Is Southern Europe’s Debt Crisis an Omen for US Health Care?

The Wall Street Journal (Pain for Europe’s Smaller Drug Firms) notes that Spain, Greece, and Italy are putting the squeeze on drugmakers as part of national austerity programs designed to ease the debt crisis. Companies like Almirall and Alapis that depend heavily on those markets are suffering mightily as national health systems cut reimbursements. There’s less appetite for cuts to hospitals and physicians, and none for taking away coverage.

The US fiscal situation isn’t as pressing as Southern Europe’s. Still if present trends continue, we’ll get there. In fact, uncontrolled health care spending –mainly Medicare– is the culprit. So what can we expect in a 10 year time frame, assuming the US’s finances aren’t straightened out by then?

  • Hospitals and physicians are likely to get hit harder in the US than Europe. That’s partly because physicians get paid more here than Europe and also because Medicare sets rates and pays providers directly
  • Pharmaceutical companies won’t escape the axe, but they’re a bit less vulnerable politically in the US because they are a major source of R&D spending, are seen as innovative and a more attuned to the political system

  • The Affordable Care Act is intended to bring more people into coverage, but the effects may be partially offset by states tightening Medicaid eligibility and Medicare restricting entry by raising the eligibility age or increasing patient financial responsibility
  • Although it sometimes seems spending can’t go any higher, there still may be cost shifting from public programs to the private market, where premiums may grow even more rapidly than they would otherwise

I’m hoping the Super Committee or subsequent efforts place us on a more sustainable policy footing and that PPACA, state-level and private initiatives succeed in decelerating health care spending. Otherwise things are going to get ugly.

David E. Williams is co-founder of MedPharma Partners LLC, strategy consultant in technology enabled health care services, pharma,  biotech, and medical devices. Formerly with BCG and LEK. He writes regularly at Health Business Blog, where this post first appeared.

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