Sicko Europe

By DANIELE CAPEZZONE
WSJ - August 3, 2007 - Rome

We live in an age of unprecedented medical innovation. Unfortunately, most of today's cutting-edge research is conducted outside Europe, which was once a pioneer in this field. About 78% of global biotechnology research funds are spent in the U.S., compared to just 16% in Europe. Americans therefore have better access to modern drugs. One result is that in the U.S., the annual death rate from cancer is 196 per 100,000 people, compared to 235 in Britain, 244 in France, 270 in Italy and 273 in Germany.

It is both a tragedy and an embarrassment that Europe hasn't kept up with the U.S. in saving and improving lives. What's to blame? The Continent's misguided policies and state-run health-care systems. The reasons vary from country to country, but broadly speaking, the custodians of public health budgets aren't devoting the necessary resources to get patients the most modern and advanced medicines, and are happier with the status quo. We often see news headlines about promising new cures and vaccines next to headlines about patients who can't get life-saving drugs as politicians impose ever stricter prescription controls on doctors.

The human toll can be measured in deaths and unnecessary suffering. It also costs us a lot of money. Prevention is cheaper than treatment. Modern medicine can prevent many medical complications that would otherwise require hospitalization and other expensive care. For every euro spent on new medicine, national health-care systems could save as much as €3.65 in later treatments, according to a National Bureau of Economic Research study.

This situation is especially dire in Italy. The government has capped spending on pharmaceuticals at 13% of total health-care expenditures while letting expenses for infrastructure and staff skyrocket. From 2001 to 2005, general health expenses in Italy grew by 31% while expenditure on medicines increased a mere 1.7%. Italian patients might well have been better off if the reverse was the case, but the state bureaucrats who make these decisions refuse to acknowledge the benefits of advanced drugs.

Also as a result, pharmaceutical research in Italy is falling behind even faster than in the rest of Europe. In 2004, pharmaceutical R&D spending was €3.9 billion in Germany, €3.95 billion in France and €4.78 billion in Britain, compared to only €1.01 billion in Italy.

Part of the problem is that regional authorities manage most of Italy's health-care spending. A strike by health-care personnel has an immediate impact on the region, but the consequences of cutting the budget for medicines are only felt in the long term and distributed across the nation. Hence, local authorities continue to focus on personnel and infrastructure in an age when medical research has become the most efficient way to improve public health.

Most recently, some Italian regions decided to drastically expand the scope of reference pricing, in open defiance of the central government. Reference pricing is used in most European countries to reduce government spending on medicine and is one of the reasons the Continent is lagging behind in pharmaceutical research. New drugs are grouped with existing drugs used to treat the same medical condition, and the government typically limits reimbursement to the cheapest price in the reference group. This way, patients are discouraged from using the most modern and more expensive medicine.

The Italian regions, however, are taking reference pricing one step further by grouping together drugs that do not necessarily have identical therapeutic effects. This way, the reference groups grow larger, and the regions can save more money. But patients are forced to choose between paying high out-of-pocket expenses or the risk of taking the wrong medicine.

This is a tragic state of affairs in a country with a higher natural demand for advanced medicine than most others in Europe. The older people get, the more likely they are to get ill, and today 20% of Italians are 65 years of age or older -- by far the largest percentage of any European country. The proportion is projected to rise to 24.5% by 2020.

Italian leaders have a responsibility to prevent parochialism from undermining public health and pharmaceutical research. But it is worth repeating that the combination of an aging population and an inefficient health-care system is a European, not exclusively Italian, problem.

It is time for politicians and regulators to confront our backward health-care systems and unleash the powers of medical research. Besides expanding drug budgets, European countries should work together to deregulate the pharmaceutical industry -- for instance, by speeding up the approval process for new drugs. The EU can better ensure that drug patents are adequately protected both in Europe and around the world against compulsory licensing and other infringements. Finally, we should give medical researchers tax incentives to slow the brain drain to the U.S. -- much like Ireland is attracting artists with favorable tax laws. We Europeans are getting older; we should be getting wiser, healthier and happier, too.

Mr. Capezzone is the president of the productivity committee of the Italian Chamber of Deputies.