(2001; 28 pages) [French] [Spanish]
Drug procurement - The principles for getting it right
SOME countries routinely pay 150% to 250% of world market prices for essential drugs, while others complain of unreliable suppliers and poor quality drugs. Improper procurement practices lead not only to high prices and poor quality, but can also result in shortages of life-saving drugs. Now the Interagency Pharmaceutical Coordination Group has produced Operational Principles for Good Pharmaceutical Procurement, to assist all involved in procurement to obtain lower prices, better quality and more reliable delivery of essential drugs.
The Group, consisting of the pharmaceutical advisers of WHO, the United Nations Children’s Fund, the United Nations Population Fund and the World Bank*, is especially well placed to advise on procurement issues. And the need for improvement is great, as experience shows that the process can go badly wrong. The number of different agencies involved in procuring drugs - including ministries of health, manufacturers and donor agencies -can render the process highly complex and vulnerable to inefficiency and waste. Other problems, such as corruption and lack of transparency, lead to lack of competition, with fewer choices, higher prices and poorer quality. At the same time, irregular and limited funding can greatly hinder efforts to secure timely delivery of drugs, although external funding from international agencies or bilateral donors sometimes helps. Outdated local regulations and supply procedures, unsuitable for the special requirements of buying pharmaceuticals, can further complicate matters.
* UNAIDS has since joined the Group.
The Operational Principles, reproduced below, tackle these problems by providing a solid basis to help ministries of health, donor agencies and others to harmonise their drug procurement practices.
They can be reviewed and adapted by individual governments and public or private organizations in the process of developing their own internal procurement procedures.
Although in many respects applicable to all procurement settings and for most types of procurement situations, the primary target is pharmaceutical procurement for public sector health systems. It is recognised that public sector procurement may be managed in a variety of ways, ranging from total in-house systems, through various autonomous or semi-autonomous procurement agencies, to total privatisation. These principles are applicable to each of those variations.
Grouped into four categories, the 12 principles cover: (i) transparent management, (ii) selection and quantification, (iii) financing and competition, and (iv) supplier selection and quality assurance.
Even without appropriate policies and procedures, lack of properly trained personnel can doom a procurement system to failure. So, as well as advising on best procurement practices, the Operational Principles are intended for use in staff training programmes.
Coordination and collaboration among technical development agencies is another major issue. It is hoped that the operational principles will foster cooperation and standard approaches among national governments and donors actively attempting to improve public health and drug management around the world.
Four strategic objectives of pharmaceutical procurement
1. Procure the most cost-effective drugs in the right quantities
2. Select reliable suppliers of high-quality products
3. Ensure timely delivery
4. Achieve the lowest possible total cost
OPERATIONAL PRINCIPLES FOR GOOD PHARMACEUTICAL PROCUREMENT
Efficient and Transparent Management
1. Different procurement functions and responsibilities (selection, quantification, product specification, pre-selection of suppliers and adjudication of tenders) should be divided among different offices, committees and individuals, each with the appropriate expertise and resources for the specific function.
Justification and explanation
Senior managers responsible for procurement must ensure that pharmaceutical procurement is carried out effectively, efficiently and in accordance with the country’s policies, laws and regulations. The health system’s procurement office, under various names, is normally responsible for actually managing the procurement function. The procurement office should be responsible for coordinating inputs to achieve the desired result. But in most public sector contexts the reality is that all functions of the drug procurement process are entirely in the hands of one office or official.
Without appropriate separation of function and authority the procurement process is much more susceptible to influence by special interests. In that case, procurement personnel may be able to bias drug selection, manipulate orders to increase the quantities of certain drugs, prejudice supplier qualification decisions, manipulate the final award of tender, and slant product specifications to limit competition. Separation of key functions contributes to professionalism, accountability and an efficient procurement system.
A number of key procurement functions typically require different expertise and should be separated. Examples include:
- Drug selection, which should be done by a national formulary or essential drugs list (EDL) committee. Where such a committee does not exist an ad hoc committee should be set up for this purpose.
- Quantification of drug requirements, which should have inputs from the medical stores and/or from district or health facility managers in decentralised systems. However, the procurement office should draw up the final procurement list.
- Product specifications, which should be prepared by a standing committee or an ad hoc technical committee.
- Pre-selection of suppliers, which should be done by a broad-based procurement committee composed of managers and technical staff, including quality assurance experts.
- Adjudication of tenders, which should be reserved for the procurement committee or tenders board. Procurement office staff can make technical recommendations but should not have a vote in the contract decision.
Pharmaceutical procurement is a specialised professional activity that requires a combination of knowledge, skills and experience. Too often drug supply agencies are staffed by individuals with little or no specific training in pharmaceutical procurement. It is essential, therefore, that staff in key procurement and distribution positions be well trained and highly motivated, with the capability to manage the procurement process effectively. The procurement office should have at least one pharmacist as part of its senior staff, in addition to having pharmacists’ expertise all along the pharmaceutical procurement chain.
2. Procurement procedures should be transparent, following formal written procedures throughout the process and using explicit criteria to award contracts.
Justification and explanation
Fairness and the perception of fairness are essential to attract the best suppliers and achieve the best prices. When the pharmaceutical tender process is less transparent and even secretive, it tends to be perceived as corrupt or unfair. There may be accusations of unfair influences. Whether true or not, such charges are damaging and suppliers, health care providers and the public lose confidence in the system. Unsuccessful suppliers may feel that they have no chance of winning and consequently withdraw from future tenders. As the pool of potential suppliers decreases to a small set, price competition decreases and procurement prices become much higher than necessary.
The tender procedures should be transparent. Formal written procedures should be developed and be followed throughout the tender, and explicit criteria should be used to make procurement decisions. Broad-based committees should have the sole authority to make contract awards. Tender adjudication should be done properly and the award of contracts and issuing of orders should be completed within the shortest period of time possible. Information on the tender process and results should be public, to the extent permitted by law. At the very least, both bidders and health personnel should have access to information on the successful suppliers and the prices for all winning contracts.
3. Procurement should be planned properly and procurement performance should be monitored regularly; monitoring should include an annual external audit.
Justification and explanation
In order to ensure that drugs are available where and when they are needed, drug procurement must be carefully planned. Planners should consider factors such as access to suppliers; funding availability and timing; the number of levels in the logistics system; constraints of time and resources affecting procurement functions such as drug selection, quantification, tendering and contracting; the lead times at various levels of the system; import procedures; customs clearance; and access to transport.
A reliable management information system (MIS) is one of the most important elements in planning and managing procurement. Lack of a functioning MIS or the inability to use it appropriately is a key cause of programme failure. The MIS should track the status of each order and payment, and compile the information required for supplier monitoring, as discussed in Operational Principle 11. It is important that the MIS also tracks the number of orders placed, payments made, quantities actually purchased compared with estimates, purchases from all contract suppliers, and drug purchases from non-contract suppliers. In all but the smallest procurement systems, the procurement information system should be computerised in such a way as to facilitate tracking and reporting on performance by suppliers and by the health system.
The procurement office should be required to report regularly on key procurement performance indicators, selected by senior managers. Some standard indicators include the planned versus actual items and quantities purchased; prices obtained versus average international prices; average supplier lead-time and service level; percentage of key drugs in stock at various levels of the supply system; and report on stock-outs.
At least once a year the procurement unit should undergo an audit, either internal or external, to verify procurement office accounting records. The auditor should issue a statutory audit report in accordance with the legal regulations of the jurisdiction and in addition should issue a detailed Letter of Comment to the management of the organization and to the appropriate public supervisory body.
Well-stocked medical stores in Ethiopia. There are many steps to follow in the procurement process to ensure that drugs are available for those who need them
Photo: WHO/M. Sentis
Drug Selection and Quantification
4. Public sector procurement should be limited to an essential drugs list or national/local formulary list.
Justification and explanation
No public or private health care system in the world can afford to purchase all drugs circulating in the market within its given budget. Resources are limited and choices have to be made. A limited list of drugs for procurement, based on an essential drugs list or drug formulary, defines which drugs will be regularly purchased and is one of the most effective ways to control drug expenditure.
A nationally developed formulary or selection based on the essential drugs concept has been used in both industrialised and developing countries’ health systems for more than 20 years. This allows the health system to concentrate resources on the most cost-effective and affordable drugs to treat prevailing health problems. The selection of drugs based on a national formulary or national list allows for concentrating on a limited number of products. Larger quantities may encourage competition and lead to more competitive drug prices. Reducing the number of items also simplifies other supply management activities and reduces inventory-carrying costs.
Some public and private health systems strictly limit procurement to drugs listed on an essential drugs list. However, in most cases some mechanism exists to address special needs, allowing the occasional procurement of non list drugs after approval by senior officials.
5. Procurement and tender documents should list drugs by their International Nonproprietary Name (INN), or generic name.
Justification and explanation
The INN is widely accepted as the standard for describing drugs on a procurement list or tender request. Although this is most obviously applicable when purchasing drugs which are available from multiple sources, generic description should also be used when purchasing single source products. When purchasing products which present potential problems with pharmaceutical equivalence or bio-equivalence the procurement request should specify the quality standards but not mention specific brands.
This does not mean that brand-name suppliers should be barred from tender participation; they may offer the most cost-effective product, and in fact may offer more competitive prices for certain branded drugs than generic competitors. However, all drugs supplied to the public health system should be properly labelled in accordance with standards laid down by law (or in accordance with labelling instructions), including the INN featured prominently in addition to the brand name that may be on the label.
6. Order quantities should be based on a reliable estimate of actual need.
Justification and explanation
An accurate quantification of procurement requirements is needed to avoid stock-outs of some drugs and overstocks of others. In addition, if suppliers believe the estimated procurement quantities are accurate, they are more willing to offer the lowest competitive price on an estimated-quantity supply contract.
Past consumption is the most reliable way to predict and quantify future demand, providing that the supply pipeline has been consistently full and that consumption records are reasonably accurate. Such consumption data must be adjusted in the light of known or expected changes in morbidity patterns, seasonal factors, service levels, prescribing patterns and patient attendance. The downside of basing quantification only on past consumption is that any existing patterns of irrational drug use will be perpetuated.
In many countries consumption data are incomplete or do not reflect real demand because the supply pipeline has not always been full and drug use has not always been rational. In such cases the morbidity-based and extrapolated consumption techniques may be used to estimate procurement requirements. These techniques, particularly the morbidity-based method, should also be used periodically to check on the rationality of past consumption, by comparing actual consumption with the estimated need to treat common diseases based on standard treatment protocols and epidemiological data.
When funds are not available to purchase all drugs in the quantities which were estimated to be needed, it is necessary to prioritise the procurement list to match available financial resources. Various techniques such as VEN (vital, essential and non essential) Analysis, Therapeutic Category Analysis and ABC Analysis can be used to select priorities and reduce the quantities of less cost-effective drugs. A VEN priority list should be defined in advance of any decision related to reducing procurement. These tools are discussed in detail elsewhere.1, 2
Financing and Competition
7. Mechanisms should be put in place to ensure reliable financing for procurement. Good financial management procedures should be followed to maximise the use of financial resources.
Justification and explanation
Potential sources of funds for pharmaceutical procurement include government financing, user fees, health insurance, community co-financing and donor financing. These options vary in terms of their efficiency, equity and sustainability. The most important considerations for procurement are total funds available, adequate access to foreign exchange and the regularity with which funds are available. It is the responsibility of governments and senior managers to establish appropriate and reliable funding for public drug procurement as a high priority, and to implement mechanisms which provide adequate funding on time to support public sector procurement.
Efficient financial management systems are especially important if funds are limited and procurement priorities must be set. Being able to order drugs when needed and to pay for them on delivery has a very positive effect on reducing both prices and stock-outs and on increasing supplier confidence in the procurement system. Prompt, reliable payment can have as great an influence on bringing down drug prices as bulk discounts.
Financial mechanisms such as decentralised drug purchasing accounts may help the procurement cycle to operate independently of the treasury cycle. Revolving drug funds can help achieve this separation by establishing their own bank accounts and their own working capital.
An aspect of financing which is sometimes overlooked is funding for the procurement process itself. Procurement services may be part of the warehouse and distribution operation or set up as a separate office. In either case, salaries and operational costs of the procurement office must be covered by the users. Options include:
- support through the government budget;
- periodic payment from users at the beginning of the procurement cycle, based on the projected value of the total procurement, or at the end of the cycle, based on the actual value of total shipments;
- regular payment from suppliers, based on a percentage of the invoiced value of the shipment, although this method may be contrary to some countries’ procurement integrity regulations;
- payment from users in the form of a flat annual fee, based on total expenses divided by the total number of areas and independent institutions served.
There is some risk in tying a procurement office’s reimbursement to the value of purchases by user facilities, as this may create an incentive for the procurement office to increase, rather than decrease, prices and purchases. Therefore, if this sort of approach is used, checks and balances must be put in place, such as a requirement that all major procurement decisions be made by user representatives.
8. Procurement should be effected in the largest possible quantities in order to achieve economies of scale; this applies to both centralised and decentralised systems.
Justification and explanation
Larger procurement volume makes favourable prices and contract terms more likely, by increasing suppliers’ interest in bidding and by providing them with an incentive to offer a competitive price.
A higher volume for single items may be achieved through pooling of procurement volume from many facilities or from several States or countries, by restriction of the drug list or by elimination of duplication within therapeutic categories.
A large contract awarded to one supplier by no means implies that the entire volume must be shipped at once. Many procurement services specify, as part of contract terms, divided deliveries over the period of the contract or to multiple delivery points. Some supply systems use estimated quantity tenders, with orders placed throughout the contract period as needed. In decentralised procurement programmes, one way to sustain procurement volume is to negotiate prices centrally for a list of essential drugs and allow provinces, districts or health facilities to order the drugs as needed from the contract supplier. These strategies allow for optimal use of available storage and transport capacity, facilitate inventory management and ease cash flow constraints.
9. Procurement in the public health sector should be based on competitive procurement methods, except for very small or emergency orders.
Justification and explanation
There are four main methods for purchasing drugs. Three of them are competitive: restricted tenders, open tenders and competitive negotiations. The fourth method is direct negotiation with a single supplier. Since inducing supplier competition is a primary key to obtaining favourable pricing, the public sector should use competitive methods for all but very small or emergency purchases. This assumes, of course, that there are multiple suppliers for the items needed. As discussed in Operational Principle 5, drugs that are available from multiple sources should be competitively purchased under their generic (INN) name.
As long as drug quality and service reliability are assured, competition should be increased to the point at which drug prices are as low as possible. The “rule-of-five” for pharmaceutical pricing holds that generic prices generally reach their minimum when there are at least five generic alternatives on the market and that prices in tendering systems are at their lowest where there are at least five bids per item; adding more bids generally does not result in further lowering of prices.
In situations where most or all of the products in a therapeutic category are single-source or branded products, the number of different drugs in a therapeutic category can be reduced through cost-effectiveness analysis. Competition can be induced by therapeutic class tendering. For example, among the newer antibiotics there may be several which are therapeutically similar, at least for specific indications. Therapeutic class tendering means that offers are requested on two, three or more therapeutically similar but generically different products. The selection of the most cost-effective drugs within a therapeutic category should be done by the national essential drugs committee, not by the procurement office.
10. Members of the purchasing groups should purchase all contracted items from the supplier(s) which hold(s) the contract.
Justification and explanation
Except in those systems where each health facility negotiates prices and purchases drugs individually, public pharmaceutical procurement systems are seen as purchasing groups. Normally, group purchasing achieves lower prices than would be available to the same group of health facilities if they purchased individually. These discounts are based on the fact that facilities which are part of the purchasing group will purchase contract items only from the selected contract supplier, as long as that supplier is able to perform. This is called sole-source commitment. If group members are free to make separate deals for contract items with other suppliers at will, the suppliers who participate in tenders will have little incentive to offer the best possible discounts to the purchasing group.
Sole-source commitment must be monitored and enforced. Monitoring is particularly important in systems where prices are negotiated centrally and ordering is done by individual health facilities. Suppliers that do not win contracts in a competitive tender may offer more competitive prices on a short-term basis in an attempt to split the purchasing group. If group members do not resist such price dumping, the prices at subsequent tenders will rise to previous unfavourable high levels.
Supplier Selection and Quality Assurance
11. Prospective suppliers should be pre-qualified, and selected suppliers should be monitored through a process which considers product quality, service reliability, delivery time and financial viability.
Justification and explanation
Pre- and post-qualification procedures help to eliminate substandard suppliers, if properly managed. Pre-qualification is the procedure of evaluating supplier capacity and reputation before bids are solicited for specific products. This is the preferred procedure, especially for ongoing drug procurement systems. Although substantial time is required to establish an initial list of pre-qualified suppliers, once this has been done the lowest pre-qualified tenderer for each product is deemed to be qualified, which expedites adjudication and contract award.
Post-qualification evaluates the suppliers after bids have been received. If there are numerous offers from unknown suppliers there may be long delays in awarding contracts, as it will be necessary to validate suppliers’ capacity to supply good-quality products.
Most established procurement systems use some form of restricted tender with pre-qualification, soliciting bids only from suppliers that have been pre-qualified. Procurement systems using restricted tenders with pre-qualification should make continuous efforts to seek out potential new suppliers in order to maintain competitive pressure on established suppliers that had been pre-qualified previously. Drug regulatory authorities may provide relevant information regarding new suppliers.
The process for evaluating new suppliers can include formal registration, formal inspection, reference checks with past clients and international agencies, test purchases in small quantities and informal local information-gathering. Countries that do not have functional regulatory agencies and drug quality control laboratories must make vigorous efforts to check references of new suppliers and should buy only from those suppliers that are known to provide quality products. One important aspect of quality assurance is the concept of “traceability”. The supplier must be able to trace the product to the finished product manufacturer, and the latter must be able to trace the ingredients to their producers, all in a transparent manner.
In addition to using pre- or post-qualification procedures, successful procurement offices ensure continued good supplier performance through a formal monitoring system which tracks lead time, compliance with contract terms, partial shipments, quality of drugs, remaining shelf-life, compliance with packaging and labelling instructions, etc. A cumulative file for each supplier should have copies of registration papers, references, special correspondence, complaints and other anecdotal supplier information. The information system should track chronologically the number and value of tender contracts awarded, and the value of total purchases from the supplier by year and performance for each tender.
12. Procurement procedures/systems should include all assurances that the drugs purchased are of high quality, according to international standards.
Justification and explanation
Four components make up an effective quality assurance system:
- selecting reliable suppliers of quality drugs;
- using existing mechanisms, such as the WHO Certification Scheme on the Quality of Pharmaceutical Products Moving in International Commerce;
- establishing a programme of product defect reporting; and
- performing targeted quality control testing.
The selection of suppliers that are known to provide high-quality products as discussed in Operational Principle 11 is the primary key to ensuring drug product quality. When using new suppliers whose products are not familiar in the country, the procurement system must be particularly alert to product quality issues.
Some products vary substantially in formulation and bio-availability from supplier to supplier. When this difference is therapeutically significant, purchasing offices should be cautious about making changes in supplier from year to year, and particularly about accepting unknown suppliers. Even when new products are completely equivalent in content and effect, changes in dosage form can be problematic, requiring patient and provider re-education. For drugs used in chronic diseases there should be a significant cost benefit before changes are made.
The WHO Certification Scheme on the Quality of Pharmaceutical Products Moving in International Commerce is a way of exchanging information on the supplier between the regulatory authorities of the exporting country and those of the importing country. It does not constitute an absolute assurance of product quality but does provide a mechanism for ascertaining that a drug product comes from a reputable source. The certificate is as independent and reliable as the regulatory authority that issues it.
All shipments from suppliers should be physically checked on receipt. A formal system should be established which encourages health workers to report potential problems with poor product quality, ideally using pre-printed, simple reporting forms. All reports should be carefully assessed to establish the need for laboratory testing and appropriate follow-up action must be taken, including product recall if warranted. The reporter should be informed about the results and the action taken, even if products are not defective, in order to encourage continued participation in the reporting programme. Product defect reports and results should be recorded as part of the supplier monitoring system.
If supplier selection is managed effectively it is not necessary to carry out quality control testing on every batch of every drug received. Many procurement agencies limit routine testing to new suppliers and to sensitive products. However, all public drug supply systems should have access to quality control laboratories to test suspect drug products.
Unfortunately, not all governments have been able to sustain government-operated laboratories. In some countries a college of pharmacy or an independent laboratory may have the required testing facilities. Also, quality control laboratories in industrialised countries will provide drug analyses against payment. If analyses must be performed by foreign laboratories, foreign exchange problems may be reduced by requiring the suppliers of suspect products to pay the laboratory directly, with the arrangement clearly described in the purchase contract. Financing for quality control testing is a difficult problem in many countries, and governments and donors should collaborate to find viable solutions.
Practical implementation issues
The 12 operational principles for good pharmaceutical procurement practices aim to improve pharmaceutical procurement by ministries of health, supply agencies, NGOs and other organizations involved in drug supply. When introducing and using these principles, the following should be kept in mind.
The operational principles should be used to develop standard operational procedures
These 12 principles constitute the minimum conditions for a reliable and cost-effective drug procurement system. They should be used as the basis for developing a set of more detailed standard operational procedures, taking into account the specific institutional circumstances and market conditions under which the system must operate.
Standard operational procedures must be actively implemented and monitored
The operational principles and the standard operational procedures must be supported by the national drug policy, regulations and legislation. International agencies and other external organizations which give technical or financial support to the national drug supply system should be asked to support and promote their implementation.
Drugs arriving by boat in Guatemala. Procurement and distribution systems must ensure timely and adequate delivery of medicines
Photo: WHO/PAHO/C. Gaggero
Good drug procurement is only possible within a well-managed drug supply system
Standard operational procedures can improve drug procurement only if they are implemented within a well-managed drug supply agency. This agency may be a classic government central medical store, an autonomous or semi-autonomous supply agency, an independent nongovernmental agency or some other form of supply agency. Critical factors for the performance of drug supply agencies include: qualified senior management; adequate personnel policies; a broad-based board for planning and following up the overall work; proper contract terms between the government and the contractor; and reliable financing and accounting systems.
The right purchasing and inventory control model should be chosen
Procurement can be done through a single annual tender, through a schedule of periodic tenders throughout the year, through a perpetual inventory system in which procurement is initiated as soon as stocks fall below a certain level, or through a combination of such systems. The choice depends on a variety of factors, including the type of drugs used (expensive drugs, short shelf-life, high or low consumption rate), the geographical situation, local production capacity, total consumption and others. The geography is important since more isolated areas tend to purchase less frequently. Local production capacity allows greater flexibility and more frequent deliveries. High-volume items may be purchased more frequently throughout the year. The choice of purchasing and inventory model affects the direct cost of the drug, staff requirements (frequent purchases need more staff time) and inventory costs (less frequent procurement requires more warehouse space).
At a certain stage, an effective computerised system should be introduced to manage inventory control. This should probably be done in phases, with the system developed or backed up by a local company. A well-functioning manual inventory control system can be converted into a computerised one.
Legislation and regulations may need to be adapted
National legislation and regulations provide the necessary legal foundation for procurement procedures, contract enforcement, financial authority, staff accountability and other critical aspects of procurement. Existing legislation and regulations may be fully consistent with the 12 core principles. Often, however, legislative or regulatory changes will be needed.
A common problem is that the general rules for drug procurement by the public sector do not take account of the specialised procurement requirements of buying pharmaceuticals. The challenge may be not only to identify the changes that are needed, but also to convince the relevant legal and financial authorities that pharmaceutical procurement does in fact require a different approach. Some examples of specific requirements are: separation of the key procurement functions, the need for financial audit, mandatory use of generic names, the need for product registration (which should also apply to the public sector but is often ignored) and formal supplier qualification. Other related issues are pricing policies and ethical criteria for drug promotion.
Capacity needs to be built
Pharmaceutical procurement is a specialised professional activity, which requires a combination of knowledge, skills and experience. Too often drug supply agencies are staffed by individuals with little or no specific training in pharmaceutical procurement. It is essential, therefore, that staff in key procurement positions be well trained and highly motivated. Training may be organized through national or international courses, through apprenticeships with international supply agencies or supply agencies in other countries, or by enlisting experienced short-term or long-term support from external technical advisers.
International and bilateral agencies should support the national procurement system
Development assistance through loans, grants and other financial mechanisms is intended to contribute to long-term health sector development. External technical assistance is intended to build local capacity and to develop sustainable systems, and should therefore be consistent with the policies of the country.
It is essential that development assistance reinforces good pharmaceutical procurement practices and aims at sustainability, rather than undermining or delaying the national development of such practices. From a development point of view, investing in teaching good procurement practices may be more important than just procuring the drugs. Thus international, multilateral and bilateral agencies may need to review their own procedures, requirements and technical advice in the light of the present document. In the same vein, WHO’s Guidelines for Drug Donations or their national adaptations should be respected by external agencies.
Procurement in decentralised systems needs special arrangements
Health system functions are increasingly being decentralised to provincial, district or local health services. In the pharmaceutical sector experiences with decentralisation have been mixed. Proper drug selection, price reductions from bulk purchasing, quality assurance and accountability may all be threatened in decentralised procurement.
In principle, the 12 core principles for good procurement apply in decentralised systems as well, but they may need to be adapted in practice. For example, separation of key functions may be difficult with limited local staff. Bulk procurement may be possible only if districts and major health units pool their requirements and negotiate one contract. Under a system of direct delivery, drugs are then delivered to and paid for by the district or health unit. Finally, it may be difficult for local authorities to verify the quality of the drugs. Some decentralised systems rely on a list of qualified suppliers provided by national authorities.
To achieve good drug procurement practices in decentralised systems the role of the central government should be made clear. It would usually be its responsibility to guarantee the safety and efficacy of all drugs circulating in the market and in the health system, and to monitor the performance of the decentralised procurement system. In addition, the central government may tender for the prices of the drugs, for direct delivery systems.
Other operational issues
In addition to the above, there are other possibilities for improving procurement performance, which should be considered. These include:
- the use of international drug supply agencies, such as the Equipment for Charity Hospitals Overseas (ECHO) organization, the International Dispensary Association (IDA) and the United Nations Children’s Fund (UNICEF). Their services can especially be beneficial when small quantities of a product need to be procured;
- access to information on prices and supply sources. Comparative price information is currently available to countries through the International Drug Price Indicator Guide (Management Sciences for Health and World Health Organization);
- primary and secondary systems for pre-registration and post-registration of suppliers;
- managing mixed systems of procured and donated drugs, especially in countries where donations form a large part of drug supplies. In such countries an active donor policy, clear indications of drug needs to potential donors and early announcement and registration of drug donations in the pipeline are extremely important in order to derive the maximum benefit from the donations and prevent overlapping donation requests and drug orders.
Operational Principles for Good Pharmaceutical Procurement is available, free of charge, in English, French and Spanish, from: Department of Essential Drugs and Medicines Policy, World Health Organization, 1211 Geneva 27, Switzerland. It is also available on the Web at: www.who.int/medicines/
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2. WHO. Estimating drug requirements; a practical manual. Geneva: World Health Organization; 1988. WHO/DAP/88.2.