Discussions have intensified in recent days, according to industry sources, and manufacturers are looking closely at the experience of Argentina's collapse in 2002, when some firms agreed to continue to supply medicines without payment for a period of time.

Executives at leading drug companies - particularly those with European headquarters - are under pressure to avert a health catastrophe, which could occur if Greek imports are halted by a massive devaluation of newly issued drachma.

"There's a moral obligation to continue to supply," said Simon Friend, global pharmaceutical leader at PricewaterhouseCoopers.

"Greece is not a big market, so most drug companies can absorb it … the reputational damage would, I think, more than outweigh the economic cost."

Although plans are still in flux, the idea is to have a scheme ready for implementation at short notice that could bridge the gap by supplying critical medicines for a few months, according to one person familiar with the situation.

Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations, confirmed his group was discussing the Greek situation but declined to go into details.

"We obviously are on alert and talking to people about it," he said. "We are in very close contact with the European Commission and the Greece task force and we are monitoring developments."

The European Union set up the task force last year under Horst Reichenbach to help Athens tackle its debt crisis.

Greece imports nearly all its medicines and is particularly reliant on branded drugs, as opposed to cheaper generics, which means it spends a relatively large amount per capita on medicines.

Any short-term initiative might be limited to certain categories of essential medicines and would probably not be a panacea, reflecting the need of companies to protect the interests of shareholders as well as patients.

Certain parts of the Greek healthcare system have already experienced drug shortages in recent months and drug manufacturers - owed 1.21 billion euros in unpaid bills from Greek state hospitals, according to the Hellenic Association of Pharmaceutical Companies - have adopted a range of strategies to limit exposure to an uncertain market.

Some, like Denmark's Novo Nordisk, the world's largest supplier of insulin for diabetics, have long demanded payment on delivery. Others, including Britain's GlaxoSmithKline, say they have not changed the terms of business and are not demanding immediate cash settlement.

Swiss-based Roche, the world's largest maker of cancer drugs, has a nuanced approach. It switched last year to a system of payment on delivery for hospitals with a history of bad payments but spokesman Daniel Grotzky said this policy did not apply to critical products like HIV drugs and CellCept, a medicine given to organ transplantation patients.

Drugmakers know from experience that turning off the supply tap may simply not be an option. Two years, Novo Nordisk was hit by storm of protest when it halted deliveries of certain insulins for around a month after Greece cut the price by more than a quarter. The cut-off ended when Athens agreed to somewhat smaller price cuts.

Greece represents just under 1 percent of the world drugs market but it has a potentially wider impact because the country is embedded in the European Union.

As a result, price cuts in Greece can trigger automatic cuts in richer countries through the practice of "reference pricing" to other countries - something industry is keen to avoid if Greece leaves the euro and prices in euro terms fall heavily.

Drug price cuts over the past two years have also helped suck medicines out of the country as wholesalers sell supplies to countries - like Germany - where drug prices are higher, although recently introduced quotas limiting exports of some drugs have tried to address this.

Such parallel trade is allowed under European free trade rules and can help keep costs down for European healthcare systems, according to the European Association of Euro-Pharmaceutical Companies, representing wholesalers involved in the practice.

Drug manufacturers, however, see it as a thorn in their side and any short-term emergency supply plan for Greece is likely to include a demand for assurances that drug deliveries will actually get to Greek patients. Fraud over medicine reimbursement in Greece is another concern.

On the ground, meanwhile, many patients are already struggling to get the prescription medicines they need, according to Apostolos Veizis, head of programs for Medecins Sans Frontieres in Greece.

One reason is a liquidity crunch among pharmacists, who face delays in payments from public insurers and, as a result, are unable to pay their suppliers.

But even when drugs are available, more and more Greeks have trouble paying the 10-25 percent of the prescription cost not covered by the public healthcare system.

"We're seeing a massive decrease in patient access because of the economic crisis," Veizis said.

(editing by Janet McBride)

(ben.hirschler@thomsonreuters.com)(+44 20 7542 5082)(Reuters Messaging:; ben.hirschler.thomsonreuters.com@reuters.net)(www.twitter.com/reutersBenHir)

• A Permanent Economic Emergency