Over the past few weeks, national and international media coverage has been rife with speculation about whether Greece will retain the Euro. At the time of posting this blog, Eurozone leaders have agreed to the conditions for Greece to seek a third bailout and the Greek government agreed to accept the bailout conditions - but several European Union (EU) members, including Germany, must ratify the deal in their parliaments before it can proceed.[i] Whatever happens over the next few weeks there is still some way to go and uncertainty about Greece’s financial future. This week’s blog does not attempt to predict the outcome but examines a key issue challenging the pharma industry, the impact of the current economic turmoil and continued uncertainty on pharmaceutical pricing.

Like many others international businesses, pharma companies have been struggling under austerity in Greece for many years. In May 2015 Reuters reported that Greek hospitals and the state-run insurer (in full EOPYY) owe international pharma companies more than $1.2 billion.[ii] While earlier debts, incurred between 2010 and 2012, were eventually repaid, some pharma companies received their payment in government bonds that were subsequently written down in value. Furthermore, pharma companies report that they haven't been paid by state hospitals or the government's public health insurer since December 2014.[iii]

Although Greece represents less than one per cent of global drug sales, its impact on the global pharmaceutical market, should it leave the Euro, could be significant due to the impact of international reference pricing (IRP). IRP also known as external reference pricing, is a policy method employed by Governments to try and control the prices of in-patent pharmaceuticals. All countries use a range of policies to control expenditure on drugs, both in and out-of patent. These policies include statutory pricing, price-volume agreements, profit controls, negotiations, rebates and clawbacks and IRP as discussed in the Centre's report impact of Austerity on European Pharmaceutical policy and pricing.[iv]

IRP is one of the most common methods deployed in Europe, with most European countries using some form of external referencing. Indeed, a European Commission study in 2013, comprising 31 European countries (28 EU member states, Switzerland, Norway and Iceland) found that 29 countries applied ERP (exception being the UK and Sweden). The majority of the countries (23 out of 31) use ERP as the main systematic criterion when setting the price of a new drug. The most referenced countries are France (19), followed by the UK and Germany (17). The least referenced countries are Croatia entered in the EU in July 2013 (5) and non-EU MS: Switzerland (2), Iceland (3) and Norway (6).

A group of between five to 20 countries tend to be referenced directly and further countries referenced indirectly. For example the UK is referenced by 17 of the EU member states and indirectly referenced by many of the others, meaning a headline price cut in the UK could result in price cuts in many of these markets, even those not directly referencing the UK.[v]

There are a number of challenges to IRP as a policy tool including: country selection; price setting mechanisms; frequency of rebalancing; and exchange rate fluctuations. For example, in June 2014, the European Federation of Pharmaceutical Industries and Associations (EPFIA) stated that IRP is “fundamentally flawed from an economical point of view”. EFPIA believe that countries should only reference those countries with comparable Gross Domestic Product (GDP) per capita (adjusted for purchasing power parity) and comparable healthcare funding systems and that the lowest prices in the basket should not be used to set prices.[vi]

Thirteen countries directly reference Greek pharma prices.[vii] The pharma industry is concerned that, were Greece to exit the euro, its new currency would devalue and, affect pharma pricing in countries referencing Greek prices. For example, if Greece were to leave the Euro and adopt its own currency (the Drachma) some experts predict a devaluation of 40-60 per cent of its currency relative to the Euro.[viii] This would mean that Greek pharma prices in Euro terms would be halved in value.

Earnings on imported pharmaceuticals would drop sharply, slashing in-market profitability for pharma companies. There would be knock on effects on any countries referencing Greece who would have this cheaper basket of drugs within their reference price basket. Not all countries reference the lowest prices in the basket, but the cost of Greek pharmaceuticals would also lower the basket average for those referencing the average price. This could represent a boon for countries struggling to contain pharma spend and another hit to a pharma industry trying to improve its business model. EPFIA has also warned the European Commission that availability of cheaper drugs in Greece could result in parallel trade, with Greeks selling these drugs at higher prices in neighboring EU countries, leading to supply issues in Greece.[ix]

As always with the business of pharmaceuticals there are ethical dilemmas that need to be considered alongside any commercial decisions. Unlike many other businesses, pharma companies cannot just withdraw products that are essential to patients simply for reasons of profitability.

Under a Grexit scenario pharma companies have few options. One option being to halt the supply of higher priced drugs, but only if there is a therapeutic substitute available, the other is to get agreement from other European governments to exclude Greece from their reference price baskets. However, the impact of any such actions may be limited as Grexit would still have a negative impact on pharma’s profitability in the short to medium term. While current events look to have provided a temporary reprieve to Grexit risk, concerns over the sustainability of the European IRP system remain, suggesting the time is ripe to have an informed international debate about pharmaceutical pricing mechanisms.



Karen Taylor - Director, UK Centre for Health Solutions

Karen is the Research Director of the Centre for Health Solutions. She supports the Healthcare and Life Sciences practice by driving independent and objective business research and analysis into key industry challenges and associated solutions; generating evidence based insights and points of view on issues from pharmaceuticals and technology innovation to healthcare management and reform.

Email | LinkedIn


Liz Hampson

Liz Hampson - Senior Manager, Monitor Deloitte

Liz is a Senior Manager in the Strategy Consulting practice at Deloitte with 15 years commercial experience. She has extensive experience in life science policy and health innovation strategy from working with central government, industry and payers in a range of countries.



[i] (14 July) and (16 July)










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