Utilizing TRIPS Flexibilities for Public Health Protection Through South-South Regional Frameworks
(2004; 110 pages) [Spanish] View the PDF document
Table of Contents
View the documentTHE SOUTH CENTRE
View the documentPREFACE
View the documentABBREVIATIONS
View the documentEXECUTIVE SUMMARY
Open this folder and view contentsI. INTRODUCTION
Open this folder and view contentsII. INTELLECTUAL PROPERTY AND ACCESS TO ESSENTIAL MEDICINES IN DEVELOPING COUNTRIES
Open this folder and view contentsIII. CONSTRAINTS ON NATIONAL EFFORTS TO IMPLEMENT TRIPS FLEXIBILITIES FOR PUBLIC HEALTH PURPOSES
Close this folderIV. OVERCOMING CONSTRAINTS IN THE USE OF TRIPS FLEXIBILITIES THROUGH SOUTH-SOUTH REGIONAL FRAMEWORKS
View the documentIV.1 Relevant Regional Frameworks
Close this folderIV.2 Regional Approaches to Use of TRIPS flexibilities for Public Health
View the documentIV.2.1 Developing Local Technical Expertise on the Use of TRIPS Flexibilities
View the documentIV.2.2 Addressing the Problem of Insufficient Research and Manufacturing Capacities in the Pharmaceutical Sector
View the documentIV.2.3 Developing Technical and Infrastructural Capabilities for Medicines Regulation
View the documentIV.2.4 Establishing Efficient Pharmaceutical Management and Procurement Systems
View the documentIV.2.5 Resisting Bilateral and other TRIPS-plus Pressures
View the documentIV.2.6 Regional Competition Enforcement Mechanisms
Open this folder and view contentsV. CONCLUSIONS AND RECOMMENDATIONS
View the documentBIBLIOGRAPHY
View the documentBACK COVER
 

IV.2.4 Establishing Efficient Pharmaceutical Management and Procurement Systems

Significant cost savings, efficiency and other benefits can accrue for developing countries through regional pooled procurement. This is an area that offers a lot of promise to overcome national constraints in the use of TRIPS flexibilities as there exist a number of regional pooled procurement schemes that have brought important benefits to the participating countries in terms of prices, quality and overall pharmaceutical management and from which lessons can be learned. Indeed, Management Sciences for Health (MSH) with the funding support of the Rockefeller Foundation has recently undertaken studies to identify specific opportunities for, and barriers to, pursuing a multi-country regional solution for procuring drugs, in particular HIV/AIDS medicines in the South. Two reports have been prepared under the project.95 The first report describes the operation of the survey, details of the findings of the survey, assesses the feasibility of regional pooled procurement, formulates development plans, and analyses the overall viability of proposed pooled procurement operations.

95 MSH (2002) and MSH (2003).


The second report reviews past and present efforts to establish regional programmes for pooled procurement of drugs in the developing world. It focuses on those procurement programmes in the public sector, with either direct or indirect government support, in which the countries in the group take joint responsibility and accountability for the bulk purchasing activities. The report draws its lessons from a review of eight regional pooled procurement programmes including: the OECS Pharmaceutical Procurement Service (PPS), formerly known as the Eastern Caribbean Drug Service (ECDS); the Pan-American Health Organization (PAHO) Revolving Fund for Vaccine Procurement; the Revolving Fund for Essential Drugs for Central America and Panama (FORMED); and the Gulf Cooperation Council (GCC).

Others are: the Arab Maghreb Union (AMU); the Joint Bulk-Purchasing Scheme for the Pacific Island Countries; ACAME; and SADC. Some of these programmes have been in operation for more than a decade, whereas others are still relatively new. Lessons learned from the more established programmes appear to have influenced the more recent efforts. In all the regional pooled procurement programmes reviewed in the report, the main objective of achieving economies of scale was accomplished. However, simply reducing prices is in itself not sufficient. The incentive for reducing prices must also be an incentive for improving other aspects of managing drug supply, cohesion and collaboration between member countries, and financial stability and accountability. The following analysis draws significantly from the findings of these two reports.

A. Regional pooled procurement

There are a number of traditional reasons for and benefits of pooled procurement.96 The first is the effect of lowering prices. In general, countries participating in a successful bulk procurement scheme have experienced major reductions in unit prices of drugs. For example, at the start of the ECDS, the unit cost of drugs dropped an average of 44 per cent in the first tender cycle, which was sustained in subsequent tenders and has been reported as better than 25 per cent lower than individual country prices for years 2001/2.97 The second reason is improved quality resulting from improved access to information about drug quality through exchanging information about supplier performance with respect to quality of drugs, coordinating technical aspects of quality assurance through a centralized quality assurance laboratory and coordinating and cost-sharing GMP inspections through a centralized procurement body created specifically for the purpose of pooled procurement.

96 See MSH (2003) p. 1-2.
97 Burnett (2001).


The third traditional reason for multi-country pooled procurement relates to improved availability. In this regard, the countries that participate in information sharing or centralized purchasing are better able to make decisions when selecting suppliers, which assists in eliminating erratic or rogue suppliers and providing better information on the state of the market and drug availability, particularly with respect to anticipated short-supply or drugs difficult to obtain.

This allows countries to increase lead time allowances and/or exercise multiple supplier options to obtain secure supply routes and to locate previously unknown sources for orphan and difficult to obtain drugs. The fourth and final reason is improved rational use of drugs as pooled procurement increases the incentive for coordinating drug selection and use, for example, drug medical supply registration procedures, essential drugs lists (EDLs) and standard treatment guidelines (STG).

Many developing countries, however, while generally acknowledging that regional pooled procurement could certainly improve prices, quality assurance, and other factors relating to the procurement of essential drugs by individual countries, have considered the potential efficiencies not so much better than they were already achieving on standard essential drugs: and were "outweighed" by the perceived loss of sovereignty or control; the loss of procuring flexibility; and potential adverse influences on the local pharmaceutical industry.98 Consequently, although multi-country pooled procurement of essential drugs is considered a good idea, few countries see a clear incentive to take part. Successful multi-country drug procurement initiatives have therefore often been dismissed as exceptions. For example, ACAME which has undertaken some pooled procurement, has member states that all share a common currency and so was considered "unusual" and "not representative" of the actual situation in sub-Saharan Africa.99 With the advent of the HIV/AIDS pandemic, however, the situation has drastically changed and countries have suddenly to consider buying many more essential drugs, which are expensive and with which they have little previous procurement experience.

98 See MSH (2003).
99 MSH (2003), p. 5.


In light of the changed market and health situation, regional pooled procurement can offer several distinct additional advan-tages.100 In the first instance, added to the fact that pooled procurement generally brings substantial cost savings, the relatively large quantities of ARVs likely to be required over the next few years,101 means that pooling can make the difference by bringing greater cost savings and therefore making it possible to treat hundreds or even thousands more people. Moreover, pooling is likely to help individual member countries access the best available pricing competition between brand name and generic manufacturers. The second advantage relates to information exchange and the related spillover effects. While there is no doubt that market intelligence is useful, in the new situation where prices and suppliers are developing almost daily, it has become critical. Information obtained directly, such as where market experiences by one country on new suppliers and sources can be rapidly made available to all in the group and also indirectly through sharing costs of market research, enabling countries obtain up-to-date information at moderate cost, is likely to offer real benefits.

100 MSH (2003) pp 3-4.

101 This applies if one assumes that countries through their own means and through international means such as the Global Fund are going to substantially scale-up HIV/AIDS treatment for their infected populations.


The third benefit in the changed situation is the possibility of sharing quality assurance techniques and costs. In the case of ARVs, in particular, some drugs are so new that quality assurance procedures are not yet well established, adding particular uncertainty in developing procurement specification and monitoring. Pooling is likely to offer rapid dissemination of information on techniques and especially of adaptation of methodologies appropriate to developing-country settings. In addition, pooling will also help in the policing of commodity supply chains which is an expensive exercise. Sharing these costs will offer significant cost savings, in both direct costs and organizational/administrative overheads.

Sharing costs and techniques can also help assure product quality, whether the source is the originator company or a generic company. Finally, there are also benefits associated with the concept of safety in numbers. As more and more countries are expected to buy moderate quantities of expensive drugs in a rapidly changing market place from suppliers who may not feel that they have incentives to perform to the letter of their contracts and supply agreements, errant suppliers may not worry much about the threat of being barred from future supply to a single country, which may be buying only small quantities.102 However, the possibility of being barred from future supply to an entire region carries much greater weight, both in lost reputation and sales. Further, there are also additional side benefits that can accrue from regional pooled procurement. For example, in the Eastern Caribbean, other benefits of the programme include the provision of a wide range of related training and technical assistance, drug utilization studies, and improvements in quality control.

102 MSH (2003) p. 4.


However, in considering the potential for regional pooled procurement in helping developing countries better to utilize the TRIPS flexibilities, the logistical and political challenges such as loss of sovereignty over drug procurement decisions should be taken into account. In this regard, decisions should take account of the state of integration in the region and the level of cooperation on pharmaceutical issues. There are four possible levels of cooperation that should be considered ranging from informed buying: where member countries share information about prices and suppliers but procure individually; coordinated informed buying, where member countries undertake joint market research, share supplier performance information and monitor prices but they continue to procure individually; group contracting, where, member countries jointly negotiate prices and select suppliers and agree to buy from the selected suppliers although each country eventually purchases individually; to regional pooled procurement, where member countries jointly conduct tendering through an organization acting on their behalf and a central purchasing agency manages the purchases on behalf of all the member countries.103

103 Ibid.


Table 1 below contains a detailed description of the various models; identifying regional group roles and responsibilities as well as country roles and responsibilities under each model.

TABLE 1 REGIONAL PHARMACEUTICAL MANAGEMENT AND PROCUREMENT MODELS

 

Informed Buying

Coordinated Informed Buying

Group Contracting

Regional Pooled Procurement

Description

Member countries share information about prices and suppliers

Countries conduct procurement individually

Member countries undertake joint market research, share supplier performance information, and monitor prices

Countries conduct procurement individually

Member countries jointly negotiate prices and select suppliers

Member countries agree to purchase from selected suppliers

Countries conduct purchasing individually

Member countries jointly conduct tenders and award contracts through an organization acting on their behalf

Central buying unit manages the purchase on behalf of countries

Regional group roles and responsibilities

Facilitate the gathering and dissemination of supplier and price information among member countries (clearinghouse)

Sharing of information

Forum for harmonization of information requirements and systems; mechanism for market research, dissemination of findings among member countries, and potential provision of drug information

Focus on coordination of information gathering and sharing

Country delegates meet to jointly conduct price negotiation and supplier selection on behalf of member countries Alternatively, an agency may be contracted for this purpose

Contracts with a jointly designated central buying unit to conduct and adjudicate tenders

Country roles and responsibilities

Share procurement information for selected items

Collect information related to pricing and supplier performance based on harmonized requirements; provide resources to conduct joint market research activities for selected items

Provide accurate and reliable quantification of needs for selected items

Provide timely payment to suppliers

Provide accurate and reliable information on supplier performance and product quality monitoring

Provide accurate and reliable quantification of needs for selected items Provide funds to procurement unit/agency for supplier payment

Provide accurate and reliable information on product quality monitoring

 

Source: Adapted from MSH (2003)


Depending on the state of health cooperation in each region a different model can be chosen. The existence of different possibilities also means that countries can move on to closer cooperation as they gain experience and build confidence. Here again there already exist regional institutional frameworks to facilitate the speedy implementation of whatever model is chosen. It could be done through regional health organizations such as the Commonwealth Regional Health Community Secretariat (CRHCS), regional procurement organizations such as OECS, GCC and ACAME or through the health committees and similar mechanisms in the RECs.

Recommendation:

Regional cooperation in pharmaceutical management and procurement offers undoubted benefits for developing countries. Depending on the level of existing cooperation in health matters, countries should put in place mechanisms to facilitate the implementation of any of the four models of cooperation identified above. Whenever feasible, developing countries should seek to put in place regional procurement systems where they would jointly conduct tendering through an entity acting on their behalf and a central purchasing agency managing the purchases on behalf of all the member countries. The criteria developed by MSH to assess the feasibility of pooled procurement and the ‘lessons learned’ report, could be a starting point for various RECs and other organizations to assess which model best suits the circumstances of their members.

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