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Spain pharma sounds alarm on regional debt threat

Source: Reuters - Tue 19th Jun 2012
Spain pharma sounds alarm on regional debt threat

The future of Spain's drug industry could be in jeopardy if the government does not prevent overspending regions from racking up more piles of unpaid medical bills in a sector bearing the brunt of austerity measures.

Madrid said in February it would clear the regions' debts accumulated by end-2011, and expects to do so this month.

Hospitals owed more than 6.3 billion to drug companies at the end of last year, according to lobby group Farmaindustria.

But payments of around 1.5 billion euros for debt run up this year remain outstanding and many regions are piling up debt at a faster pace than in 2011, Jordi Ramentol, president of Farmaindustria, said. "There are many regions that have practically not paid anything since Jan. 1, 2012," Ramentol added at a news conference in Madrid on Tuesday.

"The debt problem is continuing, it's a consequence of the fact there is an imbalance between budgets and real spending."

Spain's 17 autonomous regions set budgets for public services such as health and education independently of central government. The regions account for around 50% of public spending and missed deficit targets by a wide margin last year.

Drug consumption is expected to fall by between 15 and 20% by the end of the year, Farmaindustria said, as a result of various measures taken by the centre-right government and its socialist predecessor to cut spending in Spain's health service.

Cuts have been made across the public sector as Spain battles to contain a debt crisis that has crippled its economy since 2008 when a property boom collapsed, the government's budget surplus turned to deficit and growth ground to a halt.

Reforms introduced in April, including part payment for medicines, will cost the sector almost 3 billion. The industry now needs a clear plan from the government to start planning for the future, Ramentol said.

Humberto Arnes, director-general of Farmaindustria, which represents Spanish drug companies, said the speed at which regions were running up debt with pharmaceutical suppliers had gathered pace since last year.

"(Debt) was increasing last year at a rate of 10 days (of delays) each month, this year it could be faster," he said.

Spain's Health Ministry said almost three-quarters of the 17 billion set aside to pay all regional debts - also run up in other sectors including education - would be used to clear all healthcare-related bills.

"The measures that providers and the pharmaceutical industry can take are exhausted. Many companies are in a very difficult financial situation and they're taking decisions to reduce the structures of their companies and cut staff," Ramentol said.

STARK WARNING

The pharmaceutical industry believes it can create quality jobs and support the economy, but only if it has the backing of the central government for research and development.

"We want to help exports and increase the number of jobs. This is what the country needs, because we are in a downward spiral," Ramentol said.

Drugmaker Rovi said last week it was looking to invest in Spain while expanding into new markets such as China and Brazil, and urged the government to take the health service out of the line of fire.

"We've suffered a lot of cuts from different governments and it would be the right time to change the focus to other areas of national industry, bearing in mind the pharmaceutical industry is the leader in research," financial director Javier Lopez Belmonte told Reuters in an interview at the company's annual general meeting.

Rovi, where profits rose 8% in Q1, said it was increasing staff numbers in Spain and hoped to be better positioned when the country emerges from a debt crisis that has undermined investor confidence in the country.

Ramentol offered a stark warning on the future of Spain's pharmaceutical industry if efforts are not made to support it nationally: "We would be completely in the hands of countries that can dispense drugs at very, very low prices."

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