Transcript Slide 1

PROCUREMENT & SUPPLY:
POOLED PROCUREMENT
UKZN IP & Access to Medicines 2009
Professor Brook K. Baker
Northeastern U. School of Law
Health GAP (Global Access Project)
[email protected]
Outline of Presentation
• What are the principles of sound drug
procurement?
• What is pooled procurement?
• Types of pooled procurement and their
advantages and disadvantages
• Where has pooled procurement worked
before?
• Pooled procurement in the SADC Region
• Conclusion
Objectives and Operational
Principles for Good Procurement
• Procure the right drugs in the right
quantities at the lowest possible total cost
• Select reliable suppliers of quality
products
• Ensure timely delivery and notification
• Efficient and transparent management
• Drug selection and quantification
• Financing and competition
• Supplier selection and quality assurance
Procurement Cycle
From Management Sciences for Health
Traditional
Procurement Methods
Formal price can be deceptive
From Management Sciences for Health
Problems with Traditional
Procurement
•
•
•
•
Non-transparency
Weak bargaining power/high prices
Corruption
Inefficiencies, delays, and high
transaction costs
• Stock-outs
Alternative: Pooled Procurement
• “Bulk purchasing,” “group purchasing,” or
“pooled procurement” is defined as
“purchasing done by one procurement
office on behalf of a group of facilities,
health systems, or countries. Group
members agree to purchase certain drugs
exclusively through the group” (WHO 1997)
• Pooled procurement can be done by any
number of parties, would not need to
involve all SADC countries
Pooled Procurement –
Advantages
• Can create economies-of-scale market-buyingpower incentives to generic producers.
• Monopsony (single buyer) purchasing power in
price negotiations.
• Can lead to harmonizing standard treatment
guidelines (STGs), essential medicines lists
(EMLs), and registration standards
• Can lead to improved quality assurance and
supplier monitoring
• Can reduce overall transaction costs.
Pooled Procurement Disadvantages
• Complicated matrix of national patent and
registration rules and the mixed
patent/registration status of a given medicine in
different countries.
• Plethora of donor procurement rules and new
international procurement entities.
• Regional procurement risks undermining
efficient and important domestic pharmaceutical
capacity.
• Single-source selection (disfavoured) could
lead to market concentration.
DIFFERENT OPTIONS FOR
REGIONAL PROCUREMENT
Informed buying
•sharing information on
suppliers
•individual country procurement
Coordinated/informed buying
•joint market research,
•sharing information on pricing,
and joint monitoring of prices
•individual country procurement
Group contracting
•joint selection of suppliers,
•joint negotiation of prices
& agreement on suppliers
•individual country purchasing
Central contracting
•joint conducting of tenders and
awarding of contracts by a
central organisation formed by
member countries
Selective use of new donor and
multilateral procurement
systems (UNITAID, US SCMS,
UNICEF, Global Fund VPP)
Stock-out service (IDA-type
facility)
Informed Buying
(sharing information on suppliers but
individual country procurement)
Advantages
Disadvantages
•Increased price
transparency increases
options for accessing lowest
price suppliers and
negotiating price reductions
with favored suppliers.
•Although transparency
increases bargaining power,
it does not result in
economies of scale.
•Keeping information
updated and accessing
information frequently has
transaction costs.
•Price transparency between
competitors can lead to de
facto price fixing.
Coordinated/Informed Buying
(joint market research, sharing of information
on pricing, and joint monitoring of prices but
individual country procurement)
Advantages
Disadvantages
•Increased price
transparency increases
options for accessing lowest
price suppliers and
negotiating price reductions
with favored suppliers.
•Reduces information
gathering and monitoring
transaction costs.
•Although transparency
increases bargaining power,
it does not result in
economies of scale.
•Price transparency between
competitors can lead to de
facto price fixing.
Group Contracting
(joint selection of suppliers, joint negotiation of
drug prices, joint agreement to procure from
suppliers, but individual country procurement)
Advantages
Disadvantages
•Increased opportunities for
negotiating price reductions
with multiple low cost suppliers.
•Aids supplier forecasting and
security of adequate supplies.
•Allows use of local,
capacitated procurement
system.
•Allows procurement of
products meeting domestic
patent and registration
requirements.
•Some unpredictability of
market forecasting for
suppliers leading to higher
prices (based on risk).
•Choosing too few
suppliers can create
problems in sustainability
of supply and market
withdrawal.
•Collusion between
competitors can lead to
price fixing.
Central Contracting
(joint conducting of tenders and awarding
of contracts by a central organisation
formed by member countries)
Advantages
Disadvantages
•Greatest economies of scale
and increased bargaining
power.
•Aids supplier forecasting and
security of adequate supplies.
•Reduced/shared transaction
costs for procurement
system.
•Incentivizes harmonization
of drug access policies
(product registration/labeling,
regional C.L. schemes)
•Choosing too few suppliers
can create problems in
sustainability of supply and
market withdrawal.
•Can be much harder based
on domestic patent- and
registration-related issues in
different countries.
•Potentially weakens
domestic procurement
capacity/systems especially if
disease-specific.
Selective Use of New Donor-Based and
Multilateral Procurement Systems
(UNITAID, US SCMS, UNICEF, GF)
Advantages
Disadvantages
•Even greater economies of
scale and increased
bargaining power.
•Aids supplier forecasting and
security of adequate supplies.
•Greatly reduces regional
transaction costs.
•Incentivizes harmonization
of drug access policies
(product registration/labeling,
regional C.L. schemes)
•Choosing too few suppliers
can create problems in
sustainability of supply and
market withdrawal.
•Can be complicated by
patent and registration issues
in different countries.
•Potentially weakens
domestic and regional
procurement
capacity/systems, especially
if disease-specific.
Stock-Out Service
(IDA-type facility)
Advantages
Disadvantages
•Reduces need for domestic
buffer stocks and reduces
the risks associated with
imperfect forecasting.
•Compensates for
unanticipated interruptions of
supply from major
supplier(s).
•Facilitates adherence and
reduces drug resistance.
•Could result in reduced care
in forecasting needs.
•Countries could forego or
reduce domestic buffer
stocks to lower than
desirable levels.
•Potential stock-outs by the
stock-out service.
•Change in medication could
disrupt patient adherence.
Summary of Pooled Procurement Initiatives
(A.Barraclogh, MSH)
PAHO
Vaccine
Formed
OECS
GCC
Arab
Maghreb
Union
Year
established
1979
(23)
1986 (3)
1986 (6)
1976
(26)
1988 (12) 1999 (3)
Status
Ongoing Defunct
Ongoing Ongoing Inactive
(2000)
Ongoing
Number of
countries
41
(2001)
6
7↑9
6
5↓3
8
Number of
items
11
(2001)
20
700
(2006)
1,127
Info not
available
30
Annual
volume of
purchases
USD 130 USD 4 M USD 3.5
M (2001) (1987)
M (2002)
USD
234.5 M
(2001)
Info not
available
Info not
available
Savings
affected
312–
452%
30%
15–20%
10–96%
26–75%
44%
Pacific
Islands
COST-SAVINGS CARICOM
Percentage Cost-savings from pooled
procurement for 25 class “A” items,
1998 - 2002
Year
1998
1999
2000
2001
2002
% Costsavings
39.7
38.2
37.1
25.2
44
Average 1998 – 2002
37%
But, Bulk Procurement has not
Produced Savings for ARVs
• Findings: Large purchase volumes did not necessarily result in
lower ARV prices. Although current plans for pooled
procurement will further increase purchase volumes, savings are
uncertain and should be balanced against programmatic costs.
• Third-party negotiation by [Clinton Foundation] resulted in
lower generic ARV prices.
• Generics were less expensive than differentially priced branded
ARVs, except where little generic competition exists.
• Alternative strategies for reducing ARV prices, such as
streamlining financial systems, improving demand forecasting
and removing barriers to generics, should be explored.
• Waning, WHO Bulletin (2009)
Critical Success Factors
• Political will and financial commitment
• Adherence to monopsony (large-scale
buying)
• Secure & trustworthy finance and
payment mechanism
• Permanent and autonomous
procurement secretariat
• Harmonization of drug regulation
• Good pharmaceutical procurement
practices
• Effective quality assurance
Pooled procurement in SADC Region
•
•
•
•
Which is the most appropriate and practical model for
cost efficient pooled procurement in the SADC region?
What steps must be taken by each country to ensure
that pooled procurement in the SADC region is
successful?
How should the existing procurement & distribution
channels in member countries be upgraded in terms of:
• (a) skills; and
• (b) technology
to accommodate an efficient pooled procurement
mechanism?
Pooled Procurement in SADC Region
o In SADC region, pooled procurement
being driven by DFID, WHO and SADC
o DFID has consulted a number of
stakeholders in SADC and will be
outsourcing TA and capacity building
o Ambitious business plan for the
harmonization of treatment regimes,
medicine regulations, IP laws over 7
year period
SADC Pooled Procurement
Initiative
SADC Pharmaceutical business plan objectives:
• (a) Harmonizing standard treatment guidelines and
essential medicine lists;
• (b) promoting local and regional pharmaceutical
industry of generic essential medicines and African
Traditional Medicines;
• (c) Strengthening regulatory capacity and distribution of
basic pharmaceutical products by having functional
regulatory authority with enforcement infrastructure;
• (d) Promoting joint procurement of medicines of
acceptable safety, proven efficacy and quality to the
people who need them most at affordable prices.
SADC Pooled Procurement
Initiative
• e) Establishing a regional databank of traditional
medicine, medicinal plants and procedures;
• f) Developing and retaining competent human
resources for the pharmaceutical programme;
• g) Developing mechanisms to respond to
emergency pharmaceutical needs of the region;
and
• h) Facilitate the trade in pharmaceuticals within
SADC
Pooled procurement in
SADC- opportunities
• Regional market, estimated in 2000 at U$2.5 - 3 billion,
probably twice as big now.
• An estimated U$1-2 billion per year is used in public
sector procurement.
• achievable efficiency gain of 5% can translate into
U$50-100 million savings per year.
• Advanced medicines quality assurance systems in
some countries can be used to develop capacities in
others – S. Africa is now considered to be a stringent
drug regulator.
• Improved efficiency in supply chain management
systems through regional collaboration.
Preliminary Steps
• SADC Health Policy Framework, SADC
• Protocol on Health, the SADC Trade Protocol,
Pharmaceutical Programme to guide member
states
• All SADC Member States have official or draft
medicines policies and laws
• Existence of the Pharmaceutical Regulatory
Shared Network
• All countries in SADC region are WTO members
• SADC region has developed pharmaceutical
guidelines for medicines regulation
SADC Challenges
• Wide differences in capacities of 14 SADC states
• Outdated medicines and intellectual property laws
• Inconsistent regulatory systems and capacities,
concerns about quality, safety and efficacy of
medicines
• Disparities between private medical aid and stated
funded health care resulting in inequities
• A complicated matrix of national patent and
registration rules in SADC countries present real
challenges to regional procurement.
SADC Challenges
• Donor rules and new procurement entities
further complicate regional procurement
leading to procurement fragmentation
• Lack of effective management information and
evidence-based decision-making
• Lack of harmonized pricing policies and
substantial variation in prices of essential
medicines for the same or similar products
both within and between countries
• Harmonization needed to ensure efficient use
of limited resources and to avoid
duplication/delays
External Threats to Pooled
Procurement
• Unethical promotional activities by
pharmaceutical manufacturers.
• Production of substandard/counterfeit
medicines.
• Unethical inspection and registration of
medicines and premises.
• Corruption in the procurement processes and in
distribution systems.
• Irrational prescribing and dispensing practice.
• User fees and cost-recovery
CONCLUSION
• Efficiencies in drug procurement are
complicated by:
– Patent rules and availability/use of TRIPS-compliant
flexibilities
– Registration status of more affordable generic
equivalents (avoidance of D.E./linkage)
– Balancing of risks and benefits of various forms of
regional pooled procurement
• Unless African countries cooperate, they cannot
achieve their individual health goals and
commitments.