POLAND - Letter Delivered on Health Ministry Price

UNCLAS SECTION 01 OF 02 WARSAW 001011

SIPDIS

SENSITIVE BUT UNCLASSIFIED

STATE FOR EUR/NCE/MSESSUMS
STATE PASS USTR FOR DONNELLY/ERRION
COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS

E.O. 12958: N/A
TAGS: ETRD EINV ETRD KIPR PL
SUBJECT: POLAND - Letter Delivered on Health Ministry Price
Cuts

REF: Warsaw 0874

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SUMMARY
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1. (SBU) DCM, accompanied by Econoff, called on Deputy
Health Minister Boleslaw Piecha and delivered a letter from
Ambassador Ashe to Health Minister Zbigniew Religa (see para
7). At issue is the May 18 announcement by the Ministry of
Health to cut prices for imported pharmaceuticals,
ostensibly due to the appreciation of the zloty over the
past four years. The announcement, made on the Ministry's
website, has brought a chorus of complaints not only from
U.S., but from European firms as well. The DCM made several
points highlighting USG concerns with the Ministry's
proposal to cut the official prices for imported
pharmaceuticals by 13 percent. Piecha agreed to strengthen
dialogue and discuss the proposed regulations with industry
next week. End Summary.

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TRADE PROBLEM
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2. (SBU) The DCM emphasized that the proposed cuts, which
affect only foreign firms, represent a potential
discriminatory trade practice. He also noted that the
proposal was announced on the Ministry's website, without
first consulting with industry. The DCM said that one of
the most promising outcomes from the meeting between
Minister Religa and Secretary of Commerce Gutierrez (see
reftel) in January was commitment to establish a dialogue
mechanism between the Ministry and industry. He noted that
the USG wanted to avoid a trade problem with Poland, but
that the discriminatory impact of 13 percent price cuts with
no apparent justification was a serious matter.


3. (SBU) Piecha said that whether or not the proposed
regulations were discriminatory was the issue to be debated.
He noted a Baker and McKenzie report, delivered by the
Association of Innovative Pharmaceutical Companies to the
Ministry of Health, criticizing the proposed regulations,
but did not dispute that it accurately reflected the
methodology used to determine a 13 percent reduction.
Piecha said that May 31 was the deadline for responses from
industry on the proposal and that his staff is currently
working on a response to the Baker and McKenzie report.

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IT'S THE BUDGET . . .
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4. (SBU) Piecha noted the difficulties of managing the
health care budget, especially in view of all the media
attention related to the recent doctors' strike. He noted
that the PLN 6 billion budget currently calls for about PLN
300 million for reimbursement. Despite pressures, he said,
this money would not be reallocated to wages for doctors.
However, he said that future increases in the budget would
have to be proportionally allocated to salaries, which would
mean that prices for pharmaceuticals would have to be
proportionally cut.


5. (SBU) When asked about the Ministry's practice for
reviewing pharmaceutical prices, Piecha said that the
Ministry would prefer to rely on cost of production data.
He acknowledged, however, that firms regard this information
as proprietary and that Polish law on this matter is itself
"contradictory." He said the goal of a price review
procedure was to establish "flexibility" and to avoid peaks
of expenditures. In response to the DCM's question about
revising prices upward should the zloty depreciate, Piecha
said it was possible. Piecha emphasized that a major
problem is that the Ministries of Health and Finance decide
on a yearly budget, not quarterly, and that this complicates
attaining the flexibility goal.


6. (SBU) The DCM thanked Piecha for his time, but stressed
the potential trade ramifications and the need to fulfil
commitments for dialogue with industry. Piecha noted that
he would be responding soon to the industry's submission and
would have meetings next week on this issue.

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Comment
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7. (SBU) Piecha acknowledged that our understanding of the
methodology for determining the price cuts was accurate (or
rather, that Baker and McKenzie's analysis reflects the
Ministry's actual practice). He also agreed to enhancing
dialogue. A visiting USTR team will meet with Health and
Economics Ministry officials, and the British, Danes, and
Swiss are also making their positions known. In sum, this
action by the Ministry got everyone's attention. It remains
to be seen what effect these united efforts may have. End
Comment.

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Ashe-Religa Letter
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8. (SBU) Begin Text of Letter

Dear Mr. Minister:

I am writing you regarding an important issue that
undermines the ability of foreign pharmaceutical firms to
compete in the Polish market. I understand that the
Ministry of Health, through new regulations for establishing
official wholesale and retail prices of medicinal products,
intends to link expenditures for imported drugs to an
arbitrary exchange rate mechanism and impose a 13 percent
cut in the retail price of foreign
pharmaceuticals and perhaps even more at the wholesale
level.

My government is concerned about this proposed action,
particularly its apparent discriminatory effect on foreign
firms. It is my understanding that the proposed price cut
will apply to foreign companies that import medicines, or
active ingredients thereof, but not to local producers,
including those who import active substances. The potential
discriminatory impact of this policy against foreign
pharmaceutical manufacturers, innovative and generic alike,
could raise serious questions regarding Poland's adherence
to EU directives and WTO rules.

My staff will communicate directly with appropriate
officials in your Ministry, as well as the Ministry of
Economy, to discuss our concerns and how they might be
addressed. I would also ask that your Ministry consult
closely with the potentially affected foreign firms before
proceeding.

Thank you for your attention to this matter. I look forward
to working with you to resolve these issues and to establish
the formal mechanism, which you discussed with Secretary
Gutierrez in January, for dialogue between your Ministry and
innovative drug firms.

Sincerely,



Victor Ashe
End Text.
Ashe