Nepal is a Himalayan country lying between China and India. Its area is 168,000 square kilometres. Nepal has three geographical zones: cultivated flat land and forest in the southern belt, hills and valleys in the central belt, and mountains in the northern belt. Transport and communications are extremely difficult in remote parts of the mountainous region. Essential goods usually take a long time to arrive. The cost of medicines and other basic necessities is often beyond the reach of the poor in these remote areas.
The administrative division of the country includes five development regions, 14 zones, 75 districts, 58 municipalities, 4,000 village development committees (VDCs) and 36,000 wards (nine wards per VDC). District health offices are responsible for organizing and managing district hospitals, primary health care centres (PHCs), health posts (HPs) and sub-health posts. Each VDC has one health facility (sub-health post).
Drug financing system in public sector
Drug financing in the public sector comes under the government health expenditures of MOH and other government agencies involved in providing health care services. The MOH covers preventive, curative and promotional health services. In fact, the MOH has the major share of the Government's health budget, constituting over 90% of public health expenditure. It is estimated that out of the total budget allocated for health care, 30% goes to the procurement of drugs. Drugs are distributed free of charge to clients in public sector health facilities (with the exception of registration fees). Large hospitals, managed by semi-autonomous hospital management committees, can sell drugs at either a subsidized or the full price.
Drug financing system in the private sector
Private sector drug financing includes household expenditures, private nursing home investments and drug funds from NGOs. Total nongovernmental expenditure was around Rs 7 million in 1993-1994, and estimated at Rs 10,753 million (US$ 185.4 million) for 1996-1997. Exact information on what percentage of this amount was allocated to the purchase of drugs and other consumable essential items is not available, but it is estimated at 30% (US$ 55.52 million). Most Nepalese usually obtain the majority of their drugs from the private sector. Private nursing homes, doctors in private clinics and other health practitioners prescribe medicines for patients who must purchase them at full price. Self-medication is also common in many areas where patients go directly to drug retailers. Medicines are sold on the basis of an available prescription, or simply patient desire, or the advice of retailers when health personnel are not accessible. This practice only applies to non-restricted common medicines such as paracetamol and ointments for external application.
Cost-sharing schemes in drug supply
1. HMG/WHO community drug supply scheme
This scheme covers some of the cost for essential drugs at 122 HPs in 18 districts through registration fees. Cost recovery is 27.1%.
2. Britain Nepal Medical Trust-supported
Hill drug scheme: 30 small retail shops sell a limited number of inexpensive essential drugs at a fixed price in seven districts of the eastern region. This cost-sharing scheme, run in 33 health posts in 8 different districts of the eastern region of Nepal, recovers some of the cost of essential drugs in the form of token registration fees or a per item (drug) charge for drugs prescribed in those health posts. The percentage cost recovery is 19%.
3. United Mission Lalitpur Medical Insurance scheme
This scheme recovers part of the cost of essential drugs through insurance premiums. It functions in five HPs in the Lalitpur district. Cost recovery is 56.5%.
Several other small schemes generally supported by NGOs that usually charge token fees for registration or token per item fees for essential drugs operate in a small number of HPs.
5. Community drug programme
A more extensive national community drug programme was designed by the MOH in collaboration with donors and is being implemented in three districts of Nepal. It aims at providing drugs to consumers at 15% below the local retail price and expects to fully recover drug costs with the provision of revolving funds under the control of local-level health management committees.
Main problems in drug financing
1. Public sector budget limitations.
2. Inequity in the geographical distribution of drug wholesalers and retailers (remote areas have none).
3. Perception of health services as the Government's responsibility.
4. Lack of buying capacity in low-income and under-privileged groups.
5. Lack of flexibility in government regulations to use the generated fund under some schemes (HMG/WHO).
6. Inadequate skills and motivation of the health management committee at village development committee level.
7. Vested interest of health workers (paramedical).
Drug pricing policies and/or mechanisms in the public and private sector
The NCDA prepares a list of recommended drug prices and distributes it to all retailers. The National Drug Policy recommends creating an official price list, but a fixed price for drugs has not yet been established.
Prices are fixed on the following criteria:
1. for locally produced drugs: factory price plus 16% for the retailer;
2. for drugs imported from India, the wholesale price equals the Indian price (written on the box), converted into Nepalese rupees (1.6), plus 3.5% for customs and other charges.
With respect to the latter, the benefits for wholesalers are based on the deductions they obtain from the factory on the Indian price written on the box. Retail price equals the wholesale price (the wholesale price, plus an additional 1% custom duty and 2.5% handling charge for imported drugs) plus 16%. The cost of transport must be included in the 3.5%. For non-motorable remote areas, a reasonable extra transport charge can be added. More or less the same guiding principle for pricing is applied too.
Public sector drug pricing depends on the method and quantity of purchases. For small local purchases, the cost may be at or close to retail prices. But for bulk purchases, significant hospital discounts and considerable price variations can be obtained through competitive bidding. Furthermore, it is not necessary to include transport costs in overall public sector supply costs because the Government is expected to cover transport costs.