Country Industry Forecast - European Union Healthcare Industry

May 11 2004

The accession of ten more central and east European countries to the European Union (EU) -15 in 2004 has created a single European market, the largest market and trading zone for the healthcare industry with almost 500 million consumers. The total healthcare industry comprising pharmaceuticals and drugs, medical devices and equipment, and health services is expected to grow at a compound annual growth rate of 6.4 per cent from 2003 to 2008.

With enlargement comes the concern of ensuring that products of uniform high quality are available throughout the EU. Acceding member states are expected to provide effective and innovative medicines to make this possible.

"This can be achieved by enforcing international standards of intellectual property protection and a sustainable basis for the industry to supply innovative medicines throughout the EU," states Research Analyst Lasya M. Narasimhachari from Frost & Sullivan (https://www.frost.com/). "The future availability of new drugs is expected to be influenced by the radical differences in economic and market conditions and the healthcare coverage for medicines between the present EU-15 and the accession countries."

The need for innovative medicines apart, the huge ageing population in Europe is also likely to drive research on more effective drugs. Low fertility rates and increasing life expectancy have resulted in Europe having the most number of people over 65. This can have a deep impact on the healthcare system, especially drug development, since the over-65 age group is the single largest user of pharmaceutical products.

While the phenomenal demand provides exciting opportunities to pharmaceutical companies, they have also taken stock of the rising healthcare costs for the elderly and are doing their bit to keep their products cost-effective.

Apart from pharmaceuticals, the European market for medical devices is also thriving, having earned USD 41.2 billion in 2002. In fact, Europe is the second largest market for medical devices and equipment followed by the United States and Japan. This popularity could have something to do with the acknowledgement that prevention is just as important as therapy.

"The growth of the pharmaceuticals and drugs as well as medical devices and equipment segments is directly linked to the health services segment," notes Ms. Narasimhachari. "An increase in the number of hospitals, nursing homes, home healthcare services, dental services and laboratory services are given high priority in national healthcare expenditure, which could help in the growth of the three segments."

The factor that can affect all three segments is the health policies in the EU. Public and private health insurance funds play a critical role in drafting drug reimbursement policies. The social protection structure is expected to undergo several changes and the resultant reforms could lead to increased out-of-pocket expenditure.

While framing policies, regulatory bodies are likely to address concerns of affordability and effectiveness of the healthcare system. High healthcare spending need not necessarily mean healthier citizens. Healthcare can be expensive due to use of sophisticated technology and the labour-intensive nature of the industry involving high costs of training.

Countries that finance and deliver health services through the public sector are more likely to have better control over the growth rate of costs. Countries that depend on only the government for basic coverage spend less on healthcare than do countries with multiple insurers.

To contain costs and spending on healthcare, governments have instituted policies to control prices, wages, number of hospital beds and size of the healthcare workforce, and place caps on health spending as well as shifting costs to the private sector. While some countries impose wage controls on their public sector healthcare workers, some others determine prices for medical services after obtaining approval from purchasers and providers of healthcare.

While spending caps were originally intended for the hospital sector, which was considered the costliest aspect of the healthcare system, they are now used to contain overall public expenditure on health. Healthcare providers are likely to respond to these controls by increasing the volume of services or changing the service mix so as to include higher paid consultations.

"The process of economic integration has been a catalyst to the diffusion of health technology and opened national markets to competition, tending to equalize prices and reduce costs," observes Ms. Narasimhachari. "Technological progress is expected to become a key factor for economic growth and help meet the challenges posed by an ageing society."

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