KEY ECONOMIC PARAMETERS FOR AN OPTIMAL PHARMACY NETWORK IN A REGULATED ENVIRONMENT.

• Author: Mlinaric, Franjo

1. Introduction

   Healthcare expenditures in developed countries follow an unsustainable growth pattern for over two decades. De la Maisonneuve and Martins (2013) estimate a 3.3 to 7.7 % increase in public health and long-term care spending for OECD countries for the period 2010-2060. The main reasons for this trend lie in low healthcare market efficiency and demography.

   A seminal work by Kenneth Arrow (1963) was the first attempt to describe healthcare market inefficiencies which arise from specific market circumstances: (i) individual demand is irregular and unpredictable, but mostly urgent, (ii) strong information asymmetry in health triangle (patient-physician-insurance), (iii) uncertainty in diagnosis and cure outcomes, (iv) solidarity based health insurance systems, (v) most people underestimate the benefits of preventive measures, (vi) entry barriers, and (vii) externalities. Moreover, consistently inelastic demand for healthcare services (price elasticity around -0.2 and income elasticity between 0 and 0.2) is reported by Liu et al. (2006).

   In most countries healthcare services are treated as a human right, therefore economizing is limited to cost-containment and cost-benefit analysis. Complex healthcare systems are dominated by public facilities operating as closed professional silos with minimum information exchange, concentrated mainly on technical and financial parameters of provided services. The result is a fragmented and uncoordinated supply of health services, dissatisfied patients and sub-optimal health and results. Aging population, growing numbers of chronic conditions, various new therapies and drugs caused present solutions to become ever more obsolete.

   A paradigm change is inevitable in order to rebuild health services around the user (customer). Preventive measures like health education, information campaigns, life-long monitoring, etc. shall dominate in the near future. Thus, a self-improving, interconnected and customizable healthcare system, based on specialists cooperation and big data crunching will be evolving. Finally, the new health system will be enabled to exploit hidden reserves in healthcare value-chain, and pharmacists are perfectly positioned to help boost financial and health outcomes.

   First results from better care coordination in US and Canada were evaluated by Hofmarcher et al. (2007), arguing that targeted programs appear to improve quality but evidence on cost-efficiency is inconclusive. Unfortunately, fragmentation of services and skewed financial incentives still lead to poor care quality due to repeated testing, multiple prescriptions and adverse drug interactions. The Slovene Ministry for Health (2015) estimate showed that only polypharmacotherapy (the use of multiple pharmaceuticals to treat diseases) accounts for approximately [euro] 25 million in annual economic damages or 3-4% of all hospitalizations. Consequently, our discussion will be focused on benefits which can be provided by an optimal pharmacy network, as well as on optimal allocation of human resources and capital in a regulated environment.

2. Pharmacy role in the health policy

   Health policy is a global issue demanding for coordinated vision and effective strategies which are adjusted at least once a decade. The most relevant policy documents are published by the World Health Organization (WHO) and the European Commission (EC):

   --WHO: Health 2020--An European policy framework and strategy for the 21st century (2013).

   --EC: Europe 2020--A strategy for smart, sustainable and inclusive growth (2010); Investing in health--Commission Staff Working Document (2013).

   Among various health policy issues our attention was concentrated on the role of pharmacies. The EC documents are mainly devoted to strategic issues like the system's sustainability, human capital, social cohesion and proper financial support for health systems from EU funds.

   In the WHO policy framework (2013), pharmacies are a key instrument for efficiency gains by using medicine and technologies more wisely. The most beneficial effects are expected from:

   --an efficient pharmacy network coverage for the whole population;

   --strict cost-containment measures (reference pricing, tenders, generic medicines);

   --evidence-based introduction of new and expensive health technologies such as pharmacotherapy, devices and procedures;

   --rational use of medicines helped by a coordinated team of experts; and

   --efficient information exchange and financial incentives based on health outcomes.

   In December 2015 the Slovene Government approved the 'Resolution on the national healthcare plan 2016-2025--Together for a healthy society', which is aligned with EC and WHO policy documents. It exhibits the latest trends in healthcare policies and finally exposes the important role of primary care with special emphasis on pharmacists. It addresses all key challenges of a modern healthcare system, but for the first time accentuates the growing trend of chronic conditions and the financial sustainability goal.

   The Ministry of Health initiated a thorough analysis of Slovene health system in 2015, cooperating with WHO experts and the European Observatory on Health Systems and Policies to provide a solid base for further reforms. Thus, the Resolution 2016-2025 (MH, 2015) acknowledges the main issues like medicine consumption growth, lack of uniform information support, information asymmetry on EU medicine market, polypharmacotherapy risks and environmental risks due to unused old drugs.

   Clear healthcare strategy and sound situation report enabled the ministry to formulate precise reform activities in the field of pharmacy services. The so-called 'Activity no. 7' (MH, 2015) is focused on providing accessibility, proper and safe medicine consumption and cost-efficiency. Additionally, this activity is supported by five measures which shall provide the minimal operating conditions (centralized public tender system for medicine, information support for seamless care as well as for evaluating cost efficiency of expensive innovative drugs, active cooperation between clinical pharmacists, amending the Pharmacy Law).

3. European trends in market regulation

   EU pharmacy and healthcare markets are probably most distant from the idea of common markets. They are predominately limited to national borders for various reasons: language barriers, public funding rules, professional fiefdoms (doctors and pharmacists associations), etc. National pharmacy markets in EU stem from diverse traditions stretching from highly regulated markets (e.g. Austria) to relatively liberalized versions (e.g. UK). Most of high-income markets in EU develop in the more regulated direction, although some reversed the course (e.g. Norway and Sweden). The level of market liberalization is most commonly observed by three criteria:

   --establishment rules for new pharmacies and branches;

   --ownership limitations; and

   --OTC medicine sale outside pharmacies.

   The discussion regarding the liberalization of the pharmacy market is not just an academic one, but a primary policy concern about accessibility, quality and economics. In a survey-based study for the Association of Danish Pharmacies (GOE, 2012) the authors compared a group of countries with deregulated community pharmacy sector (England, Ireland, the Netherlands, Norway, and Sweden) with a group of regulated pharmacy sector (Austria, Denmark, Finland, and Spain). This study confirmed the limitations of a liberalized pharmacy market. According to GO (2012) the overall effect of liberalization is negative, because it leads to an uneven spread of community pharmacies within a country, provides bigger market power to some players like wholesalers, and produces economic pressure to increase pharmacy turnover through the sale of OTC (over the counter) medicine and non-pharmaceuticals. Moreover, the restrictive market access measures in EU countries are supported even by the European Court of Justice due to public health significance.

   Most EU countries (16) regulate pharmacy market entrance by setting demographic (number of people serviced by a pharmacy) and geographic (minimum distance between pharmacies) criteria. For instance, in Spain the minimum distance is 250 meters to the next pharmacy and at least 2,800 potential customers to service. In Austria the minimum distance is 500 meters and the number of potential customers must be at least 5,500 (counting inhabitants, people working in the area and tourists).

   Ownership regulation is the next pillar of regulated pharmacy markets in 12 EU markets. Most restrictive versions allow only pharmacists to own a pharmacy. In some countries (Austria and Spain) some forms of co-ownership with non-pharmacists are tolerated. Additionally, some specific stakeholders like medical doctors are excluded to prevent conflict of interest (similar with manufacturers and wholesalers). Regulated environments often prohibit multiple ownership, although under certain conditions a branch might be allowed.

   Medicine prices are highly regulated; consequently the most financially interesting segment is OTC medicine. According to OECD (2014) only 10 of 28 European countries hold a pharmacy monopoly on the sale of OTC medicine. Nevertheless, among the 18 other EU countries the drugs sold outside pharmacies vary a lot. They include mainly pain-killers and medicine for relieving cold symptoms, which can be obtained in supermarkets, drugstores or petrol stations.

4. Key elements of Pharmacy Law and network evolution in Slovenia

   Slovene Pharmacy Law dates back to 1992. The sector has always been highly regulated and predominantly served by (regionally bound) community owned entities, supported with some licensed private pharmacists. Pharmacies provide a public service and can be managed only by someone with a master degree...