What are the challenges facing the distributors of medicines, what is happening with the debts of the hospitals, what are their expectations from the electronic tender for medicines, we asked Veselin Kunev. He is the new chairman of the Bulgarian Association of Pharmaceutical Wholesalers and executive director of one of the four largest distributors in the country – Phoenix Pharma Bulgaria.
– Mr. Kunev, as Chairman of BATEL, what are the biggest challenges you face?
-The main objectives of BATEL are sustainability, competitiveness, transparency and high quality of services offered to patients in the pharmaceutical sector in Bulgaria. Therefore, we are working to raise the standards for the protection of the health of the Bulgarian patient and to synchronize Bulgarian legislation and practices with the standards and directives of the European Union, as well as to comply with the highest professional standards of work in the field of wholesale of medicinal products and the standards of Good Distribution Practice.
In the wholesale of medicinal products, distributors are the link between the pharmaceutical industry and the end patient, making it possible for the necessary medicinal product to reach the patient. This role of ours and its importance to healthcare and the end customer is sadly underestimated. If the distributor of medicines does not deliver the necessary products on time, the chain is broken and the patient becomes a victim.
This is one of the main challenges I face as chairman of BATEL – to show the importance of the industry and its benefit to the patient by applying the best professional practices.
Of course, like any industry, the pricing aspect directly affects the state of the distribution industry. Continuous regulations to reduce drug prices and achieve savings in healthcare, in particular reducing the deficit in the NHIF budget, are leading challenges for the industry. Last year, for example, a system of compulsory rebates from drug manufacturers to the NHIF was introduced, resulting in manufacturers seriously reducing their rebates to distributors. So one of the main challenges we face is how to meet the ever-increasing quantities and volumes of medicines in terms of packaging and value that we have to deliver, in the face of ever-decreasing margins and profitability in this industry.
On average, by how much percent did margins fall?
-I have been overseeing the pharmaceutical business, specifically in medicines distribution, for over 12 years. Over that period, margins have been declining at an average rate of 1% per year, with the rate of decline accelerating in recent years. And this is due to two main factors – on the one hand, government regulations, which have reduced mark-ups for pharmacies and distributors, and on the other hand, the policies of drug manufacturers, which are also continuously reducing their rebates. The impact of these two factors directly affects the other actors in the supply chain – distributors and pharmacies.
Will you work in this direction for changes in the regulatory base?
The main regulatory basis is mark-ups. Given that all health policy is geared towards optimisation and savings, the likelihood of success is questionable. What is important for us is to have the understanding of all actors in the supply chain – manufacturers, pharmacies and institutions – that distribution companies have a direct and significant role in healthcare and that the continuous pressure for savings leads to a great risk of unbalancing the entire medicines supply chain. And this is likely to happen soon. We can already see the first signs of this imbalance – manufacturers are withdrawing their medicines from the Bulgarian market, pharmacies are shutting down, chronic shortages are emerging for certain medicines. Therefore, it is important for all participants in the healthcare sector, together with the state institutions, in the face of the Ministry of Health and the NHIF, to find a reasonable balance of interests that will make the medicine supply system stable and sustainable as a business model for all participants in it.
Competition among distributors and pharmacies is very high, what are its implications for you and for patients’ access to medicines?
High competition is a good thing, it drives businesses towards development, innovation and higher efficiency. The downside of this situation is that margins in Bulgaria are constantly decreasing. This poses a challenge to distributors to supply more and more medicines in packs, and to meet higher and higher quality and drug safety requirements, with ever lower margins and ever lower profitability. This makes the distribution of certain medicines uneconomic, as is the case with the innovative hepatitis C drugs that the NHIF has been paying for since the beginning of this year. This is to the detriment of the patient. The situation is similar with all medicines above BGN 250. It is unreasonable to suggest that pharmacies and distributors do not deserve any remuneration for servicing these medicines.
Where do you face more challenges on the hospital or pharmacy market?
– We face different challenges in the two segments. It is clear that the main challenge in the hospital market is the huge indebtedness of the medical institutions in general and some of them in particular. There are hospitals which, given their indebtedness, are continuously paying off old debts and cannot pay for their current drug supplies, which is also part of this unsustainability and risks in the healthcare system. This is forcing the suppliers of these hospitals to stop supplies, initiating legal proceedings, blocking accounts. We as distributors are placed in a very difficult dilemma – on the one hand, it is a question of supplying medicines to healthcare facilities and saving lives, on the other hand, we are all economic enterprises that cannot operate without being paid for the medicines supplied.
With regard to the pharmacy market, I have already mentioned some of the main difficulties. The mark-up for distributors for all medicines priced at more than BGN 250, which are paid for by the NHIF, is BGN 10. This amount does not cover our distribution costs and credit risk, especially for the more expensive medicines priced at more than BGN 1 000 per pack.
The indebtedness is increasing every year, the public sector alone has already passed BGN 500 million and the main part is to you. How far could you hold out?
We are not just suppliers, although we are often associated with the role of transporting boxes of medicines to pharmacies and hospitals. As distributors, we are actually a big creditor of the healthcare system in Bulgaria. So the role of the full-line pharmaceutical wholesaler must not be underestimated. We are investing in the healthcare sector and this is how we look at the serious indebtedness on the part of some hospitals. We try to be flexible, we understand the difficulties of hospitals and we are always ready for dialogue and finding workable solutions. Naturally, when it comes to payments, it always comes to the point where there has to be clarity between the two parties as to how and when the products that have been delivered will ultimately be paid for.
Have you had discussions with the Ministry of Health in this regard?
So far, we have not had a direct contact since I took over as Chairperson of BAPW. What I do know is that meetings have been initiated and held in the past, the results of which, unfortunately, have been almost non-existent. The view is that hospitals are commercial companies that are responsible for their own management. We do not accept this argument, after all the Ministry of Health has all the powers and means to intervene where things need improvement. At this stage, our approach is to work individually with the hospitals and to seek a solution on a case-by-case basis, but we believe that it is necessary to work towards a lasting solution to the debts that the hospitals have accumulated over the years.
Improving hospital management seems to be one of the possible options for a solution – this is a process that has already started with good results in some of the hospitals. Some large hospitals have made positive changes as a result of better management and governance. This shows that most likely, besides the availability of financial resources, good management is also needed. Here we can give the example of private hospitals that do not generate such large debts as some public hospitals. This shows that, with a more efficient management of the resources available in the system, much better results can be achieved and indebtedness avoided. If this process continues, it could lead to a significant improvement in the situation.
What is the maximum period of arrears that hospitals have?
By law, the maximum period is 60 days postponed payment, but not many hospitals comply with it. There are hospitals with accumulated debts to distributors that have not been serviced for years. Most distributors are very flexible and give additional deferred payment, and for some hospitals that are in a particularly difficult financial situation, agreements to repay outstanding debts usually exceed 1 year.
Does this affect the cost of medicines for the respective hospitals?
It is normal to always take into account the “credit risk” factor when forming a price. But the rather competitive market in Bulgaria also has its impact. I do not think that the participants in hospital tenders currently calculate the credit risk adequately when forming the prices they use in hospital tenders.
It is often said that there is a shortage of certain medicines in the country. What are your observations, is this really happening?
If you are referring to the shortage of medicines due to re-exports, there are indeed such cases. There is tension all along the chain for certain products. But we are not the wholesalers who can give an estimate of this shortage. If we have to talk about parallel exports, this is a perfectly legal and regulated business within the EU. It is clear that it is creating tension because of the shortage of some medicines on the market, from which patients are suffering. Here, it is the role of the state to find the right model of regulations in accordance with European legislation to guarantee Bulgarian patients’ access to medicines. Bulgaria is not a phenomenon; in general, on a European scale, all Eastern European countries are a source of exports of medicines to Western European markets, and the problems there are similar.
Is this type of activity typical for the large wholesalers, such as the members of BAPW, who operate on our market, or is it rather the subject of individual companies which only deal with export?
The main mission of the national distributors, members of BAPW, is to ensure fair and transparent medicines supply and service provision in the pharmaceutical sector in Bulgaria. It is important for us, including Phoenix Pharma, to ensure the access of medicines for the Bulgarian patients and we have no interests in this direction.
You have a huge turnover and a low profit. Can we say what the net profit of the sector is, or the gross profit, for last year?
If we refer to the four big distributors, we can say that two of them ended the year with profit and two with loss. Overall, profitability in the sector is declining. This is a fact.
Are there unethical competitive practices in the market or are things normalised now?
In general, the process of clarifying in the Bulgarian economy has been a fact in recent years, this also applies to the healthcare sector. The pharmacy segment has seen a lot of improvements in this direction through the linking of pharmacies’ fiscal devices with the NRA. The hospital segment has also seen positive developments in recent years. Naturally, even in the most developed countries there is a certain percentage of grey economy, but in Bulgaria there is still a lot to be desired. For us at BAPW, a transparent business environment and the enforcement of high ethical business practices are among our top priorities. We also expect the state institutions to do their part in this direction.
In relation to the increasing pricing pressure, how do you think the e-tender that the Department of Health wants to do will impact?
Everybody is waiting for this e-tender to happen very soon. It has not been officially announced yet. E-tenders are a known practice in many countries. It is one of the tools to achieve transparency in the procedure of contracting and purchasing medicines for hospitals, as well as better prices. I believe that, as a practice that is used in many other European countries, this is a good model and a good opportunity, and, of course, it is important how it will be implemented in our conditions. Unfortunately, we are witnessing many examples in which good ideas and good foreign experience are not being implemented properly and fully in Bulgaria.
Is there any clarity yet on what our platform will be?
We expect that before the launch of the e-tenders, all interested parties – distributors and potential bidders – will have the opportunity to be acquainted with the system, to be able to test it. Without serious pre-testing of the technical aspects of the system there is a risk that the national auction will not deliver the desired results. As an association, we are always ready to offer all our expertise and resources to support the state’s efforts to reform the healthcare sector and improve efficiency in the management of hospital care processes and the spending of public funds. In this context, we are grateful to the current leadership of the Ministry of Health for their dialogue and partnership, and we hope that the joint work on establishing the methodology for e-tendering will lead to a practical and sensible solution.
Do you think that a price corridor would be an appropriate measure to reduce co-payments?
The price corridor has been postponed several times. It is linked to one of the other ideas for a change in the law on medicines – that of generic prescribing or generic substitution. The two ideas overlap, and if generic substitution is adopted, it should rather lead to the price corridor idea being dropped. It remains to be seen in the coming political season what the changes to the Human Medicines Act will be.
If the price corridor does end up being introduced, will this negatively affect access to medicines?
A lot depends on the way and form in which these regulations are written and which they end up being implemented in practice. The idea of a price corridor and of incentivising doctors to prescribe and patients to consume cheaper medicines is a useful move. The point is to have a mechanism for a patient who wishes to pay extra for a different or branded medication to do so. Because for me, the patient has the right to choose – whether to use the free, cheaper medicine or to pay extra for the more expensive one. In that sense, I think controlled generic substitution is the better model.