Summary
The health sector in the Czech Republic is in a state of flux as detailed in BMI's Q307 Czech Republic Pharmaceuticals & Healthcare Report. Proposed reforms to the system include the introduction of flat charges for prescriptions, as well as fees for both doctor consultations and hospital visits. BMI expects these changes to be deeply controversial with industry stakeholders and patient groups likely to offer strong resistance.
The Czech Republic's pro-business governing party the Civil Democrats is keen to curb consumption in the health sector, with Health Minister Tom Julnek championing the implementation of fees at the point-of-delivery. Opposition is fiercest from the pro-market right of the political spectrum, which wishes to see even greater liberalisation, with commentators seeing the two camps as irreconcilable. Meanwhile, BMI expects draft amendments to the national tax legislation to have a deflationary impact on consumption, as they propose an increase in the VAT on medicines from 5% to 9%. Despite the downside afforded by these reforms we remain optimistic about the strength of the Czech drug sector. We expect the market to grow by an average annual rate of 6.98% from US$2.89bn in 2006 to US$4.05bn in 2011. Recent solid economic growth has contributed to stabilising the market, enabling greater out-ofpocket spending, while industry is likely to continue to attract foreign investment, encouraged by the advantages that the market offers within the EU. In fact, the overall health of the economy may end up negating the deflationary impact of the VAT hike, with consumer-spending power remaining strong. Drugmakers in the country will also be encouraged by the desire of the government to introduce a 15% flat tax rate and a 19% corporate tax rate by 2010. Such tax systems are common in Central & Eastern Europe and are designed to stimulate business. In pharmaceuticals, this could result in more funds being made available for R&D. Local drugmakers such as Zentiva are expected to be affected by the new prescription fee system. However, there is hope offered by the example of Slovakia. A similar system introduced in this country but after a year generic sales recovered, although they remained depressed for branded drugs.
Meanwhile, the Czech Republic has retained it lead at the top of BMI's Business Environment Rankings for Central & Eastern Europe, although only just. The country improved its score marginally after an upwards revision of its rating for long-term political risk. However, Bulgaria and Estonia have both increased their overall scores and are now on level terms.
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