were down 24% to €703 million; by May 2013, the drop was 12% to €799 million. Overall, the drug market there has shrunk by some 8%.

With price cuts, budget cuts and incentives for generic use rolling out all over, pharma companies have been increasingly sensitive to new savings programs like those proposed in Spain. But drugmakers have also been suffering from unpaid bills. In Greece, pharma was carrying billions of euros in bad debt as state-run hospitals stopped paying for their drugs. Sanofi ($SNY), Pfizer ($PFE), Novo Nordisk ($NVO) and others have restricted the supplies of certain drugs to that market--particularly new meds for which older alternatives are available. Others, such as Roche ($RHHBY), have limited sales to hospitals, supplying critical meds there and other drugs through pharmacies, which have been better at paying.

Meanwhile, in Spain, the state health system ended 2011 owing €6.37 billion to pharma companies, an increase of 36% year over year. At the end of last year, the country's prime minister organized some €19 billion in loans to the regions to reduce unpaid bills, including hospital bills. With payment guarantees, there would be no past-due invoices awaiting special loans for payment.

- see the Bloomberg story