RouhaniCare fiscal crisis: Aftershocks in Iran’s pharmaceutical industry

Tehran, Iran, Sept. 19

By Mehdi Sepahvand – Trend:

In 2014, a series of reforms, called the Health Sector Evolution Plan (HSEP), was launched under President Hassan Rouhani in the health system of Iran.

Sometimes called RouhaniCare, HSEP came as a groundbreaking move to reshape Iran’s health sector after it had been grounded under harsh international sanctions during the Ahmadinejad administration around the year 2010. At that time, drugs became unprecedentedly scarce and a black market raged.

HSEP was mainly based on the fifth 5-year health development national strategy (2011-2016). It included different interventions to: increase population coverage of basic health insurance, increase quality of care in the Ministry of Health and Medical Education affiliated hospitals, reduce out-of-pocket (OOP) payments for inpatient services, increase quality of primary healthcare, launch updated relative value units (RVUs) of clinical services, and update tariffs to more realistic values.

The reforms resulted in extensive social reaction and different professional feedback.

The official monitoring program shows general public satisfaction. However, there are some concerns for sustainability of the program and equity of financing. Securing financial sources and fairness of the financial contribution to the new program were the main concerns of policy-makers. Some members of the Parliament opposed the plan from the outset.

Whatever good intentions legitimized RouhaniCare, now there are many people in the private sector who are bearing the brunt of its deficiencies.

One of Iran’s oldest drug bottle manufacturers is facing a huge crisis and is coping to prevent bankruptcy, which the management associates with RouhaniCare.

The company, Trend has found out, has already exhausted all the banking facilities that it could acquire directly or through its subsidiary factories, and is now changing its molds to produce bottles for uses other than drug packaging.

An official with the company, speaking on conditions of anonymity, told Trend that the crisis follows a liquidity crisis in Iran’s healthcare sector, a relic of HSEP.

“Drug manufacturers can no longer produce, because they have been facing a liquidity crisis after the government failed to pay its outstanding debts to hospitals and pharmaceutical companies,” the source said.

RouhaniCare was implemented right at the time when international sanctions against Iran were at their peak, hard pressing the government whose main source of income was oil export. Later on, when sanctions were lifted following Iran’s nuclear deal with world powers, a huge plunge in oil prices followed, leaving the Iranian government with little improvement of oil revenues.

Just before HSEP was introduced, the government had allocated 160,000 rials (about $4.8) to each patient as health subsidy to be given via the Ministry of Labor and Welfare’s Social Security Organization to insurance companies. However, the HSEP authorized 320,000 rials (about $9.7) for each insured person. Shortage of resources left the government with huge debt to the health sector.

“Instead of liquidating the debts, the government has proposed that it will provide the pharmaceutical companies with low-interest loans, which will drive them deeper into liquidity crisis in the long run,” the source in the packaging company said.

“Now, as they have cut down on production, the drug manufacturers would naturally no longer place orders for packaging.”

This drug bottle factory now faces worth at least 1.8 billion rials (about $54,000 on Sept. 19) surplus product that it is not optimistic to be able to sell within the current fiscal year (to end March 20, 2018), and therefore sees no need to produce drug bottles anymore, the source observed.

“As a result, it is changing its molds from drug bottles to food bottles.”

The shortcomings of HSEP were not limited to international sanctions and lowering crude prices. As it turned out, domestic policy-making also played a big role. In July 2016, Minister of Labor and Social Welfare Ali Rabiee admitted the faults, saying the way the plan was implemented resulted in a huge liquidity crisis.

“The HSEP is the government’s big social project, but the problem was that we did not go step by step and did many things all at the same time. We changed the 2K (a health service payment guide) at the same time as we implemented the nationwide health insurance and also revised the Relative Value Guide.”

But there was more to this, as Rabiee noted.

“First I thought there were 5 million people in Iran who did not have insurance coverage and were to be covered under HSEP. But later, as the country’s statistics infrastructure improved, the number was found to be 11 million. Also, the per capita health insurance allocation had improved from 160,000 to 320,000 rials. As a result, 3.52 trillion rials of fiscal load appeared out of the blue, whereas we had planned for 1.1 trillion. That is why we hit a liquidity crisis.”

The minister had elsewhere said that about 80 percent of the fiscal load of HSEP lay on the shoulders of insurers.

A few days after Rabiee’s controversial remarks, Health Minister Hassan Qazizadeh Hashemi admitted the fact and said that insurance companies did not possess enough resources to pay up, noting that in the preceding fiscal year, insurance companies faced an 8-trillion-rial deficit.

Also, Farzad Firouzi, a South Khorasan Welfare official, said in January 2016 that RouhaniCare had increased the fiscal burden on insurers by four or five times.

Head of Food and Drug Organization Rasul Dinarvand last December said if debts owed to drug manufacturers were not paid, a “crisis” would sweep the country’s drug market.

In July, there were reports that some private hospitals had quit accepting patients under RouhaniCare as they were not being paid by insurance companies.

In June, Deputy Chairman of the Parliament’s Health Commission Homayoun Yusefi also rang the alarm over debts that hospitals owed to drug manufacturers and added, “The Ministry of Health faces a huge amount of debt.”

This September, Chairman of the Pharmaceutical Association of Iran Mohammad Baqer Zia said the pharmaceutical industry in Iran had been crippled because companies were not receiving their claims from insurers.

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