Pharmaceutical supply systems in many countries are somewhat disorganized: demand fluctuates, quantities available vary, lists of drugs distributed continually change, prices rise and illegal traffic may develop. The functioning of these supply systems must be regulated. Regulated functioning cannot be achieved simply by appointing competent and motivated managers, for the behaviour of managers to a large extent depends on the system of rules within which they work. It is up to pharmaceutical policy-makers to organize pharmaceutical supply systems so that they can be regulated.

The organization of a country’s pharmaceutical supply is strongly influenced by the country’s larger financial system. Factors such as the reliability of the banking system, the possibility of obtaining bank credit, local interest rates, the level and stability of exchange rates, membership of a currency area, the system for access to foreign currency and the existence of import-related credits all play a role. In many cases, the financial system must be adapted (such as by providing access to foreign currency) to ensure the drug supply, in so far as drug supply is regarded as a priority.

The objective of regulation is to adapt the quality and quantity of drugs used to needs. This objective is met through the application of rules, often established by the government, which apply to all agents in the pharmaceutical sector. Economic concepts and instruments can help the pharmaceutical supply system to fulfil its function. The pharmaceutical supply system includes selection, procurement, distribution and utilization:

selection - choice of drugs to be procured and distributed;
procurement - purchase of drugs from manufacturers;
distribution - routing of drugs through the pharmaceutical system;
utilization - prescription and consumption of drugs to satisfy needs.

The effects of the financing system (payments) and information system (information on the quantity and quality of drugs required) on the performance of the pharmaceutical supply system must be analysed. The three systems are very closely interrelated and the performance of each depends on the others. It is thus necessary to ensure a general consistency among them. Because the objectives and constraints of each system differ, complete consistency among them is impossible.

What criteria should be adopted for consistency or homogeneity? From the economic point of view these should include both decision-making criteria and the ways of organizing activities for which an economics input is essential. The problems posed differ at different stages. Selection and utilization, stages that define which drugs should be used, are fairly similar aspects of decision-making. The questions that arise relate to the criteria for decisions. Procurement and distribution, stages in which drugs are transferred from producers to consumers, are also similar. The most common modes of organization of economic activity are hierarchy and the market. Hierarchy organizes relationships within an enterprise or a country with the backing of authority. The market determines relationships between autonomous units. To what extent do these modes of organization permit regulation of systems of pharmaceutical supply?