The document discusses issues with Romania's clawback tax on pharmaceutical companies. The tax is unsustainable as it reached 33% of manufacturers' revenues in the first half of 2012. It is unpredictable because the amount depends on differences between budgeted and actual healthcare expenditures, which manufacturers cannot control. It is unfair because it applies to manufacturers' revenues but is calculated based on full retail prices, and it discriminates against pharmaceuticals compared to other sectors. The government made some adjustments but more changes are still needed to address the problems and prevent damage to the pharmaceutical supply sector and patients.

1. 16 The Clawback Tax, an Error in Substance or in Form? / 01
Just in Case Issue 11, September / October 2012
The literal translation of clawback into
Romanian is pretty simple. It is a “claw” (the
tax) taking “back” (from the beneficiaries)
some of the money paid for medicine by public
health insurance funds.
This surcharge is one of a kind, as it is
not applicable in any other sectors financed
from public funds, and joins all the other
taxes that pharmaceutical companies must
pay, just like the rest of the market players.
Certain European States imposed it some time
ago, in their attempt to control healthcare
expenditure. The formula used in such states
is rather simple. Governments estimate the
increase in healthcare funding needs, from one
year to the next, and if the budget is exceeded,
the pharmaceutical industry contributes to the
shortfall. If 100 patients were treated this year,
and the forecast for the following year is 110
patients (as the population is ageing, diagnosis
methods are improving, the range of available
therapies is more sophisticated), the State will
budget its expenditure for all these patients.
If, however, it ends up providing treatment for
115 patients, the balance is covered both by the
State and the manufacturers. In other words,
the State shares the “excess” expenditure for
the five extra patients with the manufacturers.
At first, the Government pays for all patients,
and afterwards it recovers some of the budget
deficit through the clawback tax.
The Romanian clawback tax is unique in
Europe, because instead of controlling the
annual increase in expenditure, it covers
incorrectly funded budget gaps.
Even the aforementioned literal translation
is not a true match for the actual situation,
since the State charges pharmaceutical
companies the tax significantly before (65
days from the end of quarter – according to
Government Emergency Ordinance No. 77/2011)
it actually pays for the subsidized medicines
(within 210 days, according to the applicable
Government decision, plus a derogation of 90
additional days allowed by the IMF). We are
dealing with a rather uncommon situation,
where the State stipulates for its own benefit
a considerably longer payment term than the
one imposed on the taxpayer, to whom it
already owes a lot of money (more than EUR
1.3 bn for subsidized medicines which have not
yet been paidfor).
Therefore, this is not an actual clawback,
but rather a surcharge on revenues.
Its main problems are unsustainability,
unpredictability and unfairness.>
The Clawback Tax, an Error in Substance
or in Form?

2. 17
Just in Case Issue 11, September / October 2012
The Clawback Tax, an Error in Substance or in Form? / 02
Why Is the Tax Unsustainable?
The value of the tax in the first half of 2012
went up to almost 33% of the manufacturers’
revenues obtained through the medicine
reimbursement system. This staggering
percentage arises from the incorrect funding
of medicine consumption. In 2012, a budget
of RON 5.7 bn was allocated, i.e. much lower
than the 2011 consumption (RON 6.8 bn),
disregarding the actual increase of the need
for medicines (RON 7.5 bn, as estimated in
2012).
In the first half of 2012, the consumption
made public by the National Health Insurance
House amounted to RON 3.7 bn. Manufacturers
will collect (one year later) RON 2.6 bn of this
amount, while the rest shall be allocated to
distributors, pharmacies and VAT. The State
merely says: “We had RON 2.85 bn available.
We accepted an expenditure of RON 3.7
bn, and therefore the tax is RON 850 mn.”
Hence, the manufacturer pays this amount,
representing a 33% tax on the relevant income
(0.85 of 2.6), one year before such income is
actually collected.
Why Is the Tax Unpredictable?
The sum payable is the mathematical
difference between the final expenditure
and the allocated budget. Neither of the two
sums is controlled by the taxpayer. If you make
profit, you know exactly how much you will
pay: 16% of the forecasted and calculated
profit. Thus, the absolute value of the tax
is known early, from the business planning
phase. In the case at hand, the budget is
drawn up by the Ministry of Finance on the
basis of entirely unrealistic assumptions (for
2012, the estimated consumption was 1.1 bn
lower than last year’s consumption), while
the consumption is influenced by patients
who want to get healthy. Moreover, fraud
and abuses committed within the system are
fully covered by medicine manufacturers,
which cannot interfere in the State’s financial
inspection process.
This lack of predictability has detrimental
effects on all pharmaceutical market players.
The State is no longer incentivized to finance
correctly or to monitor how the money is
spent, as somebody else is picking up the tab.
Manufacturers (those that survive the 33%
income tax in 2012) cannot make business plans
for the coming years, as they know neither
the budget to be allotted nor the medicine
consumption.
Why Is the Tax Unfair?
Manufacturers are also charged for the
revenues obtained by other businesses
(pharmacies and distributors) and for VAT. The
tax is actually calculated for the retail price and
is imposed entirely on manufacturers whose
sale price is much lower (70% of the final
price).
The unfairness of the tax also resides in
discrimination against the pharmaceutical
sector, by applying different operating rules
to it than other economic sectors. It is difficult
to grasp why a revenue surcharge would be
imposed in relation to medicines (which, in
Romania, have the lowest prices in Europe set
by law), but not for road construction, of which
the same could by no means be said…
What Has the Government Done?
On August 23rd
, 2012, it issued an ordinary
ordinance (Government Ordinance No. 17/2012)
increasing the budget allocated to medicines as
of the last quarter of this year, and eliminating
VAT from the basis of calculation. Thus, the
quarterly budget will increase from RON 1,425
mn, VAT included, to RON 1,515 mn, VAT
excluded. This is a step in the right direction,
but inadequate to deal with a matter of this
magnitude, and it is utterly insufficient if we
look forward towards 2013 (as the margins per
chain are still charged to the manufacturer,
the budget is set still below last year’s
consumption, etc.).
The same enactment also added a few
articles concerning the collection of the
clawback tax for the period from Quarter
IV 2009 to Quarter III 2011. The question is
whether this measure will manage to mitigate>
“ The unfairness of the tax also
resides in discrimination against the
pharmaceutical sector, by applying
different operating rules to it than
other economic sectors

3. 18
Just in Case Issue 11, September / October 2012
The Clawback Tax, an Error in Substance or in Form? / 02
retroactively the negative consequences of a poorly drafted ordinance
(Government Emergency Ordinance No. 104/2009) and its implementation
norms which were published rather late (in summer 2010, only to be
amended in 2011), and which made things worse rather than better.
Wondering What the Future Looks Like
The most important thing is that the tax should be corrected by
Parliament for 2013 and be treated as a temporary measure until Romania
manages to move out of last position as regards the ratio of GDP
allocated to healthcare (below 4%), to beat the percentage allocated to
healthcare by African countries (5.9%) and perhaps even to equal the
European average of 8.6%.
In light of the above, the risks hovering over the industry are easy to
infer. Therefore, the correct question is not whether the industry will fail
in Romania?, but rather when. Beyond the scope of the negative effects
on pharmaceutical companies, we can only imagine how distributors,
pharmacies and especially patients will suffer too.
The warning signs have caught the eye of the politicians. Most of them
have understood the situation, but few have actually done anything to
prevent the irreversible downfall of the pharmaceutical supply sector.
Sorin Popescu, MD
Coordinator of ARPIM Communication Working Group
office@arpim.ro

4. iasis / December 2010 / Issue 2
Romania
SORIN POPESCU *
Outlook gloomy for Romania's
pharmaceutical market
By Rodica Pricop
in Bucharest for iasis
compared to the European average of
250 euros. When growth starts at a very low
level, then its percentage is not very
relevant. Average growth ranged between
20 and 30 percent only a few years back.
Sadly, since the end of2009 and into 2010,
market growth was less significant - the
emergence of parallel exports contributed
to this.
S
TRlNGENT austerity measures,
fiscal changes fostering an unfriendly
business environment and a restric-
tive legislative framework are some of the
biggest obstacles hampering Romanian
market growth and investments.
Iasis Balkan Health Business Review sat
down with Sorin Popescu, of the Romanian
Association of International Medicines
Manufacturers (ARPIM) chairmanship, for
an in-depth interview about the current
state of affairs on the local drugs market.
Providing professional "shelter" to the
industry's major international players,
ARPIM has forwarded to authorities a series
of measures aimed at the normalisation of
the market in the interest of the patients,
who are the first to feel the brunt of random
expense cuts.
"Our biggest wish is to enter a real dialogue
with the government," Popescu tells iasis.
iasis: However, the market witnessed a
slight recovery in Hi after important losses
registered in 2009. What's the reason
behind this positive result and, in your
opinion, is this trend going to continue
until the end of the year?
S.P.: When we speak of a so-called
recovery, we should mention an important
aspect: the two research firms evaluating the
market, namely CEGEDIM and IMS Health,
did not completely exclude from their
assessment the impact of parallel exports. It
should be mentioned, that Romania has
recently become an ideal target for this type
of export as it has the lowest drug prices in
Europe. Nevertheless, we do know that both
companies have estimated a market increase
of 7 to 9 percent by year end.
iasis: What would you say marked the
local pharmaceutical market in 20 l O?
Sorin Popescu: We witnessed a decline
in trends established on the pharmaceutical
markets in the last few years. Market growth
has slowed down rapidly due to harsh
austerity measures enforced by the
government and the difficult economic
situation in Romania. This said: it is
unlikely to bridge the gap between local and
European markets in the foreseeable future.
Romania ranks last with regards to drug
consumption per capita at a mere 45 euros
iasis: What are ARPIM's forecasts for
2011? Do you think the market will register
growth and to what extent? Do you expect
further acquisitions oflocal companies by
multinational players or mergers in the
industry?
S.P.: We cannot make any predictions as
regards future acquisitions; we can only

5. Issue 2 / December 2010/ iasis
foresee the general development of the
market which depends to a large extent on
the way in which the government will
further implement restrictive measures that
are already in the pipeline, or new ones that
haven't been announced yet.
In Romania, there are several
independent institutions overseeing the
public health system. These bodies do not
work together in the decision-making
processes. I am referring to the health
ministry, the National Health Insurance
House (CNAS) and the finance ministry,
which is drafting the health budget
without taking into account the needs
submitted by the health ministry and
CNAS. Therefore, if the government
overlooks the collective effect of decisions
that these three institutions are taking
unilaterally and separately from each
other, then I do not know if we will still be
able to speak of a pharmaceutical market
in 201l.
In this respect, all of these institutions
must prioritise and jointly tackle income
tax, classification of drugs according to
therapeutic groups, extremely long payment
delays, and, last but not least, the issue of
massive debts to suppliers. If the
government fails to find economically
sustainable solutions for these crucial issues,
then I would be very concerned about the
future of the industry as of next year.
Furthermore, this dire situation is bound to
have a devastating impact on patients'
access to medicines.
iasis: You depict the current situation in
dark colours. Why so?
Sorin Popescu, Romanian Association ofInternational Medicines
Manufacturers (ARPIM), chair
S.P.: Back in September 2009, the
government issued a clawback law which
foresees that all pharmaceutical companies,
local or international, must pay a tax of up
to 11 percent of their turnover. The tax
should be paid irrespective of whether they
sold drugs in Romania, exported, or posted
any sales at all. The bill is still being debated
in parliament and we are concerned about

6. iasis / December 2010 / Issue 2
Romania
, Not only are new investments out of the question, but
we are going to witness exits from the market. When
you have companies laying people off, we cannot talk
about new investments- but of withdrawals ,
its possible disastrous impact on the
industry if enforced. This means that
pharmaceutical companies will be forced to
pay, besides the 16 percent income tax, up to
11 percent additional tax, and this measure
is exclusively targeting our industry.
Also, last September, authorities
extended state payment delays to
pharmacies from 90 days to 210 days. 2010
proved that even these extended deadlines
were not adhered to. Furthermore, our
association only recently discovered a
number of unregistered fiscal bills, so we
are talking about hidden debts.
On top of this, the CNAS refused to pay
the real price of drugs purchased. Thanks to
this last-minute decision, medicines
prescribed to the patient are no longer
reimbursed at their real cost but at the
generics level. The difference is paid by the
patient. I sincerely don't know how patients
will be able to support the marked difference
in addition to the VAT increase from 19 to
24 percent, and all this following the 25
percent wage cuts in the public sector.
All these measures have led to patients'
limited access to drugs and to a considerable
reduction of drug consumption in Romania.
A recent CEGEDIM report indicates that the
number of treated patients has decreased by
8.8 percent after the implementation of this
policy, which means that almost 400,000
patients completely dropped out of
therapies. Further restrictive measures will
only destabilise the market further.
The government should come up with
sustainable solutions but if it goes on with
the current version of the clawback law, on
top of the debts and extended payment
terms, I do not know how the market will be
able to resist.
iasis: How many companies are members
ofARPIM?
S.P.: The Romanian Association of
International Medicines Manufacturers
(ARPIM) represents solely companies
whose main activity is the research and
production of innovative medicines. There
are 26 companies, the biggest-
international players in the industry, with
only one exception. ARPIM covers about
70 percent of Romania's pharmaceutical
market. Our mission is to ensure better
access to life-saving drugs. The most
What do you think the future holds for
investment with regards to Romanian
pharmaceutical production and
innovation? How would you describe
the local pharmaceutical research
sector today?
The current conditions exclude
investments. Not only are new
investments out of question, but we
are going to witness exits from the
market. When you have companies
laying people off, we cannot talk about
new investments but of withdrawals.
On the other hand, there is a keen
interest for investments in the research
sector, and this is due to Romania's
top-class scientists. Annual investments
in the research sector average around
200 million euros. Unfortunately, in
this domain too, authorities are trying
to introduce red tape mechanisms
which will undeniably hamper further
investments.

7. Issue 2 / December 2010 / iasis
, If Romania wants to get closer to European
standards in the next 10-20 years, then it is
obvious that the pharmaceutical market must
expand and pick up the pace ,
important characteristic of our presence
here is our international expertise, both in
terms of health management and
legislative reform.
S.P.: It has nothing to do with
incompetence. It is a desperate effort to seek
solutions that will boost state revenues.
Unfortunately, there is lack of collaboration
among state bodies implementing measures
and also lack of partnership between market
players and the government.
Our Number One wish is to sit down
with the government and reach a common
ground in the interest of the state, the
patient and the pharmaceutical industry.
We are still waiting for authorities' feedback
on the memorandum that we tabled and
which includes measures to cut unnecessary
expenditures, tackle tax evasion, fraud and
other major financial leaks from the health
system.
For example, we're not saying we don't
want to pay the "clawback tax", what we're
trying to tell the government is that we are
willing to pay after we are reimbursed for
our products, and not in advance and
depending on sales. Not depending on .
government funds for medicines, including
imported and exported drugs. In this
respect, we have suggested a number of
measures and are waiting to initiate true
dialogue with the government.
iasis: Do you think the local market is
following the regional European trend?
What is its main particularity?
S.P.: The Romanian market is unable to
move at the same pace with the
international market because the latter is
already saturated, meaning the majority of
patients diagnosed are also treated for their
respective health conditions.
In Romania, there are still many
undiagnosed cases and of those diagnosed
there are many who do not follow medical
treatment. If Romania wants to get closer
to European standards in the next 10-20
years, then it is obvious that the
pharmaceutical market must expand and
pick up the pace.
The main difference between Romania
and the rest of Europe is that here the
needs are enormous. Another particularity
refers to the legislative framework which
contains some of the most restrictive
measures for business in the world. And I
am referring to tax payment in advance,
long payment delays for state debts,
different system of payment for various
therapeutic groups of drugs concurrently
with other "clawback" regulations. These
legislative anomalies should urgently be
amended.
iasis: Romania's economy is frail and the
stringent austerity measures taken by the
government have impacted not only the
public but also the business environment
and investment, mostly due to fiscal
changes and an unstable legislative
framework. This said: how did the industry
react to the VAT increase from
19 to 24 percent?iasis: In your view, are these measures a
consequence of the authorities'
incompetence or rather a way to over-tax
those economic areas that still show profit?
S.P.: Even if VAT for medicines had
remained at 9 percent, the increase in

8. iasis / December 2010 tissue 2
Romania
, Our Number One wish is to sit down with
the government and reach a common ground
in the interest of the state, the patient and
the pharmaceutical industry ,
prices for other products and services
would still lead to a dramatic decrease of
patients' consumer power. Fewer patients
can afford to buy life-saving drugs that
keep them fit and able to work. Sadly,
Romania's financial woes have led to a
serious deterioration of public health, and
this together with limited access to medical
treatment will further weaken the local
economy. This scenario took shape in
many countries facing severe economic
recessions. But many of these countries had
invested even more in the public health
system before the recession because they
realised the national economy cannot go
back to growth with sick people. In
Romania, the opposite applies. With the
number of ill people on the rise, national
spending will increase dramatically as the
government will be called on to pay for
medical leaves or early retirements.
iasis: Health Minister Cseke Atilla has
expressed his intention to place the National
Health Insurance Agency budget under the
umbrella of his ministry? Do you think that
in this way insurers' money - some 4.5
billion euros - will be spent more efficiently
and in a more transparent manner?
S.P.: ARPIM refrains from commenting
on the political decisions of the health
ministry, but we completely agree with the
minister's objective to make public
spending transparent. We support and we
are ready to contribute to any measure that
will render the expenses transparent and the
use of funds in the sole interest of the
patient. In my view, more money could be
collected if the government decided, for
instance, to tackle the sources that make
people ill in the first place, ie directing the
pollution tax into the health system. In
Romania, the health system suffers form
chronic under-financing. The government
disburses only 3.6 percent of GDP on public
health - the lowest in Europe, where the
average is 8.6 percent.
iasis: What can you tell our readers about
the possible consequences for patients
switching to generic treatments?
S.P.: From the industry's point of view, the
compulsory switch of treatment from
innovative drugs to generics should not be
encouraged if the generics do not exist for
the active substances prescribed. In other
words, the state should not pressure doctors
into treating their patients with medicines
discovered 30-40 years ago. Unfortunately,
this policy was implemented by the Health
Insurance House in July, negatively
affecting the patient treatment rate. The
state collected fees in the short term but it
will end up paying double in the medium
term due to higher hospitalisation rates.
This is in our opinion a lose-lose decision.
"Soria Popescu is a physician and holds a
Master's degree in Public Health, an EMBA
from the National Institute for Economic
Development (INDE), Bucharest, and
CNAM Paris. He is currently member of the
chairmanship of the Romanian Association
of In terna tional Medicines Manufacturers
(ARPIM) and Corporate Affairs Director,
Amgen. Previous posts have included sales,
marketing, PR and External Affairs at
Merck Sharp & Dohme Romania, External
Affairs Manager, MSD, head of External
Affairs and Market Access Department for
MSD & Schering Plough.

13. INTERVIU
cu Dr. Sorin Popescu
Senior Corporate Affairs Manager
Amgen Romania
Care sunt principalele probleme cu care se confrunta sis-
temul sanitar romanesc?
Subfinantarea si lipsa unui management eficient sunt cei
mai importanti factori care au degradat Tn timp sistemul
rornanesc de sanatate, In conditiile alocarii unui procent
de sub 4% din produsul intern brut pentru sanatate si a
unei economii Tn recesiune, Romania se plaseaza pe ulti-
mul loc TnEuropa si sub media tarilor africane la capitolul
finantare, Alocarea acestui procent mic nu are legatura cu
evolutia economiei, ci dovedeste 0 lipsa de vointa politica
atunci cand vine yorba de planificarea bugetului pentru
sanatate, In contextul Tncare toate partidele politice si-au
propus ca tinta 0 alocare de minim 6% si a unei medii
europene de 8,6% este greu de inteles de ce nici pentru
2011 nu s-a trecut de 4% din PIB.
Cel mai gray este faptul ca bugetul anului 2011 este mai
mic in valoare absolute decat cheltuielile din 2010, un an
Tncare pacientii si medicii au suferit, farmaciile au Tnceput
sa intre Tnfalirnent, distribuitori irnportanti au Tnceput sa
intre In insolventa. producatorii fac fa!a din ce Tn ce mai
greu creditarii sistemului, iar sistemul acurnuleaza arierate
din ce Tnce mai mari.
Lipsa reformelor structurale, lipsa transparentei Tn
colectarea si utilizarea banilor, lipsa de viziune, lipsa unei
continuitati la nivelul factorilor de decizie ~i actiunile
necoordonate ale institutiilor responsabile, au creat un
mediu netransparent, impredictibil si nesustenabil, Primii
care sufera sunt pacientii deoarece sistemul actual nu
este centrat pe ei, ci mai deqraba este unul contabil care
urrnareste doar Tncadrarea cheltuielilor Tn bugetul alocat
indiferent de calitatea serviciilor furnizate.
Ce masurl restrictive au fost luate?
Desi 75% din cheltuieli se fac In afara sectorului farma-
ceutic, majoritatea reqlernentarilor Tn domeniu nu vizeaza
acest segment ci seconcentreaza pe restul de 25 %: pre!
minim european, lista de compensare blocata, pre! de
reterinta pe clasa terapeutica, suprataxarea veniturilor
companiilor (asa zis clawback). termene de plata de 210
zile Idepasite deja), neTnregistrarea tuturor facturilor far-
maciilor, impunerea unor contracte cost-volurn-rezultat,
etc. Problema este ca Tn Romania consumul cu medica-
mentele se situeaza deja la cel mai mic nivel european, 45
EUR pe cap de locuitor, fa!a de 0 medie de 280 EUR pe
cap de locuitor la nivelul UE. Cresterea medie pentru
urmator!l 10 ani ar trebui sa fie de minim 15% pentru ca
acest consum sa se alinieze cu cel al tarilor central si est
europene. Fara 0 crestere semnificativa a accesului paci-
entilor la medicamente, Romania T~iva mentine dezechili-
brul Tntre consumul din spital ~i cel din ambulator, de-
zechilibru care conduce atat la risipa de fonduri cat si la 0
calitate scazuta pentru sanatate,
Care sunt consecintele rnasurilor recente asupra pletei
farmaceutice sl sistemului sanitar?
Reducerea excesiva a preturilor a condus la disparitia mul-
tor medicamente de pe plata rornaneasca din cauza
exporturilor paralele, iar scaderea cornpensarii a condus la
scaderea ratei de tratament. 400.000 de pacienti cronici
au renuntat la tratament dupa 1 iulie 2010, data cane
CNAS a introdus referentierea pe clasa terapeutica, cu
consecinte negative atat asupra sanata!ii lor cat si a bu-
getului. Tratamentul cornplicatiilor Tn spital este mai cos-
tisitor decat tratamentul medicamentos Tnambulator. Pre-
lungirea termenelor de plata si cresterea datoriilor In sis-
tem au determinat intrarea Tninsolventa a unui important
distribuitor cu efecte extrem de negative asupra pro-
ducatorilor, Blocarea listei de medicamente compensate
lndeparteaza tot mai mult pacientii rornani de sansa pe
care 0 au ceilalti europeni pentru a fi tratati eficient. Lipsa
de dialog cu autoritatile si luarea unor rnasuri restrictive,
cumulative "peste noapte", a condus la consecintele ne-
gative pe care producatorii Ie anticipau.
In ce consta parteneriatul farmaceutic cu autoritatlle?
Industria farm aceutica este parte a solutiilor pentru sis-
temul sanitar sprijinind autoritatile atilt prin perioada
lunga de creditare (peste noua luni) cat ~i prin expertiza
pe care 0 poate aduce. Obiectivele noastre sunt orientate
catre crearea unui sistem sustenabil din punct de vedere
financiar, care sa asigure accesul pacientilor rornani la
medicamentele de care acestia au nevoie. Din punctul nos-
tru de vedere, sustenabilitatea poate fi asiqurata doar printr-
o planificare bugetara rationale si cheltuieli corecte. Din
acest motiv este nevoie de un parteneriat bazat pe
Tncredere,capabil sa asigure un mediu predictibil si trans-
parent. Industria de cercetare si dezvoltare (ARPIM) a pro-
pus un set de masuri capabil sa stabilizeze sisternul. Am
fost auziti, important acum este sa fim si ascultati, si sa ne
asezarn la masa discutiilor constructive care sa conduca la
cresterea finantarii si limitarea risipei. Sunt Increzator ca Tn
cele din urrna autoritatile vor inteleqe sa nu mai loveasca Tn
producatorii de medicamente, principalii creditori ~i
sustinatori ai sistemului, ci sa se consulte cu acestia. In
cele din urrna, principalii castiqatori vor fi pacientii care au
nevoie de medicamente, statui care trebuie sa controleze
cheltuielile, si industria farrnaceutica (producatorii. dis-
tribuitorii ~i farmaciile) care are nevoie de stabilitate.
25 MEDICAL BUSINESS