Israel is to open up its drugs industry to free market competition in order to drive down medical costs. Despite massive opposition by US pharmaceutical companies and government officials—including Secretary of State Madeleine Albright—Israel has agreed to allow the import of many prescription only and over the counter drugs from September. Experts in Israel's health ministry and the country's largest public health insurer, Clalit Health Services (CHS), predict that the opening of drug imports to competition will save the public health insurers and hospitals tens of millions of dollars a year.
Until now, Israel has been one of the few places in the world to honour exclusivity contracts between drug companies and their chosen importers. In the European Community, drugs manufactured in EC countries and the United States can be sold in member states. But Israel, with its relatively small population of six million, annually consumes $700 million in drugs, 40% of them imported.
This, says Professor Joshua Shemer, the health ministry director-general who pushed for the reform, has made the cost of imported US drugs significantly higher for Israelis than for Europeans. In the past decade, more than a dozen international pharmaceutical firms have established subsidiaries in Israel to enjoy the benefits of this exclusivity and to replace the independent dealers that had imported their products.
At the end of May, health minister Shlomo Benizri and justice minister Yossi Beilin hurriedly signed long awaited regulations allowing parallel imports. They rushed to sign after being required by the high court of justice to explain their reasons for not implementing the changes in the Pharmacists Law, passed by parliament in February 1999. The suit was brought against the ministers by CHS, which stands to make considerable savings when purchasing the drugs that it subsidises for its members.
Sophie Karnowski, managing director of Merck Sharp and Dohme-Israel, said the signing of regulations was "very unfortunate and a step backwards in the protection of intellectual property." She maintained that Western countries are "beginning to abandon parallel imports of drugs, because middlemen make the profits, and the public health could be endangered.... With middlemen transporting and storing drugs under less than optimal conditions and even possibly counterfeiting brand name drugs, patients will not always be able to know what they are getting."
Karnowski raised the possibility that some drug company subsidiaries would cut back funds for medical research in Israel and might even shut down: "A company will think twice before investing in a country that takes such action and infringes on their patents and intellectual property." She maintained that in Norway recently, where parallel imports are allowed, "over 20% of the drugs sold showed side effects not in line with the companies' clinical trials because of counterfeit medications or improper conditions."
But Professor Shemer said he did not believe subsidiaries would close because they benefit from Israel's high level of medical research. He promised that the health ministry would devote much effort to checking import papers and testing drugs to ensure that they were genuine and had been handled properly.
CHS director-general Dr Yitzhak Peterburg said that "a new era has begun that integrates Israel with other Western countries and ends the period of monopoly that Israeli drug importers enjoyed." He said that savings of 26-69% would be made by importing drugs from other sources.
