Infrastructure as a basis for doing business - The health care system in Poland with a focus on its pharmacy market

Table of Contents

B List of Figures

C List of Tables

D List of Abbreviations

1. Poland’s Strategy to attract Foreign Direct Investments in Selected Industries

2. Infrastructure Policy
2.1. Impact of Infrastructure Investments for Sustained Economic Growth
2.1.1. Basic Principles of Infrastructure Policy
2.1.2. Extension of the Classical Definition: Information Technology
2.1.3. Economical Relevance of Infrastructure
2.2. Specific Policies for Poland: Privatisation of Infrastructure
2.2.2. Poland’s Motorways as a Selected Sector of Infrastructure
2.2.3. Evaluation of Poland’s Privatisation Process

3. Health Care System in Poland
3.1. Health Care Policy in Respect with the Process of Transformation
3.2. Organisational Structure of the Health Care System in Poland
3.3. Health Insurance System
3.4. Health Care Finance and Expenditures
3.4.1. The State Budget
3.4.2. the National Health Fund
3.4.3. Payments by External Institutions
3.4.4. Co-Payments by Patients
3.5. Financial Crisis of the Health Care Sector

4. The Pharmacy Sector
4.1. Distribution of Pharmaceutical Products
4.1.1. Pharmaceutical Manufacturers
4.1.2. Pharmaceutical Wholesalers
4.1.3. Pharmacies
4.1.3.1. Community and Hospital Pharmacies
4.1.3.2. Polish Pharmacy Association and its Membership of PGEU
4.2. Regulations in the Pharmacy Sector
4.2.1. Drug Registration
4.2.2. Price Control
4.2.3. Reimbursement
4.2.4. Emergency- and Night Service
4.2.5. Mail Order Selling
4.2.6. Protection of Intellectual Property Rights
4.3. Impact of EU-Entry: “ Pharmaceutical Tourism”

5. Interrelation between Infrastructure, the Health Care System and the Pharmacy Market – A Summary

E Bibliography

F Addendum

List of Figures

Figure 1: Usage of Internet in Selected European Countries

Figure 2: Transport Investment Share of GDP of Selected Eastern European Countries

Figure 3: Organisation of the Health Care System in 1999

Figure 4: Market volume of Polish Pharmaceutical Manufacturers

List of Tables

Table 1: Levels of Expenditure on Health from 1998 till 2002

List of Abbreviations

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1. Poland’s Strategy to attract Foreign Direct Investments in Selected Industries

38.6 Mio inhabitants,

a growth of 3.7 % in real GDP and

an inflow of 4.14 Bn. EUR in Foreign Direct Investments

These figures (Cp. IMD, 2005) precisely illustrate the importance of Poland’s entry to the European Union (EU). Not many other Eastern-European countries offer such a huge market potential to foreign investors. But on the other hand: not many other Eastern-European countries offer such high investment risks as Poland does.

This seminar paper examines the current status of the infrastructure in Poland and concentrates on the health care sector with a focus on the Polish pharmacy market. It should give a basic understanding about the organisation of the health care system in Poland in order to be able to understand the legal framework for investing in the pharmacy sector.

In a first step, some basic principles of infrastructure theory will be explained to understand the complexity of this subject. Poland – as a transformation country – is still reforming the political and economical system to create a free-market economy. The process of privatisation in Polish infrastructure will be analysed and evaluated. The heterogeneity of this topic requires a restriction within the scope of this paper. Hence, information technology (IT) – as an enlargement of the classical definition – as well as the transportation sector is presented in short. Those two sectors had been chosen because of different reasons: First of all, these are sectors with the largest investment needs in the future. Secondly, they are already privatised or are on the brink to do so and enjoy a high priority concerning development politics.

Last but not least, these two sectors are a basis for the efficient functioning of the pharmacy market: On the one hand, a high-developed IT-infrastructure is needed to enable pharmacists to use the whole range of software-support. Furthermore, Poland’s government is currently trying to reduce costs in the health care system with the implementation of cost-control systems. On the other hand, the transportation sector plays a key role for the transport of goods from one location to the other – in this case: from the pharmaceutical manufacturers to the wholesalers, from there to the pharmacies and finally to the patients. This chapter ends with an evaluation of the privatisation process and gives a short outlook about the further development of Poland’s infrastructure policy.

The subsequent chapter provides information about the organisation of the Polish health care system. Although political reforms already started in 1989, the reform of the health care system towards a market-economical system started in 1997 with the General Health Insurance Act. The implementation of new laws and regulations took place on January, 1st 1999. However, one cannot expect the health care system to work properly. It will become obvious that further reforms are needed to direct this system towards efficiency and effectiveness.

One category of the health care system is the Pharmacy sector. Every country has special regulations concerning the manufacturing, the distribution and the selling of pharmaceutical products. An analysis of Poland’s legal restrictions is mandatory to understand the political environment in this market. With Poland’s entry to the EU, the relationship between Germany and Poland has changed as well. These countries are now neighbours, not only in geographical but also in economical terms. Due to the acceptance of the Single European Market, goods and services can be traded freely between the participating countries. However, the free-trade of pharmaceuticals resulted in contestable discussions. Due to the fact, that Polish pharmaceuticals are much cheaper than those sold in German pharmacies, German citizens travel to Poland to buy large amounts of pharmaceuticals there. This phenomenon has been called “Pharmaceutical Tourism” and will be further analysed in chapter 4.3.

At this point, it already turns out, that Poland’s overall economy has changed with its entry to the European Union in May 2004. The impacts on the infrastructure with a separate analysis of its health care system and a focus on the pharmacy market are outlined in this seminar paper.

2. Infrastructure Policy

2.1. Impact of Infrastructure Investments for Sustained Economic Growth

2.1.1. Basic Principles of Infrastructure Policy

The construction of infrastructure policy is widely discussed in various countries. Politicians and economists claim that infrastructure is a basis for a country’s economic success. Without offering an adequate infrastructure, companies are less willing to invest in that market.

But what does infrastructure actually mean? Since the beginning of the 1960s – when the term came up for the first time – scientists try to find a general accepted definition. The expression ‘infrastructure’ originates from the Latin language: infra (lat.) is a prefix and means ‚under’; ‚structure’ can be defined as ‚specific composition, structure of an ensemble’. In other words, infrastructure is the “fundament of an organisation” (Cp. Brockhaus (2004), page 288). In the 1960s the name infrastructure was used to describe facilities and establishments which support the provisions of the armed forces.

However, infrastructure does not exist since the 1960’s. In fact, elements of infrastructure are already available since the ancient world. The ‘V ia Appia’ of the Roman Empire can be described as one component of infrastructure. And the economist Adam Smith defines the tasks of the state as a provision of facilities which are useful for the whole society but not for a single person (Cp. Fleischacker, S. (2004), page 243).

Up to now, no common definition of infrastructure was set. This heterogeneity is a result of the complexity of this issue. Definitions are dependent from sectors they are referring to and the related targets.

Reimut Jochimsen defines Infrastructure as “[…] Summe der materiellen, institutionellen und personalen Einrichtungen und Gegebenheiten [...], die den Wirtschaftseinheiten zur Verfügung stehen und mit beitragen, den Ausgleich der Entgelte für gleiche Faktorbeiträge bei zweckmäßiger Allokation der Ressourcen, d.h. vollständige Integration und höchstmögliches Niveau der Wirtschaftstätigkeit, zu ermöglichen.“ (Jochimsen, R. (1966), page 100). Jochimsen classifies infrastructure in three categories: material, institutional and personnel infrastructure. According to this definition, the objective of infrastructure is to create equivalent living conditions for the population and good local conditions for enterprises.

2.1.2. Extension of the Classical Definition: Information Technology

Today’s economy is characterised by increasing changes in business environment. Consequently, companies are looking for attractive production locations and sales markets all over the world to keep its competitive advantage. Due to a considerable increase in the worldwide linking of national markets through technological progress, companies need to be flexible to boost its competitive position. Globalisation is - among other aspects - characterised by technological progress in information technology (IT) and communication (e.g. radio, TV, conventional telephone network and mobile phones, Internet access). It enables companies to make business with customers without ever getting into personal contact with them.

But not only end consumers, but especially in B2B-markets, information infrastructure (II) plays a key role. In the past years, IIs have developed rapidly (Cp. Hanseth, O. (1996), page 7) and some new forms of co-operations between enterprises have emerged. Corporations are linked via strategic alliances and build up virtual companies. Those organisations are connected via networks which is a complex technological structure. In order to increase the attractiveness of a country for foreign investors, the government has to ensure a fully developed infrastructure in the range of information technology.

Economists talk about the ‘ digital device ’ referring to countries or regions with an underdeveloped IT-infrastructure. On the World Summit on the Information Society (WSIS), which took place on November in Tunisia, the UN-member states agreed on “creating a forum on internet governance” (Heinrich-Böll-Stiftung (2005)) which will diminish the differences in technological equipment between industrial and development countries.

But also from a European point of view, not all member states of the European Union offer the same level of IT-infrastructure to their citizens. Figure 1 shows the percentage of population of selected states which use the internet. In comparison to other East-European states, Poland is on an upper level, but compared to the EU-15, the country has to increase the number of resources used in this sector.

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Figure 1: Usage of Internet in Selected European Countries

Source: Commission of the European Communities (2005)

Not only the usage of the Internet, but also the availability of mobile phones represents a key success factor in today’s business. Today, nearly 28 % of the world population possesses a mobile phone compared to 12 % in 2000 (Cp. Röttger, N. (2005), p. 17). Some experts regard the mobile phone more important than the internet because a mobile phone can be used by illiterate people and in regions without permanent electrical power.

Jochimsen has already included in his definition the aspect of telecommunication. However, in former times, telecommunication was limited to communication channels. Nowadays, information is the key attribute in business. Correct decisions can only be made when exact information is available; and for many companies the lead in information represents its competitive advantage.

2.1.3. Economical Relevance of Infrastructure

The facilities and systems which belong to infrastructure serve private households as well as businesses. In the following, significant impacts for private households and businesses as well as cross-sector influences will be described (Cp. Pfähler, W. et al. (1995), page 78 et seqq., et seqq.). The classical approach claims that infrastructure is provided by the state. The construction of infrastructure results from concluding contracts for companies which equals an artificial stimulation of the economy. An investment in infrastructure by the government causes a positive income and employment effect for private households. To build up infrastructure facilities, workers are needed, who have a monthly income at their disposal. Indirect, this stimulates macroeconomic consumption.

On the other hand, the government might need to borrow money to finance the investments. This can result in a ‘crowding-out-effect’^[1], which counteracts an economic upswing.

The above mentioned household and business-related effects are just side-effects, because public spending only stimulates the economy artificially. The principal reason to build-up infrastructure is to attract production factors. The more modern the infrastructure of a country is, the more foreign investments can be realised. Equally, more workers immigrate to countries which have a well-developed infrastructure. For example, Duke Koo, Executive Vice President of Worldwide Sales from LG.Philips LCD declared that his company will invest in Poland because it “will soon obtain an excellent transport infrastructure [q.v. chapter 2.2.2 ]” (Polnische Agentur für Informationen und Auslandsinvestitionen AG (2003)). Dariusz Fabiszewski, Country General Manager from IBM Poland explains his reasons to choose Poland as a new investment location due to “the existence of good education infrastructure” (Polnische Agentur für Informationen und Auslandsinvestitionen AG (2003)). A more detailed analysis considering the example of Poland will be given in the following section.

2.2. Specific Policies for Poland: Privatisation of Infrastructure

2.2.1. Process of Privatisation

The development for a democratic and market-orientated society started in 1989 when the labour union Solidarność held roundtable talks with the communistic government to set off economic and political reforms. Poland’s Prime Minister Tadeusz Mazowiecki^[2] introduced wide-ranging reforms in the political sector and since then, Poland has been working to set up a democratic political system and to offer a free-market economy.

In these days, its financial situation was tough, however the government wanted to ensure the supply of an efficient infrastructure. In Soviet Union, infrastructure policy did not focus on financial restrictions and no cost-benefit analyses were executed. Infrastructure investments were part of the 5-years-development plan and it was difficult to implement centrally-made plans. However, infrastructure was a sector with high investment requirements to achieve the EU-level.

In this new position, Poland had two possibilities: Economists claimed to establish a second Marshall Plan^[3] for transformation countries in Eastern Europe based on the theory that infrastructure is a precondition for economic upswing. The second opportunity was to privatise parts of infrastructure. The final decision by the European Union was not to offer financial aid to the transformation countries but to give those countries the chance to solve these problems on their own.

But private investment in infrastructure was limited due to high risk and uncertainty. From a macro-economical viewpoint, arguments against a private investment were the economic recession with a high inflation rate and an instable exchange rate; both leading to an economic instability. Furthermore, a low time consistency of public policy and low purchasing power (Cp. Hirschhausen (2002), page 9) also influenced the willingness of domestic and foreign investors to finance Polish infrastructure.

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^[1] Government debt 'crowds out' private companies from spending and investing.

^[2] Tadeusz Mazowiecki (born 1927) is a polish journalist and politician who was one of the leaders of the Solidarno ść movement and the first non-communist prime minister in Eastern Europe after World War II.

^[3] The Marshall Plan was a recovery plan of the United States to reconstruct Europe after World War II.

The name comes from the former Secretary of State George Marshall.