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Venezuelan health system in intensive care

27 May 2015 Angelica Kershaw

During recent months, shortages of medicines have increased in Venezuela to such a level that several international organizations (including the United Nations) have warned the Venezuelan government to take measures before the situation becomes critical. It is perhaps no surprise that Venezuela tops our list of global market access risk scores (MARS) with an overall score of 4.24.

The president of the Venezuela Pharmaceutical Federation, Freddy Ceballos, has previously stated that medicine shortages have reached 60% in Caracas and 70% in the rest of the country due to the government only releasing a quarter of the authorized US dollar currency needed to import medicines and supplies, according to several Venezuelan media sources.

The drug shortages have reached such severe levels that Venezuelan patients have resorted to the social network Twitter, #ServicioPublico, to plead for oncology drugs, vaccines, and blood disorder treatments, reports UK's Daily Mail. Some patients are even travelling to the Colombian border to buy medicines. The situation has created a black market, with pharmaceuticals being smuggled in from Colombia and other markets.

These shortages of medicines not only affect patient access to medicines to treat serious conditions, but are also negatively affecting the already unstable Venezuelan government, and the confidence of international pharmaceutical companies that continue to operate in this market.

Together with the worsening economic outlook, medicine shortages have divided political opinion on the appropriate response, with the government and the opposition proposing different approaches, adding to the difficulty of achieving a suitable solution.

For the pharmaceutical companies, which have seen their profits reduced in this market, there are several important facts that have clearly induced medicine shortages. The main one is that medicine prices have been frozen in Venezuela since 2003, and this is compounded by difficulties in accessing foreign currency together with the lack of a serious payment plan for the USD4-billion debt owed by the government to the pharma industry.

Meanwhile, the government, which has rejected several proposals for declaring a healthcare emergency, has blamed some sectors of the industry for intentionally inducing the medicine shortage in what it calls an "economic war" against the Maduro government. As a result, the Venezuelan government has implemented some measures in an attempt to normalise medicine production. One of the most recent measures is the creation of the Integrated System of Access to Medicines (SIAMED), which was launched in April and aims to introduce a new level of control on medicine distribution channels to prevent smuggling and hoarding. This system can be seen as an unwelcome kind of "Cubanisation" in the distribution of some medicine at the Venezuelan retail level. Indeed, the double registration by patients and pharmacies may provide an unnecessary step in the medicine distribution chain, making it even more difficult for stable medicines supply and risking the increase of medicines shortages.

On 11 February 2015, the Venezuelan government announced changes in the monetary system in an effort to bolster state coffers amid tumbling oil revenues. However, taking into account the deficiency in the distribution and production of some essential products, the government decided to maintain an official exchange rate of 6.30 bolivars per US dollar for imports of food, medicines, and basic food.

Nevertheless, two weeks ago the government announced that they will investigate whether drug companies have inappropriately used this preferential exchange rate system. Venezuelan Minister of Health, Henry Ventura, has been reported as stating in Reuters and several Venezuelan media sources that despite pharma companies receiving a favourable exchange rate in order to produce medicines to treat chronic conditions, they have instead primarily used the benefit to produce or import more profitable items.

Beyond the political rhetoric, it seems clear that a market with high production costs with prices artificially capped for more than a decade is not attractive to companies and the natural consequence is a reduction in the number of products available on the market.

The continuing problem with debt repayment is the main obstacle that discourages the industry from maintaining a regular flow of imports, of either raw materials or finished pharmaceutical products, to supply Venezuela's pharma market. Although, in recent years, delays in authorisation of foreign currency have been normal in Venezuela, pharmaceutical companies now have additional reasons to be concerned: the decline of the oil price has had a damaging impact on Venezuela's economy that could affect the country's ability to release foreign currency payments.

On the positive side, the Venezuelan government has shown an intention to address the shortage of essential medicines due to the lack of payment of debt owed to the pharma industry. Indeed, some minimal payments were made. The National Centre for Foreign Trade (CENCOEX) sold USD2.05 billion to 374 firms in the health sector between January and July 2014. However, this has not met the needs of pharmaceutical importers and has contributed to a worsening drug shortage in the country.

The government should focus on seeking effective solutions, for example, by considering an update of the medicine prices, an increase in the amount of foreign currency approved for medicines and negotiating a robust plan for repaying the debt. Such measures are more likely to address the root causes of the current difficulties and could work as a real incentive for the pharma companies that despite challenges are still committed to finding solutions in Venezuela since an increase in medicine sales is clearly also in their interest.

Angelica Kershaw is a life sciences analyst for IHS
Posted 26 May 2015



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