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Turkey: Healthcare and Pharmaceuticals Report

May 17th 2011 FROM THE ECONOMIST INTELLIGENCE UNIT Healthcare report: (Forecast closing date: May 17th 2011)

Healthcare spending, international comparison

(% of GDP)
Turkey US Japan China Germany
a

2006a 5.8 15.8 6.5 4.5 10.5

2007a 5.9 16.0 6.7 4.7 10.4

2008a 6.0 16.1 6.8 4.7 10.6

2009a 6.2 16.3b 7.0b 4.7b 10.6b

2010a 6.3 16.0b 7.2b 4.7b 10.6b

2011c 6.3 16.2 7.3 4.7 10.6

2012c 6.3 16.2 7.5 4.7 10.6

2013c 6.4 16.2 7.7 4.7 10.6

2014c 6.4 16.2 7.9 4.7 10.6

2015c 6.4 16.2 7.9 4.7 10.6

Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. Source: Economist Intelligence Unit.

Download the numbers in Excel Healthcare report: Healthcare spending Five-year forecast
q

Turkey's healthcare system is undergoing a prolonged period of transition under the government's 2003-13 Health Transformation Programme. Its goals are to achieve better healthcare outcomes and wider access through the gradual introduction of universal health insurance. The programme's success and its effect on health expenditure will become clearer later in the forecast period. The gradual extension of health insurance coverage, an increase in annual income per head, a growing population, a gradual rise in life expectancy and the size of the elderly population all point to a continuation of the strong upward pressures on healthcare spending that emerged in 2007-08. Health spending forecasts are complicated by issues affecting the pricing of pharmaceuticals (see Pharma and biotech: Pricing). Turkey's tough pricing regime and the government's efforts to promote cheaper generic drugs should exert downward pressure on spending as pharmaceuticals are the largest public health expenditure item, accounting for about 25% of the total. The Economist Intelligence Unit's baseline scenario is that after dipping in 2009 to US$38bn, total healthcare spending will rise in US dollar terms by about 10.5% a year (about 11.5% in local currency terms) to about US$69bn, or US$902 per head of population, in 2015. These figures could be substantially higher if the government fails to control expenditure as coverage expands. Healthcare spending per head in Turkey in 2015 is forecast to be well above that in Bulgaria and Romania (US$550-600), but marginally below that Hungary and Poland (US$1,100-1,200). In GDP terms total spending in Turkey is forecast to rise marginally from an estimated 6.3% in 2010 to 6.4% in 2015, compared with 5.7% in Romania, 6.9% in Poland and Bulgaria and 7.6% in Hungary. The strong rebound in economic activity in 2010 helped to lower the budget deficit from 5.5% of GDP in 2009 to 3.6% in 2010. More moderate economic growth projected in 2011-15 is expected to slow deficit reduction, constraining public capital spending in the health sector. Public-private partnerships will be needed to maintain and upgrade healthcare infrastructure. Private demand for healthcare and over-the-counter (OTC) drugs is expected to rise in line with personal disposable income over the forecast period. Nevertheless, most of the population will

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remain unable to afford major treatment or to obtain expensive or continuous medication privately.

Income and demographics

Nominal GDP (US$ bn) Population (m) GDP per head (US$ at PPP) Private consumption per head (US$) No. of households ('000) No. of households with annual earnings above US$5,000 ('000) No. of households with annual earnings above US$10,000 ('000) No. of households with annual earnings above US$50,000 ('000) No. of households with net wealth over US$1m ('000)
a

2006a 531c 70.4c 11,714 5,317c 15,671c 14,819 11,168 1,047 0

2007a 647c 71.2c 12,490 6,485c 15,922c 15,922 13,403 2,090 0

2008a 730c 71.9c 12,716 7,096c 16,188c 16,188 13,208 1,836 0

2009a 615c 72.6c 12,092 6,049c 16,446 16,058 12,713 1,483 0

2010a 735c 73.3 13,171 7,134 16,708 16,708 13,952 2,110 0

2011b 743 74.0 14,001 7,460 16,975 16,975 14,345 2,271 0

2012b 801 74.7 14,937 8,007 17,245 17,245 14,733 2,436 0

2013b 883 75.4 16,011 8,701 17,520 17,520 15,378 2,852 0

2014b 988 76.0 17,236 9,577 17,800 17,800 16,024 3,341 0

2015B 1,081 76.7 18,486 10,352 18,084 18,084 16,612 3,831 0

Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual. Source: Economist Intelligence Unit.

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Funding sources
q

The expansion of Turkey's health insurance system is being carried out in the context of attempts to reduce the deficits of the social security institutions, which have risen sharply in recent years. The impact on health funds' costs and revenue will vary as government policy develops in response to changing spending pressures. Most major treatments and pharmaceuticals are currently paid for under compulsory public health insurance schemes administered by the government or by social security institutions. Efforts to bring Turkey's large informal workforce into the registered sector will have a significant positive impact on revenue as this would increase the number of contributors. Public health spending as a percentage of the total was about 68% in 2005-07. This proportion had risen to 75% by 2009 owing to an acceleration of spending from 2008. In 2009 the government adopted a series of measures to slow spending growth. If Turkey's healthcare reforms succeed in cutting public spending, most of shortfall will be made up by higher private spending. Out-of-pocket payments remain relatively high but have declined from 29.1% of total healthcare expenditure in 1999 to 16% in 2009. Increases in out-of-pocket payments are likely in the forecast period as the government tries to curb the rise in public spending and private insurance remains limited to high income groups. The OTC pharmaceuticals market is lively. This mainly reflects the perceived deficiencies of much of the public health service, with its impersonal consultations, long queues, timeconsuming procedures and unattractive hospitals and clinics. These problems are unlikely to ease rapidly as improving healthcare access and choice under the new system will take time.

Healthcare: key indicators

Life expectancy, average (years) 2006a 71.1 2007a 71.4 2008a 71.7 2009b 72.0 2010b 72.2 2011c 72.5 2012c 72.8 2013c 73.0 2014c 73.3 2015c 73.6

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Life expectancy, male (years) Life expectancy, female (years) Infant mortality rate (per 1,000 live births) Healthcare spending (TL bn) Healthcare spending (% of GDP) Healthcare spending (US$ bn) Healthcare spending (US$ per head) Healthcare (consumer expenditure; US$ bn) Doctors (per 1,000 people) Hospital beds (per 1,000 people)
a

69.3 73.0 22.6 44.0 5.8 30.8 437 15.2 1.6 2.6

69.6 73.3 16.8 49.7 5.9 38.2 537 18.8 1.7 2.6

69.9 73.6 16.1 57.0 6.0 43.8 610 20.8 1.7 2.5

70.1 73.9 15.3 59.1 6.2 38.1 525 18.8a 1.7 2.6

70.4 74.2 14.3 69.6 6.3 46.3 632 23.6 1.7 2.6

70.6 74.5 13.4 75.0 6.3 46.8 633 25.4 1.7 2.6

70.9 74.8 12.6 83.9 6.3 50.4 675 28.1 1.7 2.6

71.1 75.1 11.7 94.6 6.4 56.5 750 31.2 1.7 2.6

71.3 75.4 10.9 104.6 6.4 63.2 832 35.2 1.7 2.6

71.6 75.6 10.2 114.0 6.4 69.2 902 38.9 1.7 2.6

Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. Source: Economist Intelligence Unit.

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Private health insurance

q

Although public healthcare spending growth has outpaced private spending in recent years, private health insurance has risen rapidly and is expected to remain the fastest-growing insurance sector in Turkey in the forecast period. That said, it currently covers barely 2% of the population and, given low incomes per head, is likely to remain limited to higher-income groups. The companies providing private health insurance offer a wide range of services across Turkey through the contracts they have stipulated with hospitals, medical centres, laboratories and pharmacies. Individuals covered by private insurance also pay premiums to the public institution of which they are legally members. The new healthcare system may create a market for "top-up" health insurance, covering the insured against costs that are not met by the universal public insurance scheme. Health insurance in 2010 accounted for about 12% of total value of insurance premiums in Turkey. The five largest providers in 2010 were Yapi Kredi (Turkey), Allianz (Germany), Anadolu (Turkish), Mapfre Genel (Spain) and Aksigorta (Turkey). The largest Turkish providers are all owned by banks.

Healthcare report: Healthcare provision Healthcare recruitment

q

The number of doctors in Turkey has been rising steadily over the past decade, but the 2008 figure of 1.7 doctors per 1,000 population is still around half the OECD average of 3.2. The disparity in nursing provision is wider still. There were 1.3 nurses per 1,000 population in Turkey in 2008, compared with an OECD average of 9 nurses per 1,000 population. A performance-based supplementary payment system has been rolled out across the healthcare services in Turkey, replacing methods such as payment per service or per capita. The goal is to improve the efficiency of existing resources. The main salary of healthcare personnel paid by the Ministry of Health will be topped up by earnings from other institutions.

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Hospitals and clinics

q

Provision of hospital beds is low, at 2.5 beds per 1,000 people in 2008, compared with an OECD-wide figure of 3.6. The number of beds is forecast to rise broadly in line with population growth during the forecast period, leaving the ratio virtually unchanged in 2015. Private-sector growth is expected to account for the bulk of the increase in the number of hospital beds. The number of private beds increased from 13,000 in 2002 to 21,000 in 2008, raising their share of the total from 8.2% to 11.1%. Consultations, prescriptions and treatment have generally been provided at (often overcrowded) institutions belonging either to the Social Insurance Organisation (SSK, the staterun pension fund for private-sector workers and blue-collar public-sector employees) or to the health ministry or to other state institutions and universities. One of the key reforms to take place in the early years of the Health Transformation Programme was the transfer in 2005 of hospitals belonging to the SSK to the health ministry in order to harmonise management and payment practices ahead of the integration of social security institutions and privatisation. Private consultations have become the norm for the middle classes, and private hospitals, clinics and laboratories are on the increase, particularly in the largest cities. The low cost by international standards of private healthcare services in Turkey has led to the emergence of a "medical tourism" market, with some foreigners visiting Turkey for health treatment.

Healthcare report: Pharma and biotech International comparison

q

Turkey is the world's 16th-largest producer of pharmaceuticals and the sixth-largest pharmaceuticals market in Europe, after Germany, France, the UK, Italy and Spain. The number of people employed in the sector has increased steadily in the last ten years, rising from about 14,000 people in 1996 to 25,000 in 2007, of which about half had a university qualification.

Pharmaceutical sales
Pharmaceutical sales (US$ m)
a

2006a 6,580

2007a 8,497

2008a 9,329

2009b 9,065

2010b 9,282

2011c 9,391

2012c 9,760

2013c 10,332

2014c 11,149

2015c 11,947

Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. Source: Economist Intelligence Unit.

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Five-year forecast
q

Estimating the size and pace of growth of the pharmaceutical market is complicated by the government's aggressive moves to push prices down in the sector as part of its efforts to rein in public health spending. In volume terms, the drugs market increased by around 5% a year in 2006-10, according to figures from the Pharmaceutical Manufacturers Association of Turkey (IEIS). In value terms they rose by 8% a year in US dollar terms (about 10.5% in Turkish lira terms) over the same period. However, in 2010 they fell marginally in Turkish lira terms, reflecting substantial price restraint. Our baseline forecast is that sales growth will be weaker in 2011-15 than in the previous five years. We expect growth of about 5% a year in US dollar terms (about 7% in local-currency terms), owing to downward pressure on prices. This forecast is subject to greater than usual uncertainty owing to the ongoing process of reform and sudden variations in administered prices. About half of spending on prescribed pharmaceuticals in 2010 was on imported products and half on locally manufactured products, according to the IEIS. In volume terms cheaper locally produced drugs will account for the bulk of sales, although the share will continue to fall gradually. They accounted for 77.4% of total sales in 2010, down from about 85% in 2005.

Pricing
q

Under Turkey's drug pricing system, where a branded drug has no generic equivalent, its exfactory price is capped at the lowest price among the five EU reference countries. In cases where both a branded drug and a generic equivalent are available, then the price of both is capped at 66% of the reference price. Price developments in the EU (and particularly in Greece, where prices were cut sharply in

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2010), as well as fluctuations in the exchange rate between the Turkish lira and the euro, will therefore continue to affect prices and demand in Turkey. In March-April 2011 the three-month moving average market rate of TL2.2:1 was substantially weaker than the average in 2010, suggesting that prices should rise. However, an upward adjustment is unlikely at least until after the general election in June 2011. Manufacturers and importers are required to offer a discount on all drugs purchased by the public health system. From end-2009 the discount applied to branded drugs more than doubled from 11% to 23%, whereas the discount on generic drugs was left unchanged at 11%.
Price (US$) 3.77 130 55.00 117 % of monthly personal disposable income 1.14 39.23 16.60 35.21 Affordability 22 out 45 out 38 out rank of 55 of 55 of 56

Item Aspirins, 100 tablets (supermarket) Routine check-up at family doctor (av) One X-ray at doctor's office or hospital (av) Visit to dentist, one X-ray and one filling (av)

40 out of 56

Note. Affordability rank: for each country the price of an item as a percentage of monthly personal disposable income is calculated. Countries are ranked according to these percentages. The most affordable country will have the lowest percentage and be ranked first.

Download the numbers in Excel Generics

q

Based on IEIS figures, the generics market was worth US$3.4bn at ex-factory prices in 2010, compared with US$3.2bn in 2009. The share of the total pharmaceutical market accounted for by generics was 37.1% in value terms and 51.4% in volume terms in 2009. Turkey's 1999 patent law grants patent protection for the customary 20 years, but its 2005 Registration Regulation allows data exclusivity for only six years, significantly below the 11year period that applies in the EU. As a result, Turkey's generics manufacturers have a head start in acquiring information on patented drugs. The EU (and the US) is likely to exert pressure for fuller protection and ultimately an extension of the six-year rule.

Pharma and biotech supply dynamics

q

According to the IEIS, Turkish companies supply about 75-80% of domestic demand in volume terms. But the sector will remain heavily reliant on imports, which rose in value from US$4.1bn in 2009 to US$4.4bn in 2010. Raw and semi-finished products accounted for about one-quarter of the total value, while finished products, mainly new advanced drugs, accounted for 75%. The market is likely to remain fragmented and highly competitive. The leading ten companies account for around half of the market. Only the Social Security Institute pharmaceuticals plant and the Ministry of Defence army pharmaceuticals plant are publicly owned. Many Turkish firms produce or distribute under licensing agreements with international companies. Turkey has become an increasingly attractive investment location for drugmakers. In 2007 Zentiva, a Czech company now wholly owned by the Sanofi-Aventis group (France), took over Eczacibasi Pharmaceuticals' generic production operations. Other foreign pharmaceuticals companies with production facilities in Turkey include, in order of market share, Novartis (Switzerland), Pfizer (US), GlaxoSmithKline (UK) and Bayer (Germany). Since the takeover of Eczacibasi Pharmaceuticals, Abdi Ibrahim has become the largest domestic player. Sanofi, owner of Eczacibasi, sees Turkey as a base for its expansion in central and eastern Europe. Eczacibasi has a large-scale co-operation agreement with Ivax, one of the world's leading generic drug companies, to manufacture generic products at its facilities in Istanbul for sale throughout the region.

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Healthcare report: Disease trends Population health

q

Healthcare indicators have improved in recent years, although they are still relatively low by west European standards. Life expectancy was an estimated 72.2 years in 2010 (70.4 years for men and 74.2 years for women), up from 56 years in 1970. The average is expected to rise to 73.6 years by the end of the forecast period, but will remain well below the current EU27 average of 77.3.

The infant mortality rate has declined steadily but is still by far the highest in Europe at 15.3 per 1,000 live births in 2009, according to Eurostat. It is projected to decline to about 10 by 2015, still more than three and a half times higher that the 2009 EU27 average.

Demographic trends
q

Turkey's total population is projected to rise from 73.3m in 2010 to 76.7m in 2015. The rate of population growth is forecast to slow from 1% year in the historical period (2006-10) to about 0.9% during the forecast period (2011-15). Turkey's population is young by European standards, with an average age of about 30. In 2015 the share of under-15s will still be high, at 22.4% of the population, while over-65s are expected to account for 7.6% by 2015, compared with an estimated 7% in 2010.

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Major disease trends

q

According to Ministry of Health data, the main causes of death are heart disease (34.3%), neoplasms (15.3%) and respiratory diseases (11.4%). The authorities' response to disease outbreaks has generally been swift and effective. In September 2010 the health ministry confirmed three deaths caused by the West Nile virus. These deaths occurred at the same time as cases were identified in Greece (where 20 deaths were recorded), the US, Romania, Hungary, Russia and Italy. In 2009 Turkey detected its first human case of swine flu, the A(H1N1) virus. However, there were no deaths. In 2006 Turkey was the first country outside Asia to report laboratoryconfirmed human cases of the virulent A(H5N1) strain of avian influenza (bird flu). There were a total of 12 human cases and four deaths.

Risk factors
q

Turks remain heavy smokers, but OECD figures suggest that the proportion who smoke daily has dropped to 44% for men and 12% for women in 2008. Falling cigarette consumption follows awareness campaigns, restrictions on advertising and packaging, and a ban on smoking in public places, which was extended to bars, cafs and restaurants in 2009. The obesity rate in Turkey based on self-reported data was 15.2% in 2008, broadly in line with the OECD average, but well below that in the US. Being a predominantly Muslim country, Turkey's alcohol consumption is as much as 85% lower than the OECD average. As a result, alcohol-related diseases are less frequent. According to the OECD, low alcohol consumption added about 1.5 years to life expectancy at birth compared with the OECD average in 2003.

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Source: Industry Briefing

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