Delayed payments from provincial governments are forcing pharmacies out of business, which has led to weaker earnings in related industries, according to a Bloomberg Business report
For example, Faes Farma SA (FAE), the Spanish maker of allergy treatment Bilastine, said slow pay by regional governments to pharmacies is cutting into its earnings.
In the face of austerity measures that are likely the tip of an iceberg, pharmacies have started asking Faes for credit extensions after being “excellent payers,” in the past, according to General Manager Gonzalo Lopez as quoted in the Bloomberg
Fortunately for it, the drug maker out of Vizcaya deals almost exclusively with pharmacies, and has not been hit by previous government hospital drug debts.
Companies like Roche Holding AG (ROG) and Zeltia SA (ZEL), with funding tied to government hospital debt, are already reeling from cutbacks, Lopez said.
A 35 billion-euro ($44 billion) fund the Spanish government set up for its regions and town halls does not include payments to all pharmacies in a pool of health-care suppliers, said Kaushal Shah, a London-based analyst for Business Monitor International according to Bloomberg.
As much as 30-percent of Spanish medicine spending is from pharmacies' slice of the medical-funding pie, which means drug makers are also at “significant risk,” according to Shah.
“Pharmacies are having a tough time,” Lopez said in an interview last week, according to Bloomberg
. “We have more closures of pharmacies than ever. This is a strong symptom showing something new is happening. As government delays payments, more pharmacists are going to face problems because margins in the sector are narrower.”
Highly subsidized by government, Spanish pharmacies are paid by health-care funds managed by Spain’s 17 regional governments. Those governments ran up a collective 6.4 billion euros in unpaid drug bills for public hospitals through the end of 2011, according to drug industry association Farmaindustria
. Hospitals' debt, also heavily subsidized, is funded by another budget office and is to be covered by a government repayment fund.
Meanwhile profitability of Spanish pharmacies and drug companies is quickly deteriorating as the government cuts health-care costs in an attempt to reign in unsustainable deficit spending.
Spain’s health-care system is funded by government (taxpayers). The Spanish government proposes cutting spending by 7 billion euros by using more generics, reducing purchase prices and centralizing buying, Health Minister Ana Mato said in April.
Faes Farma’s first-quarter profit declined 24 percent to 6.2 million euros as sales dropped 18 percent because of the “very tough measures approved by the administration to contain the budget deficit,” the company said in May.
Ultimately, patients will be charged a greater share of the cost of medicines, depending on their income, to make up for government medical funding deficits.
However the health care overhaul, added to about 2 billion euros already owed by the regions, threatens the solvency of 22,000 pharmacies in Spain which puts many jobs at risk, Fernando Redondo, head of the pharmacists’ lobby group Fefe, said in an interview yesterday.
Spanish pharmacists have “financial and profitability problems,” to FAE General Manager Gonzalo Lopez said.
“If things don’t improve at least on the financial side, many will go out of business, that’s clear.”