Plans to unify the two largest, privately held health insurers into a unified single entity have faced delays and are stalling. Prime Minister Robert Fico's government wants to enact such a measure in 2015 instead of 2014 as planned originally, indicating that they are not taking it as seriously or are reconsidering. Moreover, the continued threat of parallel exports has forced Slovakia to roll back some harsh pricing controls. We forecast further generic uptake and greater co-payments by patients towards the cost of healthcare, in line with an established trend we see playing out in Eastern Europe.
Headline Expenditure Projections
- Pharmaceuticals: EUR1.67bn (US$2.12bn) in 2012 to EUR1.67bn (US$2.22bn) in 2013; -0.2% in local currency terms and 4.5% in US dollar terms. Local currency figure revised from Q313 due to historic revisions. US dollar forecast changed due to recent foreign exchange volatility.
- Healthcare: EUR6.29bn (US$7.99bn) in 2012 to EUR6.46bn (US$8.59bn) in 2013; +2.6% in local currency terms and 7.4% in US dollar terms. Local currency and US dollar forecast raised from Q313 owing to historic revisions.
Risk/Reward Rating: Slovakia's Risk rating indicates the country has one of the best business environments in the Central and Eastern European region, but its ranking is moderated by its less-thanstellar rewards score. Consequently, Slovakia has a RRR score of 56 out of 100, making it the sixth-most attractive pharmaceutical market in Central and Eastern Europe.
Key Trends And Developments
- The Slovak government continues to insist that the planned nationalisation of private health insurers to form a single state-run insurer will go through, with or without shareholder consent and in line with EU legislation. However, it has delayed its plans to 2015, indicating the government is hesitating on its desire to nationalise insurers.
- Dutch company, Achmea, the owner of insurer Union, successfully sued to appropriate Slovak assets in Luxembourg in the wake of the dividend payout ban.
- The International Court of Arbitration ruled in favour of Dutch-owned private health insurer Union, after Robert Fico's government banned health insurers from turning a profit. Although not legally binding, the decision sets a precedent for rulings from the EU Commissioner, who may strike down on Slovakia's measures.
- The movement to buy out the stakes of the two private health insurers and form one state-run insurer has hit severe delays as both companies are stringently against selling their stakes, with the threat of judicial appeal to the EU.
- Parallel exports in the region and Slovakia have risen dramatically as reference pricing mechanisms have lowered drug prices significantly; the non-inclusion of specific countries in reference lists by Western European countries has created a massive arbitrage opportunity for wholesalers exploiting the higher prices in Germany, France and the UK.
- The government has increased the level of private contributions towards the cost of reimbursed medicines, as it seeks to continue its plan to curtail pharmaceutical expenditure.
BMI Economic View: Stagnating domestic demand and disappointing data from the eurozone have prompted us to downgrade our 2013 growth target for Slovakia to 0.6%, from a previous 1.2%. We have also pared back our target for 2014 to 2.0%, from 2.4%. Though the downturn should bottom out this year, high unemployment and fiscal tightening will continue to weigh on domestic demand, while the stuttering recovery in the eurozone will undermine export growth.
BMI Political View: The political climate in Slovakia remains relatively stable, despite the economic downturn. Prime Minister Robert Fico and the ruling Smer-SD party remain dominant, with little to impede policy formation and implementation. While this facilitates reforms, it does not support consensus politics and thorough debate, which could undermine the enduring quality of new policies. Though tackling unemployment and managing the budget deficit are key challenges, we see minimal risks to government stability in the short term.