Austerity: Healthcare in hardship


This article is part of our special report Resilient and innovative EU health systems.

Healthcare budgets constitute one of the largest chunks of public expenditure throughout the EU, and the associated industry is considered one of Europe’s success stories. Europeans consider healthcare as one of the benchmarks that sets the continent apart in terms of quality of life from other nations. But the ageing demographic, and the shock of the financial crisis have brought the contrast between Europe’s ideals and reality sharply into focus.

The financial crisis that started in 2007-2008 has developed into a long lasting and widely impacting economic and social crisis. In those European countries hardest hit, such as Greece, the spotlight has focused on the immediate buoyancy of the economy, but the side effects all impact on the health sector.

Poverty, more people at risk of food insecurity, more people and children vulnerably housed, an increase of alcohol consumption, and a rise in unemployment – all have led to poor health, an increased incidence of suicide, and mental ill health.

This situation has had a double impact on health systems as an increased demand on health services coincides painfully with cuts made to government health budgets.

The issue also touches the EU’s 2020 strategy, which aims to achieve 75% employment amongst those aged between 20 and 64 and to reduce the numbers of Europeans living in poverty by 20 million.

The World Economic Forum and the Harvard School of Public Health estimate that non-communicable diseases will cause a €47 trillion economic output loss during the period 2005-2030, a clear challenge to the future prospects of the Europe 2020 strategy.

The challenge also takes the form of a knock-on effect. To some extent the crisis offers opportunities, and campaigners against obesity have exploited the need for government revenue to encourage politicians to slap taxes on sugary and fatty foods.

However, it is not only healthy Europeans who are key to an eventual emergence from the crisis, but also a well-shaped health sector and industry, among others.

The sector makes up a massive 10% EU GDP and health services together with associated organisations are amongst Europe’s largest employers. The pharmaceutical industry in particular is one of Europe’s most successful employers and exporters. The industry is under increasing pressure, as governments seek to drive down the price of medicines, and in some cases leave the bills unpaid.

The demographic challenge and health

The financial crisis has hit Europe's health sector at the same time as demographic issues come to the fore. Europe’s population will undergo dramatic demographic changes as the percentage of people aged 65 or over is projected to double in the next 50 years – an increase from 17.4% in 2010 to 30% in 2060.

The demographic challenge and health

The financial crisis has hit Europe's health sector at the same time as demographic issues come to the fore. Europe’s population will undergo dramatic demographic changes as the percentage of people aged 65 or over is projected to double in the next 50 years – an increase from 17.4% in 2010 to 30% in 2060.

This change is caused by the processes of ‘ageing from the bottom’ – modest growth in the fertility rates – and ‘ageing from the top’: a strong increase in longevity. The working-age population is expected to decrease from 2014 onwards. This will place a huge burden on this population because there will be almost one person for each dependent person under 19 years old or over 65 in the EU-27.

This in turn has an impact Europe’s economy as emerging powers such as China or India still have growing working-age populations. Due to the demographic change, people will not only be expected to work longer before pension but also to be more productive. If higher productivity rates are needed to help Europe remain competitive vis-à-vis emerging markets, then this can only happen with a healthy workforce, it is claimed.

Healthcare models

Lessons from crises throughout the last century suggest that countries which invest in health and health services performed better than those which reduced investment. This was witnessed in Scandinavia in the 1990s when investment in the health systems during times of economic crisis prevented widening health inequalities and also prevented an increase in suicides from occurring (as frequently happens during economic crises).

The health community is concerned and alarmed at the burden faced by services due to the increase in demand and the reduction in resources. Across Europe there has been an actual reduction in the number of nurses’ posts, while health workers have seen their pay cut and salaries frozen. As a result the rates of recruitment and retention have diminished. Over a third of members of the European Federation of Nurses reported that these cuts have lead to concerns about quality of care and patient safety.

The crisis presents an opportunity to rethink the status quo in healthcare. But this means taking a more long-term perspective and assessing policy options in more depth. While cost-cutting in health may seem to be the most obvious choice to an accountant, to a health economist it makes little long-term sense.

As painful cuts in government budgets are being implemented, it is worth reviewing the risks and benefits of the various approaches: what is the impact of any given action on health in the long run? Which areas are the most efficient? Where can savings be found? What is the role of innovation, and how can sustainability be ensured?

Central control of health budgets

Just as the troika of the IMF, EU and European Central Bank have been involved in setting targets and monitoring the progress of eurozone countries most stricken by the financial crisis, there have also been behind-the-scenes interventions in the management of healthcare systems and budgets.

Officials at the European Commission have confirmed to EURACTIV that the health and consumers department of the EU executive is currently engaged with “several member states on this subject and has received requests for advice on the topic of health system reform from several others”.

Such intervention has been taking place in two ways: directly, through EU-based support programmes, in the cases of those countries in direct receipt of rescue funds. However, there is also an indirect method of EU involvement. The EU Council of health ministers requested in June 2011 that the Commission "provide effective tools and methodologies for member states for the assessment of the performance of health systems". Commission officials told EURACTIV that this mandate has enabled member states to ask for advice and assistance in a less formal capacity.

More broadly, the EU has a major role to play in encouraging and stimulating continued investment in healthcare within member states, in particular by ensuring the considerable funding available through cohesion funds, digital agenda and healthcare research funds are well spent. Other initiatives such as the Innovation Partnership on Healthy and Active Ageing recognise the connection between the health sector and the broader challenges facing Europe.

Opportunities: Food taxes and obesity

The austerity drive and the need to find new sources of income does however provide governments with an opportunity to tackle the obesity epidemic currently hitting Europe, although with controversial measures.

One method promoted by the European Public Health Alliance (EPHA), an advocacy group, and others in the health community, is a tax applied to foods high in salt, sugar and fat. When coupled with subsidies to fruit, vegetables and wholegrains, the tax offers governments a two-pronged arrow to deal with two major health issues they face.

As well as offering one solution to tackle the obesity epidemic, the revenues produced by such taxes can also boost austerity-stricken budgets. Many governments across Europe have already realised this and such taxes have already been introduced in Hungary, France and Denmark and are under discussion in the UK, Ireland, Poland and Romania.

Pharmaceuticals: The example of Greece

However the benefits of tackling obesity are connected to government's cash needs, and problems affecting health system funding are leaching into the private sector, and hitting the pharma industry.

Greece provides a textbook example. The Panhellenic Association of Pharmacists reports shortages of almost half the country’s 500 most-used medicines. Even when drugs are available, pharmacists often must foot the bill up front, or patients simply do without.

As part of an effort to cut its own costs, Greece has mandated lower drug prices in the past year. That has fed a secondary market, drug manufacturers contend, as wholesalers sell their shipments outside the country at higher prices than they can get within Greece.

Strained government finances only make matters worse. Wholesalers and pharmacists say the system suffers from a lack of liquidity, as public insurers delay payments to pharmacies, which in turn cannot pay suppliers on time.

Since public insurers are holding back on debts owed to pharmacists, some of these charges are now being burdened onto patients, according to Dimitris Karageorgiou, vice chairman of the Greek pharmacists’ association.

Austerity measures imposed to address the financial crisis may then be making matters worse.

Orphan drugs and rare diseases

The newer, more effective medicines that are available are patented and typically more expensive. For economic reasons European governments – and especially those under severe financial strain – prefer to use older, typically generic drugs.

But there are no adequate old drugs for some diseases, such as more unusual forms of cancer. It already takes authorities a long time to recognise new medication for these rare conditions (known in the industry as ‘orphan drugs'), to price them, and to set reimbursement levels.

In this category, faster access to improved medication can literally mean the difference between life and death. Developers of these types of drugs are finding it harder to fund and generate such drugs as a result of the crisis.

The transparency directive on labelling

An EU directive – ‘on the transparency of measures regulating the pricing and reimbursement of medicines' – gives member states three months to decide on the price of new medicines and then another three months to decide what share of these costs should be reimbursed to patients.

In 2008, the European Health Consumer Index (EHCI), conducted by Health Consumer Powerhouse, found that 85% of member states were not respecting this time limit. The Commission's recent public consultation on the directive revealed that some national authorities are using the financial crisis to argue for delays of up to a year, and the next EHCI, due out this year, is likely to confirm that the delays are lengthening.

The directive is set to be revised this year following a consultation held last year. The pharmaceutical industry is looking for a tighter sanctions regime as there is currently no penalty for governments in breach. Under consideration are possible new sanctions that could lead to fines for governments if they fail, without good reason, to meet the deadline.

Drug pricing, generic drugs and value-referencing

The constraints on pricing are also affecting payment models within the pharma industry. Traditionally national health authorities within EU member states have assessed the value of drugs available on their markets and provided a reference for values at which these can be reimbursed.

With less money to spend governments have been assessing values down and also increasing their use of generic drugs, which manufacturers can produce outside a premium patent-protected period. Pharmaceutical companies rail against this direction of travel, claiming that the pricing pressures are hacking at revenues and decreasing the sector's ability to innovate.

On the other side of the debate, politicians argue that patent protections for drugs are too generous, and should be revised down to increase the value they can achieve for drugs payments.

Consumer groups also point to pricing and transparency issues within the pharma sector, highlighted by a recent scandal in France following the withdrawal of diabetes drug Mediator from the market. French politicians and media pilloried the drug’s manufacturer, Servier, charging that it concealed the dangers of Mediator for decades.

“The Pharmaceutical sector in general needs a big dose of transparency and this is particularly true also when it comes to prices,” according to Monique Goyens, the director general of European consumer group BEUC.

“The financial crisis has shown the downside of global inter-dependence, according to World Health Organization director general Margaret Chan. “The response must demonstrate the opposite - the benefits of global cooperation. There are positive signs: several countries have made public their commitments to maintain levels of social sector spending. Most donors have promised to keep to their commitments for aid spending,” Chan said.

“Many countries have decided to forge ahead, despite the crisis, with reforms that will make their health systems fit for purpose as they face major demographic and social changes. The UN is working hard on ensuring a more joined up response. The equation between crisis and opportunity is fast becoming the cliché of the moment. Nevertheless, I would argue that a truly global approach to economic recovery, which puts peoples’ lives and livelihoods at its centre, will mean that we could emerge with systems that are stronger, more efficient and more equitable than those that are currently under such serious threat,” the WHO’s Chan concluded.

“Greece's health sector seems to be sinking day by day, without any sign of recovery, according to medical journal The Lancet’s Eva Karamoli. She added: “The beginning of 2012 found patients queuing outside pharmacies to get their prescriptions filled. Instead of holding receipts of their social service funds in their hands, they were holding money.”

The financial crisis is brewing a “Greek tragedy” of slowing access to medical care and worsening outcomes for patients, Martin McKee, a professor of European public health at the London School of Hygiene and Tropical Medicine, wrote in an October article in The Lancet.

“It would be unrealistic to deny that there are many difficulties regarding all public services due to the financial crisis,” Nicolaos Polyzos, secretary general of the Greek Ministry of Health, wrote in a response to McKee’s article. “However, this cannot justify characterising the current picture of (the) health sector in Greece as a ‘tragedy.’”

“Wholesalers simply do not have the money anymore to play bank to the pharmacies,”  according to secretary general of the European Association of Euro-Pharmaceutical Companies, Heinz Kobalt.

Kobelt said: “Even Polish people pay more than Greeks for Aspirin. That is the recipe for parallel trade, I’m sorry to say.”

“Governments are hitting this industry very hard,” according to Richard Bergström, the director general of the European Federation of Pharmaceutical Industries and Associations (EFPIA). “One of my member companies, AstraZeneca, has announced that austerity measures took $1 billion off its bottom line in 2011. The four southern countries - Portugal, Spain, Italy and Greece - collectively owe my companies more than €15 billion in debt, primarily by hospitals and regional government. Spain alone owes more than €6.3 billion to my members – it has thankfully recognised the importance of addressing this. But the payment delays are getting longer and longer,” Bergström concluded.

BEUC, the European consumer group, "welcomes the additional measures proposed by the European Commission and urges the Council and the European Parliament to adopt them swiftly. The proposal increase transparency and ensure a more rapid & consistent EU response if safety problems arise. We regret though that a scandal like the one of Mediator was necessary to show that the EU pharmacovigilance legislation adopted just one year ago failed to tackle all the weakness of the system,” a spokesman for the European consumer group said.

  • 2008 – the European Health Consumer Index (EHCI) finds that 85% of member states failing to decide on the price of new medicines within the three months required under the EU directive – ‘on the transparency of measures regulating the pricing and reimbursement of medicines'
  • 6 June 2011 – The EU Council of health ministers requested that the Commission "provide effective tools and methodologies for member states for the assessment of the performance of health systems"
  • 11 July 2011 – Hungary introduces a new tax on ‘unhealthy foods’, including crisps, soft drinks and chocolate bars
  • 29 February 2012 Commission adopts latest communicationpdf(85 KB) on the European Innovation Partnership on Active and Healthy Ageing. This sets out concrete measures to improve elderly citizens' lives, helping them to contribute to society as they grow older, and reducing pressure on health and care systems
  • 2014 onwards – The working-age population of the EU is expected to decrease from this date, creating almost one person for each dependent person under 19 years old or over 65 in the EU-27

EU official documents

International Organisations


  • Hellenic Republic of Greece, Ministry of Health: Website

Industry federations and trade unions

  • The European Federation of Pharmaceutical Industries and Associations: Website
  • European Association of Euro-Pharmaceutical Companies (EAEPC): Website

Press articles

Surveys and data

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