The failed bypass of healthcare reform

^{Chart 1: Demand, supply and price ceiling.}

A price cap, by definition, is a legal (i.e., enforced) establishment of a maximum price at which a drug can be sold. The new price is always lower than the market-determined price – otherwise, imposing a “cap” is unnecessary. But why am I talking about a cap when the government has actually frozen prices? Because such a measure would not be necessary if prices were expected to fall; the government would even benefit from refraining from regulation. But that is clearly not the case, and prices will most likely rise. From which the Ministry of Health is trying to “protect” consumers by taking away the opportunity for pharmaceutical companies to regulate their supply in a market-based manner.

In order to maintain the supply of medicines at the level of demand, pharmaceutical companies have to suffer losses, which is harmful – both for the companies themselves and for consumers, since the losses necessarily “emerge” somewhere; in this case, the most likely “somewhere” will be the unregulated market, which, however, is significantly smaller than the regulated one. In the short term, companies will manage to cope somehow so as not to go bankrupt. But when prices thaw, they will undoubtedly be higher. Price increases are never good for consumers. The emergence of an unregulated market is the lesser evil, because, in the absence of force majeure circumstances, it happens smoothly, allowing consumers to adjust to it. After a year, when the frozen prices thaw, the increase will be sharp. As can be seen from the graph, a sharp jump in drug prices is not alien to Bulgarian markets, although prices have been rather stable over the past decade.

^{Chart 2: Prices of pharmaceutical products in Bulgaria. Source: Eurostat.}

Given the demonstrated spirit of statism, it does not seem at all impossible for the Ministry of Health to once again take on the role of an anti-crisis superman, who with one decision will “eliminate” the “social consequences” of price increases and freeze them again or try to reduce them – such types of regulations are “in fashion” in Europe, it is no wonder that we will see them in our country as well. But such type of intervention is far from eliminating price increases. Applying it once is harmful, but repeating it can put the drug markets into a chronic “price spiral” – the sharp price increase is met with new “temporary” regulations, after the expiration of which prices will rise sharply again, which will “justify” the next package of regulations and so on ad infinitum.

The price freeze is yet another manifestation of three much more worrying phenomena: the monopoly on price regulation by the Ministry of Health and the monopoly on health insurance by the NHIF, whose budget has increased by 300 million leva in the last 3 years alone, despite zero improvement in the service and the complete lack of a strategy for improving healthcare in Bulgaria. The result – the bottom of the European Health Consumer Index compared to all other EU members.

^{Figure 3: European Health Consumer Index 2012}

The situation in healthcare may change after the elections, but from the point of view of state intervention in the sector – for the worse. BSP and Ataka will strive for healthcare that is totally dominated by the state (supposedly for our good). GERB does not give any signs that they will change the status quo in any way. “Bulgaria of the Citizens” also does not aim to reduce the state’s role in healthcare, but the idea is still creeping in that in addition to mandatory state healthcare, people will be able to insure themselves privately. The goal in their program is a “new drug policy”, but what exactly, remains an enigma.

The DRF is a step ahead – their program includes the demonopolization of the NHIF, which, however, does not mean the abolition of state control over prices. The DSB makes the most liberal promises: denationalization and demonopolization of the NHIF, competition between hospitals, market distribution of state-distributed funds, elimination of VAT for hospitals and medicines paid by the NHIF (i.e. even they will not free up the prices of medicines). But, in contrast to all this, the DSB will increase health spending to 6% of GDP; i.e. an increase of 50%. In addition to the fact that most programs are statist, none of them gives guarantees that ill-considered phantom measures, such as freezing prices, will not be repeated.

Populist solutions, such as the introduction of “anti-crisis” frozen prices, will inevitably have a negative effect on the market. As long as the healthcare system is not liberalized, there is no chance of seeing better results. If the status quo of the state monopoly is maintained, such temporary solutions are unlikely to stop – the next rulers will even have an incentive to act “anti-crisis” because they will fight for a new mandate. One of the basic medical principles is to refrain from intervention if it will worsen the patient’s condition. But, it seems, not only medical, but also economic principles are not respected by the Ministry of Health.

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