Financial constraints have made it increasingly difficult for developing countries to adequately finance the supply of drugs to health facilities. The countries comprising the Organisation of Eastern Caribbean States (OECS) have recognised that improving the use of existing resources could be achieved by efficient procurement practices. Of the four areas of drug supply management cycle (selection, procurement, distribution, and use) efficient procurement provides the greatest opportunity for cost-savings.1 The OECS/Pharmaceutical Procurement Service (OECS/PPS) is a self-financing public sector monopsony or buyers’ cartel that covers its operating cost from a 15% surcharge. This article considers the success of the OECS/PPS, (formerly the Eastern Caribbean Drug Service) in implementing improved pharmaceutical procurement as a cost containment strategy, and outlines essential elements for successful pooled procurement for other resource-constrained countries.
Political will and financial commitment
Political will was an essential ingredient for success, with the Prime Ministers of the Eastern Caribbean States agreeing to establish the OECS/PPS in 1986. The countries deposited one-third of their annual pharmaceutical budget to individual country drug accounts at the Eastern Caribbean Central Bank (ECCB) in order to assure prompt payment to suppliers and to maintain a revolving drug fund. This was a concrete sign of political will and financial commitment.
The OECS/PPS is an agency of the OECS, a formal grouping of nine Eastern Caribbean countries: Anguilla, Antigua and Barbuda, British Virgin Islands, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. Their combined population is approximately 550,000. The OECS/PPS was established under a project funded by USAID, and by 1989 the scheme was financially self-sufficient.
The core function of the OECS/PPS is the pooled procurement of pharmaceuticals and medical supplies for the nine Ministries of Health (MOHs) of the OECS countries. During the 2001/02 tender cycle, the annual survey on a market basket of 20 popular drugs showed that the regional prices were 44% lower than individual country prices2 (Figure 1). The continuous annual cost-savings accrued after 16 years of the joint purchasing arrangement have reinforced the Procurement Service as an excellent cost-benefit model of economic and functional cooperation among OECS member countries.
Figure 1. Average % unit cost reduction for a market basket of 20 popular drugs 2001/2002 compared with individual country prices
The OECS/PPS presented suppliers with a public sector monopsony or a purchasing cartel so that products tendered by the Service are purchased exclusively through annual contracts. Prior to the establishment of OECS/PPS, the OECS countries purchased drugs individually from suppliers by direct negotiation. The cost of pharmaceuticals in any country depended on the following factors: the professional attitude and negotiating skills of the supplies officer, the governments payment track record and the source of supply. Consequently, drug prices for similar products used to vary widely among OECS countries.
The Pharmaceutical Procurement Service operates a centralised, restricted tendering system in which all approved suppliers are pre-qualified by a vendors registration questionnaire. Pre-qualification is necessary to assess the quality standards, technical competence and financial viability of competing suppliers. After soliciting bids from over 75 international suppliers, the Service awards annual contracts, places orders directly with suppliers, and monitors delivery and supplier performance. OECS/PPS does not warehouse supplies, but instructs suppliers to ship consignments directly to participating countries which in turn reimburse their respective Eastern Caribbean Central Bank (ECCB) drug accounts. The procurement and payment cycle is shown in Figure 2.
Figure 2. OECS/PPS procurement and payment cycle
Recognising the success with the pooled procurement of pharmaceuticals, OECS/PPS has rapidly expanded its product portfolio to include medical supplies, contraceptives and x-ray consumables. The Service has now been mandated to explore the feasibility of purchasing dental and laboratory supplies. During the 2001/2002 tender cycle, the Unit purchased US$3.5 million worth of supplies for the nine OECS member states2 (see Figure 3).
Figure 3. Annual value of purchases for OECS 2001/2002
Organizational development and institutional alliances
The ECCB, the monetary authority for the stable Eastern Caribbean dollar, facilitated the prompt payment of the foreign exchange to suppliers at no additional cost to participating countries. The formal country-based committees of the OECS/PPS, ensure participatory decision-making and commitment by Ministries of Health. The OECS/PPS Policy Board comprises Ministers of Health (assisted by their Permanent Secretaries), the OECS Director General, the ECCB representative and the OECS/PPS Managing Director; the Board exercises overall responsibility for the Unit’s Policy directives.
Two sub-committees report to the Policy Board: the Technical Advisory Committee (TAC) and Tenders Sub-Committees. The TAC comprises a senior doctor and the Supplies Purchasing Officer from each Ministry. The Tenders Sub-Committee is a subset of TAC and includes only the Supplies Officer from each country. OECS/PPS management is part of the sub-committees; the Policy Board and the Sub-Committees meet annually and are chaired on the principal of alphabetical rotation by host country. These formal relationships are central to the participation and ownership of OECS/PPS constituent countries. In addition, the collective decision-making of the Tenders Sub-Committee reduces the possible influence by drug company representatives on the adjudication process.
The tendered items are extracted from the OECS/PPS Regional Formulary and Therapeutics Manual which is reviewed annually by TAC. The Tenders Sub-Committee reviews bid offers and awards contracts to successful suppliers. The pooled procurement list represents large volume and/or high cost items for which there is a consistently high demand.
Choice of currency, foreign exchange and terms of payment
The OECS/PPS solicits bids in US dollars to provide one standard monetary unit for easy price comparison. The Eastern Caribbean (E.C.) dollar is pegged to the US dollar at a rate of 2.7 and has remained stable at this rate for the last 25 years. The use of the US dollar prices through the OECS/PPS procurement system allows OECS countries to forecast drug costs in the E.C. dollar without concern about fluctuations between international currency, or between the E.C. dollar and the U.S. dollar. The stability of the E.C. dollar and the availability of the US dollar are both advantages that many developing countries, including some Caribbean countries, do not have.
One of the most critical elements of OECS/PPS initial success in reducing the cost of pharmaceuticals was the ability to pay suppliers promptly in foreign exchange within 60 days of receipt of goods at country-level. In recent years, however, the reputation for prompt payment which OECS/PPS initially established has become tarnished because of slow reimbursement of the country drug accounts by some member countries which are experiencing economic difficulties. Suppliers responded to tardy payments by withholding shipments to both defaulting and non-defaulting countries.
Past performance of suppliers
The selection of suppliers has a profound impact on both the quality and cost of drugs. Inadequate quality assurance in the selection process may result in the purchase of drugs that are ineffective and unsafe. Hidden costs caused by late deliveries, default on confirmed orders, losses due to poor packaging, short expiry date and other factors attributable to an unreliable supplier may raise the cost of a drug to several times the original contract price.3 Apart from the cost implications, poor supplier performance can seriously hurt the credibility of health programmes and demoralise health workers.
Prior to the adjudication of contracts, the past performance of suppliers is reviewed in detail. The factors considered in evaluating supplier performance include delivery times, the number of partial shipments per purchase order, expiration dates, the quality of packaging and labelling, the quality of documentation, quality assurance of products and proficiency of the customer service department.
Other OECS/PPS benefits
Apart from pooled procurement, OECS/PPS provides the countries with a wide range of related services, which include training and technical assistance, a common drug formulary manual, drug utilisation studies and quality assurance.
OECS/PPS has regularly conducted Continuing Medical Education (CME) seminars in the member states to keep health practioners up-to-date on the best practices of rational drug use. In conjunction with CME seminars, the Service has conducted a series of drug utilisation reviews on chronic diseases such as hypertension, diabetes mellitus, epilepsy, mental disorders and asthma. The purpose of the reviews is two-fold: to assess doctors prescribing practices, and to devise intervention strategies to enhance prescribing behaviour.
Since inventory control is an important aspect of drug supply management, OECS/PPS has convened seminars on inventory management to ensure that the health facilities have a regular supply of quality pharmaceuticals. In addition, the countries have been equipped with INVEC, a highly sophisticated tailor-made database computer programme, that maintains a perpetual inventory record of all issues and receipts. The OECS countries have now developed better techniques for forecasting quantities which have decreased the incidence of stock outs, expired items, obsolescence and expensive emergency orders.
OECS/PPS has implemented a comprehensive quality assurance programme to ensure that each imported drug is efficacious and acceptable. The programme encompasses pre-qualification of selected suppliers, contractual purchasing agreements, and regular testing of priority drugs at three laboratories. The OECS/PPS Tenders Sub-committee has short-listed 13 critical drug entities with inherent bio-availability problems including phenytoin, digoxin, warfarin and slow release oral dosage forms.
The OECS/PPS produces a biennial Regional Formulary Manual which is a compilation of core essential medicines common to the nine participating member states. A core list of essential drugs has also significantly reduced wastage because funds are not tied up in over stocks and non-essential items. The manual is not merely a drug list, but contains drug information to aid prescribers in appropriate drug use.
Lessons for other countries
The experience of the OECS/PPS, after 15 years of successful centralised tendering for pharmaceuticals and related medical supplies, has demonstrated that improved procurement can reduce costs and enhance the efficiency of health service delivery. Following a WHO-sponsored workshop in Fiji in April 2001, seven Pacific islands have developed a three-year action plan to pursue the pooled procurement of pharmaceuticals along the OECS/PPS model.
Some keys to the success of OECS pooled procurement
♦ Political will and financial commitment
♦ A core list of essential drugs to reduce wastage
♦ Participatory decision-making
♦ Careful selection of suppliers
♦ Prompt payment of suppliers
♦ Provision of training and technical assistance to participating countries, including a quality assurance service
Against the background of severe difficulties that are confronting the global economy and the subsequent negative impact on developing countries, other countries should explore all strategies to use their scarce health sector resources efficiently. Better procurement methods have been shown to produce significant cost-savings.
Francis Burnett is Managing Director, OECS/PPS, P.O. Box 3093, Castries, St. Lucia. Tel: +758 452-5058/452-5895, fax: + 758 453-0227, e-mail: email@example.com
1. World Health Organization. Financing essential drugs: report of a WHO Workshop in Harare, Zimbabwe. Geneva: World Health Organization; 1998.
2. Organisation of Eastern Caribbean States. Pharmaceutical Procurement Service Annual Report 2001. St. Lucia: OECS; 2001.
3. Quick JD, Rankin JR, Laing RO, O Connor RW, Hogerzeil HV, Dukes MN, Garnett A, eds. Managing drug supply, 2nd ed. West Hartford CT: Kumarian Press; 1997.