GREECE: Memorandum of Understanding on Specific Economic Policy Conditionality

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Draft of 9 February 2012

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greece memorandum of understanding on specific economic policy conditionality draft of 9 february 2012 the disbursements of financial assistance to greece by the european financial stability facility efsf are subject to quarterly reviews of conditionality for the duration of the arrangement the release of the tranches will be based on observance of quantitative performance criteria and a positive evaluation of progress made with respect to policy criteria in council decision 2011/734/eu of 12 july 2011 as amended hereinafter the council decision the memorandum of economic and financial policies mefp and in this memorandum the annex on data provision is part of the memorandum and how well it has been respected will be considered in the assessment of compliance greece commits to consult with the european commission the ecb and the imf staff on the adoption of policies falling within the scope of this memorandum allowing sufficient time for review the government publishes a quarterly report in line with article 4 of the council decision in line with the conclusions of the euro-area summit of 26 october 2011 the government will fully cooperate with the commission the ecb and the imf staff teams to strengthen the monitoring of programme implementation and will provide the staff teams with access to all relevant data and other information in the greek administration however the ownership of the programme and all executive responsibilities in the programme implementation remain with the greek government 9/2/2012 1

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fiscal consolidation 1 fiscal consolidation budget implementation for 2012 the annual general government primary deficit should not exceed eur [2 063 million and for 2013 and 2014 the primary surplus should be at least eur [3 600 million and eur [9 500 million respectively proceeds from the privatisation of financial and non-financial assets do not substitute fiscal consolidation efforts and will not be considered when assessing compliance with the annual general government deficit ceilings established in this memorandum and in the council decision the bank recapitalisation-related flows will not be considered in the monitoring of annual general government deficit ceilings irrespective their recording in the esa accounts by elstat and eurostat prior to the first disbursement of the new programme the government adopts the following measures through a supplementary budget and other legal acts reduction in pharmaceutical expenditure by at least eur 1 076 million in 2012 by reducing medicine prices generics and branded medicines increasing copayments reducing pharmacists and wholesalers trade margins application of compulsory e-prescription by active substance and protocols the update of the positive list of medicines and the implementation of a mechanism of quarterly rebates automatic claw-back to be paid by the pharmaceutical industry see below section 2.8 reduction in overtime pay for doctors in hospitals by at least eur 50 million reduction in the procurement of military material by eur 300 million cash and deliveries reduction in the number of deputy mayors and associated staff with the aim of saving at least eur 30 million reduction in the central government s operational expenditure and electionrelated spending by at least eur 270 million compared to the budget frontloading cuts in subsidies to residents in remote areas and cuts in grants to several entities supervised by the several ministries with the aim of reducing expenditure in 2012 by at least eur 190 million reduction in the public investment budget pib by eur 400 million this cut will be implemented through cuts in subsidies to private investments and nationally-financed investment projects the reduction in the pib budget will not have any impact on projects that are co-financed by structural funds uncompleted project financed by the 2000-06 operational programmes cohesion fund 2000-06 projects 2007-13 operational programmes and noneligible expenditure related to the above projects changes in [supplementary and main pension funds with high average pensions or which receive high subsidies from the budget with the aim of saving at least eur 300 net after taking into account the impact on taxes and social contributions 9/2/2012 2

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fiscal consolidation prior to the disbursement additional structural spending cuts amounting to eur 325 million will be identified in consultation with the commission ecb and imf staff and implemented prior to the disbursement the government also adopts the following pending acts ministerial decisions for the implementation of the business tax minimum levy on self-employed provided for article 31 of law 3986/2011 ministerial decisions to complete the full implementation of the new wage grid in all the pertinent entities and legislation on the modalities for the recovery of wages paid in excess from november 2011 afterwards by june 2012 the government will legislate an average reduction by 10 percent in the so-called special wages of the public sector to which the new wage grid does not apply this will apply from 1 september 2012 on and deliver savings of at least eur 114 million with a carry-over impact of eur 226 million in 2013 net after taking into account the impact on taxes and social contributions in order to prepare the measures that will be adopted with the 2013 and 2014 budgets and contribute to meet the fiscal targets the government initiates before end-february 2012 a review of public spending programmes this review should be completed by june 2012 the review will draw on external technical assistance and will focus on pensions and social transfers in a manner that will preserve basic social protection defence spending without prejudice to the defence capability of the country and restructuring of central and local administrations by the same date june 2012 a further rationalization of pharmaceutical spending and operational spending of hospitals and welfare cash benefits will also be specified preliminary results from the spending review will be included in the update of the medium-term fiscal strategy mtfs which will be tabled in parliament by may 2012 the ministry of finance ensures a tight supervision of expenditure commitments by the government departments including extra-budgetary funds public investment budget social security funds and hospitals local governments and state-owned enterprises and an effective tax collection in order to secure the programme quantitative criteria the government stands ready to define and enact additional measures if needed in order to respect the budgetary targets 9/2/2012 3

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structural fiscal reforms 2 2.1 structural fiscal reforms asset management and privatisation the government implements the privatisation programme with the aim of collecting eur 50 billion in the medium term cumulative privatisation receipts since june 2011 should be at least eur 4 500 million by end-2012 eur 7 500 million by end-2013 eur 12 200 million by end2014 and eur 15000 by end-2015 the government stands ready to offer for sale its remaining stakes in state-owned enterprises if necessary in order to reach the privatisation objectives public control will be limited only to cases of critical network infrastructure to ensure that the plan objectives are achieved the government will continuously transfer assets to the hellenic republic asset development fund hradf in particular the government will transfer to the hradf all the assets that are expected in 2012 and 2013 at the request of the hradf all legal technical and financial advisors for the privatisations planned for 2012 and 2013 will be appointed by end q1-2012 privatisation is conducted in a transparent manner and will clearly set out postprivatisation property rights and obligations for a number of assets successful privatisation requires a proper regulatory framework ensuring that entry in a competitive market is possible after privatisation consumers are adequately protected and privatised assets are deployed in competitive markets the conditions for sales or concessions shall avoid the creation of unregulated private monopolies prevent any form of discrimination facilitate open access and impose full transparency of accounts intermediate steps for privatisation are specified including clearing all legal titles securing state-aid approval unbundling assets respecting public procurement rules having a more comprehensive inventory of real estate assets reallocating land uses seeking the council of experts and audit court s approvals the government will neither propose nor implement measures which may infringe the rules on the free movement of capital neither the state nor other public bodies will conclude shareholder agreements with the intention or effect of hindering the free movement of capital or influence the management or control of companies the government will neither initiate nor introduce any voting or acquisition caps and it will not establish any disproportionate and non-justifiable veto rights or any other form of special rights in privatised companies no further special rights will be introduced in the course of future privatisation projects to ensure compliance with the eu treaty the government repeals or appropriately amends the existing special rights granted to the state in the process of privatisation 4 9/2/2012

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structural fiscal reforms in particular the law on strategic companies law 3631/2008 art 11 is repealed or appropriately amended [q2-2012 in order to ensure a timely clearance of state-aid issues that could constitute a hurdle for privatisation the government appoints an interlocutor formally designated for ensuring compliance of privatisation with state aid rules by end-q1 2012 the government through the special secretariats of soes and privatisation in cooperation with the hradf submits by end-q2 2012 to the commission information on the financial situation of each asset that will be privatised in the course of 2012 whether the privatisation needs to be preceded by restructuring and respective modalities liabilities to the state which might hinder the privatisation process or the final price legislation which grants an advantage to the firm or concessionaire such as tax discrimination or monopoly status etc conditions that may be imposed on interested buyers as well as conditions on buyers eligibility and the method of privatisation planned public tender negotiation with existing shareholders ipo etc a similar report will be submitted in q4-2012 for each asset that is expected to be launched for privatisation in 2013 the government continues compiling and publishing a comprehensive inventory of state-owned assets including stakes in listed and non-listed enterprises and commercially viable real estate and land the inventory will be published in successive stages by mid-2012 and end-2012 on the ministry of finance s website the government accelerates state land ownership registration for this purpose the government i prepares a comprehensive asset-inventory ii prepares a special law for the land development of the hellinikon area iii clarifies land-use status for the single assets and/or portfolios of assets that will be assessed and selected for exploitation within 2012 [q2-2012 2.2 reducing waste in public enterprises and other public entities tariffs in oasa ose group and trainose increase by at least 25 percent while their business plans are appropriately updated [q1-2013 2.3 tax policy the government will prepare a tax reform that aims at simplifying the tax system eliminating exemptions and preferential regimes including and broadening bases thus allowing a gradual reduction in tax rates as revenue performance improves this reform relates to the personal income tax corporate income tax and vat property taxes as well as social contributions and will maintain the relative tax burden from indirect taxes the reform will be adopted by june 2012 by end-february 2012 the government will announce the full schedule of intermediate steps until the reform is tabled these intermediate steps will include public consultation and appropriate review by the european commission ecb and imf staff 5 9/2/2012

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structural fiscal reforms by june 2012 the government will revise the legal values of real estate to better align them with market prices 2.4 revenue administration reforms articles 3 and 21 of law 4038/2012 are amended prior to the disbursement the suspension of criminal prosecution and asset freezing is eliminated the conditions to extend the instalment plans for overdue taxes and social contributions are revised so that the instalment plans will only apply to existing overdue amounts below eur 10 000 for individuals and eur 75 000 for corporations tax payers applying for an extended instalment plan should disclose all their financial statements to the tax authorities moreover during the years covered by the economic adjustment programme the government commits not to adopt new tax amnesties or extend existing amnesties for the collection of taxes and social contributions the government will define tax refunds in arrears set standards for their processing [q1-2012 and publish on the web [q2-2012 monthly data on these arrears with a lag of 20 days after the end of each month in line with the anti-tax evasion action plan the government will step up audits of large-scale tax payers high-wealth individuals and self-employed it will also accelerate the resolution of tax arrears and better integrate anti-money laundering tools into the strategy progress will be monitored by quantitative indicators according to targets set under the anti-tax evasion plan key performance indicators these indicators concern completion of full scope and temporary audits of large taxpayers of risk-based audits of self-employed and high wealth individuals and of non-filers they also involve collection of assessed taxes and penalties from new audits of large taxpayers of the existing stock of tax debt and increase in the number of registered vat taxpayers filing returns the achievement of the completion of 75 full-scope audits and 225 vat audits of large taxpayers as targets set in the memorandum of 31 october 2011 for enddecember 2011 are prior to the disbursement to advance the reforms of revenue administration the government increases the staff of the large-taxpayers unit by 40 auditors to step up the fulfilment of audits in progress [end-march 2012 steps up the hiring procedure in order to complete the first wave of auditor reassessment and hiring 1 000 staff [end-april 2012 with the objective to achieve the target of 2 000 tax auditors fully operational by end-2012 within the overall limits for public hiring removes barriers to effective tax administration [june 2012 including a formal performance review and replacing managers who do not meet performance targets continues to centralise and merge tax offices 200 local tax offices identified as inefficient will be closed by end-2012 centralises the management of tax files related to the taxpayers in the list of big debtors [q1-2012 9/2/2012 6

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structural fiscal reforms revises the procedures to write-off tax debts so that the administrative efforts may focus on effectively collective debts by end-2012 discontinue payments in cash and cheque in tax offices which should be replaced by bank transfers so that staff time is freed-up to focus on more value added work audit collection enforcement and taxpayer advice [q2-2012 starts to publish on the web key performance indicators for the tax department [q2-2012 puts in place a new it system that interconnects all tax offices the preparation of the new it system involves the following main steps in relation to the new data centre web-facing and back-office applications the new data centre hardware is in place and running by end-march 2012 20 more new electronic services and enhancements by end-june 2012 these concern mainly taxes withheld at source database and application design and implementation by end-october 2012 8 remaining new electronic services and enhancements by end-december 2012 these concern forms filed late with a fine real-estate tax and vat administration system and user tests user training and migration of all tax offices to the centralized database by end-december 2012 operational use of the new it infrastructure by all tax offices 1 january 2013 to strengthen the anti-corruption framework for the tax administration the government will reform the financial inspections unit which should focus only on auditing tax collectors and revenue administration issues [june 2012 activate an internal affairs directorate [june 2012 require the financial intelligence unit to audit annually at least 200 asset statements of tax officials [june 2012 establish procedures for the rotation of managers on a periodic basis [june 2012 improve the system to protect whistle-blowers who report corruption [june 2012 prepare a fully-fledged anti-corruption plan [september 2012 moreover the government will define powers to be delegated from the political level to the tax administration these powers will include control over core business activities and management of human resources the government will also tighten the control of local tax offices by central offices and fill the position of secretary general of revenue administration with an external appointee with appropriate professional experience [march 2012 the government adopts secondary legislation to make arbitration operational and certifies arbitrators by end-march 2012 by the same date legislation will make it compulsory to exhaust administrative dispute phase for large tax cases before entering the judicial appeals the code of books and records is repealed in its entirety and replaced by simpler legislation [not later than june 2012 9/2/2012 7

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structural fiscal reforms 2.5 public financial management reforms a plan for the clearance of arrears owed to suppliers by public entities is published by june 2012 and the government ensures that the stock of arrears steadily declines clearance of arrears of government entities by the state budget will be contingent on progress in relation to the commitment registry and no additional accumulation of arrears by each public entity data on arrears are published monthly with a lag of not more than 20 days after the end of each month to strengthen expenditure control the government continues the process of establishing commitment registries which should fully cover the central government by march 2012 and the investment budget and at least 70 percent of general government units [june 2012 and extended to other general government entities enforces the obligation of accounting officers to report commitments including by enacting sanctions to entities not submitting the data and disciplinary action for accounting officers [june 2012 adopts legislation streamlining the procedure for submission and approval of supplementary budgets [october 2012 and establishes an administrative calendar for the update of the medium-term fiscal strategy [q1-2012 2.6 to modernise the public administration at the central level by december 2012 and in accordance with the roadmap established the government has to i set up a high-level steering group chaired by the pm that will supervise monitor and ensure the implementation of administrative reforms [february 2012 ii establish a stable structure for inter-ministerial coordination [may 2012 iii create basic horizontal structures in each ministry implementing the relevant procedures with budget/finance [february 2012 audit internal control human resource management acting under common rules a framework legislation to be drafted in line with the roadmap agreed and adopted will provide the legal reference for implementing such a reform at the decentralized/regional/local level a specific roadmap is created translating all principles of coherence and efficiency at the central level into the decentralized regional/local level [march 2012 9/2/2012 8

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structural fiscal reforms social programmes the ongoing functional review on social programmes is finalised by end-march 2012 the review report will include recommendations to the government on the objectives design and implementation of social policies as well as on the need to keep a balance between achieving savings and protecting the most vulnerable public sector wages and human resource management the government publishes and updates on a quarterly basis its medium-term staffing plans per department for the period up to 2015 in line with the rule of 1 recruitment for 5 exits the recruitment/exit rule applies to the general government as a whole the staffing plans should be consistent with the target of reducing public employment by 150 thousand in end-2010­end-2015 if necessary the government will enact temporary hiring freezes staff transferred to the government from either state-owned enterprises or other entities under restructuring are considered as new recruitments the same applies to staff in the labour reserve that is transferred to other government entities after screening of professional qualifications by asep under its regular evaluation criteria the overall intake in the professional schools e.g military and police academies is reduced to a level consistent with hiring plans the staffing plans per ministry and each group of public entities will include tighter rules for temporary staff cancellation of vacant job post and reallocation of qualified staff to priority areas and takes into account the extension of working hours in the public sector the staffing plans and monthly data on staff movements entries exits transfers among entities of the several government departments are published on the web [monthly starting march 2012 15 000 redundant staff will be transferred to the labour reserve in the course of 2012 in connection with the identification of entities or units that are closed or downsized staff in the labour reserve will be paid at 60 percent of their basic wage excluding overtime and other extra payments for not more than 12 months after which they will be dismissed this period of 12 months may be extended up to 24 months for staff close to retirement payments to staff while in the labour reserve are considered part of their severance payments the government commissions an expert assessment of the new wage grid [q12012 this assessment will focus on the wage drift that is embedded in the new promotion mechanism if the assessment reveals any excessive wage drift the promotion rules are adjusted before end-2012 no promotion takes place before the assessment and adjustment to the promotion rules the government sets up an electronic automated system linking the census data base with the single payment authority spa s which will allow for a more effective coverage assessment and payment of employees this system will be coordinated with other ministries [q2-2012 9/2/2012 9

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structural fiscal reforms public procurement single public procurement authority sppa the government issues decisions to appoint the members of the sppa [february 2012 to provide for the institution and establishment of positions for the sppa s personnel as well as for the organization of human resources and services of the authority in accordance with the provisions of the law on the sppa [march 2012 to provide for the implementing regulation of the sppa [april 2012 the sppa starts its operations to fulfil its mandate objectives competences and powers as defined in the law on the sppa and the action plan agreed with the european commission in november 2010 [april 2012 e-procurement the government presents a detailed plan for the development of the e-procurement platform including its phased roll-out communication and training programmes its target usage levels and planned revision of the current legislation if needed [q12012 the government presents a pilot version of the e-procurement system [q2-2012 the e-procurement platform is fully operational and ready for use and a common portal is created for the publication of all procurement procedures and outcomes the e-procurement framework is placed under the responsibility of the sppa which supervises its operations [q1-2013 the whole public sector uses the e-procurement platform [q4-2013 and the government presents results of the monitoring activities covering year 2013 against the target usage levels [q1-2014 efficiency of procedures the government will move towards more centralised procurement especially in the field of health procurement services and supplies the government identifies a number of potential sectoral central purchasing bodies cpb at central government level the first cpbs are fully operational and coordinated by the sppa [q2-2012 the government establishes centralised purchasing/framework contracts for frequently purchased supplies or services at central government level with the obligation for ministries and central government bodies to source via these contracts and optional use for regional entities [q3-2012 the government proposes an action plan to establish cpb at regional/local level at least one per administrative region [q3-2012 regional/local cpbs are fully operational and coordinated by the sppa 9/2/2012 10

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structural fiscal reforms the government undertakes a reform of the public procurement system including works supplies and services with a view to a simplifying streamlining and consolidating the body of public procurement legislation and b rationalising the administrative structures and processes in public procurement to desired procurement results in terms of efficiency and efficacy the review starts from an analysis of the state of play flowcharts procedural phases actors involved timelines statistics a first action plan for the reform is developed in agreement with the european commission [q2-2012 government presents drafts of the necessary legislative and organisational measures to implement the above-mentioned action plan to the european commission [q42012 the government undertakes a thorough review of the system of redress against award procedures with the objective of 1 reducing the significant and frequent delays triggered by excessive use and lengthy processing of redress in public procurement procedures and of 2 assessing the role to confer to the sppa in this area the government proposes an action plan in agreement with the european commission [q2-2012 quality of statistics the ongoing strengthening of the european statistical system includes the introduction of commitments of confidence in statistics to be signed by all member states the government will sign such a commitment by end-march 2012 this commitment includes the revision of the statistical law to reform the elstat governance arrangements and establish the elstat board as an advisory body and to clarify further the professional authority of the elstat president as chief officer and coordinator of the national statistical system 2.7 to complete the pension reform prior to the disbursement the government proceeds through a framework law with an in-depth revision of the functioning of secondary/supplementary public pension funds the aim of the revision is to stabilise pension expenditure guarantee the budgetary neutrality of these schemes and ensure medium and long-term sustainability of the system the revision achieves the elimination of imbalances in those funds with deficits the unification of all existing funds reduction of overall operational and payroll costs including an adequate reduction in staff headcount by at least 30 percent in the new single fund the long-term sustainability of secondary schemes through a strict link between contributions and benefits the reform of the secondary/supplementary schemes is designed in consultation with the european commission ecb and imf staff and its estimated impact on long-term sustainability is validated by the eu economic policy committee the parameters of the new secondary notional defined-contribution system ensure longterm actuarial balance as assessed by the national actuarial authority [q1-2012 9/2/2012 11

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structural fiscal reforms the individual pension benefit will be calculated on the basis of i a notional rate of return linked to the rate of growth of the wage bill of insured workers ii a sustainability factor that adjust benefits to promptly eliminate any future imbalances should they occur [q1-2012 the government will reduce nominal supplementary pension benefits starting from january 2012 to eliminate deficits the new single fund sets up in a cost effective way a computerised system of individual pension accounts [q1-2012 the government identifies the schemes for which lump sums paid on retirement are out of line with contributions paid and adjusts the payments [q1-2012 the health committee set up by law 3863/2010 will produce a first quarterly report of its activities aimed at revising the disability status and reduce the disability pensions to not more than 10 percent of the overall number of pensions [q1-2012 the bank of greece commits not to grant pension privileges to its staff and to revise the main parameters of its pension scheme so that they remain aligned to those of ika the government will ensure that social security s assets including the liquidity that results from the ongoing debt exchange is invested in government bills deposits in treasury or any other instrument that consolidates in government debt 2.8 to modernise the health care system the government continues to implement the comprehensive reform of the health care system started in 2010 with the objective of keeping public health expenditure at or below 6 percent of gdp while maintaining universal access and improving the quality of care delivery policy measures include reducing the fragmented governance structure reinforcing and integrating the primary healthcare network streamlining the hospital network strengthening central procurement and developing a strong monitoring and assessment capability and e-health capacity the government continues the efforts undertaken in 2010-11 and intensifies measures to reach savings in the purchasing accruals basis of outpatient medicines of close to eur 1 billion in 2012 compared to the 2011 this will contribute to the goal of bringing average public spending on outpatient pharmaceuticals to about 1 percent of gdp in line with the eu average by end-2014 more specifically the following measures are implemented governance to strengthen health system governance improve health policy coherence reduce fragmentation in the purchasing of health services and reduce administrative costs the government further concentrates all health-related decision making procedures and responsibilities including payroll expenditures under the ministry of health by at the latest june 2012 in order to do this the government prepares a plan and the necessary legislative changes by end-february 2012 as part of this concentration process all health insurance funds are merged into eopyy and come under the responsibility of the ministry of health eopyy buys services in a cost effective way from nhs facilities and private providers through contracts all other welfare 9/2/2012 12

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structural fiscal reforms social assistance schemes under the ministry of health are moved to the ministry of labour by at the latest june 2012 from january 2013 eopyy will purchase hospital services on the basis of prospective budgets following the development of costing of procedures by treatment pathology categories full absorption cost drgs as a result of the concentration process eopyy rationalises the number of contracts with private doctors so as to bring down the doctor-to-patients ratio close to the much lower eu average [q2-2012 contributions paid by oga members are progressively equalised to those of other members of eopyy as envisaged in the medium-term fiscal strategy the process of equalisation of contributions will be completed in 2013 controlling pharmaceutical spending in order to achieve eur 1 billion of reduction in outpatient pharmaceutical spending in 2012 the government will simultaneously implement a set of consistent policies comprising changes in pricing prescribing and reimbursement of medicines that enhance the use of less expensive medicines control prescription and consumption and prosecute misbehaviour and fraud the government defines a consistent set of incentives and obligations for all participants along the medicines supply chain including producers wholesalers pharmacies doctors and patients to promote the use of generic medicines the government will revise the co-payment system in order to exempt from copayment only a restricted number of medicines related to specific therapeutic treatments [q1-2012 pricing of medicines the government continues to update on a quarterly basis the complete price list for the medicines in the market using the new pricing mechanism based on the three eu countries with the lowest prices [q1-2012 the government introduces an automatic claw-back mechanism quarterly rebate on the turnover of pharmaceutical producers which guarantees that the outpatient pharmaceutical expenditure does not exceed budget limits [q1-2012 starting from q1-2012 the pharmacies profit margins are readjusted and a regressive margin is introduced i.e a decreasing percentage combined with flat fee of eur 30 on the most expensive drugs above eur 200 with the aim of reducing the overall profit margin to below 15 percent government produces an implementation report on the impact of the new profit margins by q1-2013 if it is shown that this new model to calculate profit margins does not achieve the expected result the regressive margin will be further revised starting from q1-2012 the wholesalers profit margins are reduced to converge to 5 percent upper limit 9/2/2012 13

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structural fiscal reforms prescribing and monitoring the government takes further measures to extend in a cost-effective way the current e-prescribing to all doctors health centres and hospitals e-prescribing is made compulsory and must include at least 90 percent of all medical acts covered by public funds medicines referrals diagnostics surgery in both nhs facilities and providers contracted by eopyy and the social security funds [q1-2012 introduces a temporary and cost-effective mechanism until all doctors are able to use the e-prescription system which allows for the immediate and continuous monitoring and tracking of all prescriptions not covered by e-prescription this mechanism will make use of the web-based e-prescription application established by idika which allows the pharmacies to electronically register manual prescriptions from a specific doctor to a specific patient for medicines to be reimbursed by eopyy and other funds pharmacies must register in the webbased application all manual prescriptions for this service doctors who prescribe manually will be charged a monthly administrative fee by eopyy to compensate the pharmacies the introduction of this temporary mechanism would ensure that all prescriptions are electronically recorded allowing for the full and continuous monitoring of doctors prescription behaviour their compliance with prescription guidelines [february 2012 continues publishing prescription guidelines/protocols for physicians starting with the guidelines for the most expensive and/or mostly used medicines the government makes it compulsory for physicians to follow prescription guidelines prescription guidelines/protocols are defined by eof on the basis of international prescription guidelines to ensure a cost-effective use of medicines and are made effectively binding [q1-2012 enforces the application of prescription guidelines also through the e-prescription system therefore discouraging unjustified prescriptions of most expensive medicines and diagnostic procedures [q1-2012 produces ministry of health and eopyy together with the other social security funds until they merge detailed monthly auditing reports on the use of eprescription in nhs facilities and by providers contracted by eopyy and other social security funds until they merge these reports are shared with the european commission ecb and imf staff teams [q1-2012 implements ministry of health and eopyy together with the other social security funds until they merge an effective monitoring system of prescription behaviour they establish a process to regularly assess the information obtained through the e-prescribing system [q2-2012 produces regular reports at least on a quarterly basis on pharmaceutical prescription and expenditure which include information on the volume and value of medicines on the use of generics and the use of off-patent medicines and on the rebate received from pharmacies and from pharmaceutical companies these reports are shared with the european commission ecb and imf staff teams [q1-2012 provides feedback and warning on prescription behaviour to each physician when they prescribe above the average of comparable physicians both in nhs facilities and contracted by eopyy and other social security funds until they merge and when they breach prescription guidelines this feedback is provided at least every month and a yearly report is published covering 1 the volume and value of the doctor s prescription in comparison to their peers and in comparison 9/2/2012 14

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structural fiscal reforms to prescription guidelines 2 the doctor s prescription of generic medicines vis-àvis branded and patent medicines and 3 the prescription of antibiotics [q22012 enforces sanctions and penalties as a follow-up to the assessment and reporting of misconduct and conflict of interest in prescription behaviour and non-compliance with the eof prescription guidelines continuous or repeated non-compliance with the prescription rules will lead to the termination of the contract between the doctor and the eopyy and the doctor s permanent loss of his/her capability/right to prescribe pharmaceuticals which are reimbursed by the government/eopyy in the future [q1-2012 continuously updates the positive list of reimbursed medicines using the reference price system developed by eof [q1-2012 selects a number of the most expensive medicines currently sold in pharmacies to be sold in hospitals or eopyy pharmacies so as to reduce expenditure by eliminating the costs with outpatient distribution margins and by allowing for a strict control of the patients who are being administered the medicines [q12012 if the monthly monitoring of expenditure shows that the reduction in pharmaceutical spending is not producing expected results additional measures will be promptly taken in order to keep pharmaceutical consumption under control these include a prescription budget for each doctor and a target on the average cost of prescription per patient and if necessary across-the-board further cuts in prices and profit margins and increases of co-payments [q2-2012 in compliance with eu procurement rules the government conducts the necessary tendering procedures to implement a comprehensive and uniform health care information system e-health system [q1-2012 increasing use of generic medicines a comprehensive set of measures is adopted simultaneously to promote the use of generic and less expensive medicines the aim of these measures is to gradually and substantially increase the share of the generic medicines to reach 35 percent of the overall volume of medicines sold by pharmacies by end-2012 and 60 percent by end-2013 this will be achieved by reducing the maximum price of the generic to 40 percent of the price of the originator patented medicine with same active substance at the time its patent expired this is set as a maximum price producers can offer lower prices thus allowing an increased competition in the market [q1-2012 automatically reducing the prices of originator medicines when their patent expires off-patent branded medicines to a maximum of 50 percent of its price at the time of the patent expiry producers can offer lower prices thus allowing an increased competition in the market [q1-2012 creating dynamic competition in the market for generic medicines through price reductions of at least 10 percent of the maximum price of each generic follower [q4-2012 associating a lower cost-sharing rate to generic medicines that have a significantly lower price than the reference price for reimbursement lower than 40 percent of the reference price on the basis of the experience of other eu 15 9/2/2012

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