Health Reform and Drug Financing. Selected Topics - Health Economics and Drugs Series, No. 006
(1998; 49 pages) [French] [Spanish]
Table of Contents
View the documentAcknowledgements
View the documentExecutive summary
Open this folder and view contents1. Introduction
Open this folder and view contents2. Financing reforms
Open this folder and view contents3. Affordability and efficiency
Close this folder4. Organizational reforms
View the document4.1 Competitive mechanisms in public drug supply
View the document4.2 Decentralization in drug supply systems
View the document4.3 Role of the “third sector”
View the documentConclusions
View the documentReferences
View the documentBack Cover

4.2 Decentralization in drug supply systems


Decentralization involves the transfer of duties and responsibilities from central organizations to regional, district or local organizations. It results in changes in both the size and focus of the organizations involved.

With decentralization come questions relating to how much authority to transfer, which responsibilities to devolve, to which level, to whom, and how quickly this should be done. There are, therefore, a multitude of variations involving the degree and rate of transfer, the nature of this transfer, and the parties involved.

From a general perspective, both potential advantages and disadvantages associated with decentralization in health can be identified. Some of these are presented in Table 12.

Table 12. Benefits of and concerns associated with decentralization in health

Possible benefits


• Improved public sector efficiency in the provision of health services.
• Stimulation of local participation in their own health care provision.
• Improved quality of care through better response to local needs.

• Who will be accountable for meeting national policies?
• Increased costs: administrative (more layers) and those associated with the transition.
• Inter-regional inequalities (poor regions may no longer be subsidized by more affluent regions).
• Long-term central versus local rivalries.
• Knowledge and management techniques may be more limited at local level than central level.
• Health budgets may be reduced to meet other local needs.

Decentralization is not an easy solution to the problems of health care systems. While it can be a result of organizational reform, it should not be viewed as a goal in its own right. Decentralization is, however, an option which can be undertaken in a larger reform context to foster the improved implementation of health and drug policies which, themselves, are aimed at better achieving health objectives.

Options for decentralization

Decentralization in drug supply involves transfer of some or all of the key supply functions: selection, quantification, procurement, quality assurance, storage, transport, information management, financial management, and so forth. Decentralization of drug supply functions must be considered along with overall government efforts toward decentralization of health and social services.

Decentralization can be achieved through a change in the choice of supply mechanisms. These mechanisms - central medical stores (CMS), autonomous agencies, direct supply, prime vendor, and market - were presented in Table 11 of section 4.1.

Central medical stores, in which most decisions, management, and accountability lie with a central organization, are commonly perceived to be the most centralized options. Autonomous agencies share most of these centralized features, but their ability to manage themselves and their finances with less interference from larger political concerns and various government institutions may qualify them as more “decentralized” (in the loosest interpretation of the term, indicating a shift away from central government bureaucracy) than central medical stores.

Direct supply strategies decentralize aspects of transport, reception, and storage of drugs, but in many other areas (who decides what to purchase and how much, etc.) responsibilities may remain centralized. Direct vendor strategies transfer certain management responsibilities to a private vendor, but this party then acts as a central coordinator of drug suppliers. Market mechanisms are the most decentralized of all the supply options.

Greater decentralization can also be achieved without overtly switching supply systems but by changing features within a given system. For example, within a CMS structure, it may be possible to give greater responsibilities and duties to regional medical stores and limit the functions performed at the central level.

Changing who makes the decisions and who is accountable may not necessarily result in a shift in supply mechanisms but can have a significant impact on how these respond to local needs. An autonomous supply organization, whose managing board of directors consists primarily of representatives of district and community health centres, may well behave differently from a similar autonomous agency whose board of directors is comprised of individuals who do not actually use the services provided by the agency.

In addition to which functions can be decentralized and how this can be done, other points merit consideration in the process of developing supply models. These include:

• To what level should powers and responsibilities be transferred? Every level appears as a “centralized” one to those which are below it. There is frequently a trade-off between the degree of “closeness” to local issues which is desired and practical, and the efficiency considerations which favour some degree of centralization.

• Responsibilities and functions assigned to a certain level should generally be linked to corresponding decision-making powers and financial control.

• Limiting constraints may include management capacity at the local level and infrastructure such as roads, warehouse capabilities, and quality control laboratories.

• Scope and length of time for transition (dissolving centralized structures before all local levels have had time to adjust their own structures and functions to their new responsibilities could lead to serious supply problems).

• Equity of internal redistribution (are mechanisms in place to ensure equity for rural areas and for areas suffering from more poverty?).

Control and decision-making in health systems are increasingly being decentralized. For drugs, decentralization may improve such things as quantification of drug requirements, inventory control, prescribing and dispensing. But some degree of centralization is still necessary for functions such as drug registration, development of essential drugs lists and standard treatments, quality assurance, and bulk tendering.

Integration of supply systems

Efforts are also being made to integrate supply systems for family planning, tuberculosis control, and other “vertical” programmes into essential drugs programmes. Integration is not an “all or nothing” phenomenon. Resource-intensive functions such as procurement, quality assurance, storage, and physical distribution may be integrated under the control of the essential drugs programme. But financing, quantification of needs, and monitoring may remain under the management of the national control programme.

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