Has the Crunch Come on Healthcare Spending?

January 19, 2016
Peter O'Donnell
Peter O'Donnell

Peter O'Donnell is a freelance journalist who specializes in European health affairs and is based in Brussels, Belgium.

Telling signs from U.S., Russia, Latin America and UK indicate that governments are squeezing as much value as possible out of their spending on pills and procedures.

It was the economic and financial crises of the last decade that forced governments in the developed world into more rigorous thinking about healthcare spending. Until then, the looming demographic challenge and the rising cost of many health technologies had been acknowledged, but without very much in the way of response, and largely relegated to some point in the future as challenges to be dealt with. It was the crisis-induced austerity that triggered a tough new approach to how the costs of healthcare could be met, and provoked a plethora of studies and proposals and concept papers around the world about how to make healthcare more efficient and healthcare systems more sustainable. 

The result has been some restraint on spending, and a lot of soul-searching – but what has not yet emerged is any of the deep and radical change that has become a frequent topic of discussion at any self-respecting healthcare conference. That sort of change remains, as of today, the stuff of planners, strategists, futurologists.

A more profound change could soon be on the way. The latest figures on China's reduced growth rate, the high levels of public and private debt still hampering the economic margin for manoeuvre of many industrialised nations, the growing strains – and the security implications - of the Middle East crisis, and the existential challenge now facing the European Union are all threats, in the view of many respected commentators, that could that could send the faltering recovery in the developed world into a further sharp downturn– and bring with it unprecedented repercussions for public spending, including on healthcare.

Even the European Commission, which is professionally and vocationally obliged to put a positive gloss on things, admitted in its annual growth survey for 2016 that "security concerns and geopolitical tensions have intensified and the global economic outlook is becoming more challenging". That view is shared by the Economist Intelligence Unit (EIU), which argues in a new report on Industries in 2016 that to prosper, companies must prepare for volatility and for "parsimony among consumers and governments."

Governments will keep a tight hold on their purse strings in this context, it predicts – and one area it singles out for "pronounced tightfistedness" is healthcare: "Governments will squeeze as much value as possible out of their spending on pills and procedures." Even where spending does not actually decline, "the pressure to reduce costs and maximise tax savings will only intensify." The EIU forecast is for cost controls to be tightening in all markets "as budgets are stretched" to cover "over-generous universal healthcare systems."

In the US, a Republican victory in the November 2016 presidential elections would mean "Obamacare will come under attack as never before."  In Latin America, "efforts to bolster its stretched healthcare are being hampered by weak economic fundamentals." Russia's declining economy has led to "government plans to cut health spending by a total of 22.9% over the next three years." And in Europe, "governments will need to focus on improving the efficiency of their health systems" – and spending on pharmaceuticals, health prevention and social care "will again bear the brunt of cuts." Some of Europe’s healthcare systems "could see dramatic reforms starting in 2016," says EIU.

Every day the wind blows new straws that are harbingers of tougher times. In mid-January the Belgian government proudly announced how it would cut $20 million from its drug budget with new requirements on generic prescribing – good news for taxpayers, bad news for research-based firms. Italy announced at the start of the year that it had already recouped $250 million from drug firms in compensation for prescriptions that failed to deliver results. And the UK's House of Lords spent a day this month discussing the proposition that the national health service is on the point of collapse.
 
So for those who thought the last few years were hard, and were hoping for a period of recovery and stability, don't get too comfortable, because the risk is that you ain't seen nothing yet.

 

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