MONGKOL NA SONGKHLA, SUWIT WIBULPOLPRASERT, PHUSIT PRAKONGSAI*

* Dr Mongkol Na Songkhla is Secretary General, Food and Drug Administration, Thailand, Dr Suwit Wibulpolprasert is Assistant Permanent Secretary, Ministry of Public Health, Thailand and Dr Phusit Prakongsai is Director, Kao Sukim Hospital, Chuntaburi, Thailand.

Thailand is a lower middle income country in South-East Asia with a population of 60 million in 1997. It consists of 75 provinces, 774 districts, 81 subdistricts, 7,255 Tambons (communes) and 66,974 villages. The health care delivery system is composed of both public and private facilities. The public facilities have a 75% share of resources while private facilities have 25%. Approximately 80% of all public health resources are located within the Ministry of Public Health, with its extensive network of provincial general hospitals, district hospitals and commune health centres. In 1997 there were 89 general hospitals, 703 district hospitals and 9,132 commune health centres¹. Administratively all public hospitals and health centres, under the Public Health Ministry in each province, report to the Provincial Chief Medical Officer.

¹ Bureau of Health Policy and Planning, MoPH. Health in Thailand 1995 - 1996. Bangkok: The Veteran Press; 1997; p 110, 124.

Drug expenditure in 1993 was US$34 per capita (retail value) and constituted roughly 35% of total health expenditure². Drugs are distributed through all public and private facilities, including more than 10,000 private pharmacies.

² Wibulpolprasert S. (ed.). Thai drug system: a situation analysis for further development. Bangkok: Desire Co. Ltd., 1995; p 21, 29.

Services in public facilities are not free of charge. Unless patients are covered by some kind of insurance, they have to pay a subsidised level of user fees. The public hospitals thus receive financial support through government budget (tax revenues), insurance premiums and user fees. Each hospital is authorised to use these funds to purchase drugs. According to government regulations, public hospitals have to purchase 60% - 80% of their drug budget based on items in the essential drugs list.

Drugs are produced locally by 176 private factories and a few public enterprises, the biggest one being the Government Pharmaceutical Organization. Locally produced drugs have a 50% - 60% market share. There are also 460 drug importers. Most public hospitals purchase drugs from both the Government Pharmaceutical Organization and private companies. Only those private drug factories with Good Manufacturing Practice (GMP) Certificates from the Thai Food and Drug Administration are allowed to sell drugs to public hospitals.

A young Thai woman being examined at a primary health care centre

Photo: WHO/A.S. Kochar

The prices of drugs from the Government Pharmaceutical Organization are fixed, and quality control is carried out by the Organization itself. On the other hand, prices of drugs from private companies depend on direct bargaining without a good quality control system on the buyer’s side.

Thus drugs are purchased, based on different hospital drug lists, at varying prices and quality levels in different hospitals. Bigger provincial hospitals usually have more bargaining power and more access to better quality drugs. Under this system, different drugs are used by different health facilities in the same provinces.

THE PROVINCIAL BARGAINING SYSTEM

In 1990, in order to solve the problems of inefficient drug procurement - high prices and questionable quality - a collective provincial bargaining system was developed in one of the biggest provinces in Thailand, Nakorn Ratchasima. The system aims at procuring good quality drugs at lower prices, and ensuring an adequate supply of the same essential drugs to all district hospitals and health centres. The rationale of the system is summarised in Figure 1. This system consists of six sub-systems³:

³ Prakongsai P. Summary of provincial bargaining system for drug procurement in Nakorn Ratchasima Province 1990 - 1994; 1996 (mimeograph in Thai).

1. Establishment of a common hospital drug list

Representatives of doctors and pharmacists in all 23 district hospitals collectively developed the common drug list of Nakorn Ratchasima district hospitals, under the Provincial Pharmaceutical and Therapeutic Committee. Since the first list was drawn up in 1990 it has been reviewed annually, and in 1997 contained 356 drugs. This is the essential initial step to reduce unnecessary drug items and establish a common list for collective bargaining. This common drug list is also used in the procurement of drugs for the commune health centres.

2. Drug procurement system

A drug procurement committee, comprising pharmacists from all district hospitals, invited private drug companies to join the provincial bargaining system. A short-list of companies was prepared through an extensive survey of drug factories by the committee members, relying on their previous experiences as a further determinant. In 1994, 78 companies (45 local, 27 imported) declared their intention to join the system. However, only 39 (50% - 25 local, 14 imported) of these were short-listed.

Each hospital prepares an annual drug requirement plan according to its past utilisation experience. The plans are aggregated into the provincial plan, and the short-listed companies are requested to submit offers. The companies with the lowest price for each item are selected to provide drugs to the system. The prices offered stand for a year.

Figure 1 Rationale of the provincial bargaining system

Each hospital then places orders during the year, according to need, directly with the winning drug companies. After receiving the orders, the companies send their drugs and the bills directly to the hospitals. There is no central provincial stock, no need for provincial financial management and no provincial bureaucratic steps to follow.

Through increasing bargaining power, this collective bargaining system has resulted in 12% - 20% reduction in drug prices. For example, in 1989, before the system was implemented, ampicillin injection (1 gm.) was purchased at a price of between 13 - 26 Baht/vial. In 1994, after establishing the new system, the price was 11.75 Baht/vial (less expensive even after five years of inflation), due to the power of collective bargaining. In 1991, 19.5 million Baht of drugs were purchased, saving 5.3 million Baht. In 1993, 20.4 million Baht of drugs were purchased, with a saving of 2.8 million Baht.

3. Drug quality control system

The quality of drugs purchased was controlled through the process of short-listing the companies and post procurement sampling for quality testing.

Only drug factories with GMP Certificates from the Food and Drug Administration were short-listed. Drugs from factories with GMP Certificates are three times less substandard than those from factories without GMP (8% as compared to 25%)⁴. In 1998, 127 of the 175 private drug factories (72.1%) received GMP Certificates. Short-listed factories were then visited by representatives of pharmacists from the district hospitals. During visits to the factories the quality of raw materials, the manufacturing processes, the drug quality control processes, and the external quality control system were thoroughly checked. Only approved factories were allowed to join the collective bargaining system.

⁴ Tangcharernsathien V. Evaluation of the provincial bargaining system for drug procurement in Nakorn Ratchasima Province. Bangkok: Thailand Health Research Institute; 1994 (mimeograph in Thai).

After the drugs were received at the district hospitals, samples were systematically collected according to the sampling plans, and sent to the Regional Medical Science Centre for analysis. The sampling plans usually focus on antibiotics, commonly used drugs, drugs for specific diseases and life saving drugs.

With this system, the proportion of substandard drugs was reduced from 30% before, to under 15% after implementation of the system (see Table 1).

Table 1
Quality of drugs before and after implementation of the system in 1990.

Source: Provincial Health Office, Nakorn Ratchasima Province.

4. Low temperature drug management system

Supplying low temperature drugs to rural health facilities requires a good cold chain system. Private drug companies usually hesitate to send low temperature drugs to individual district hospitals because of the difficulty with the cold chain system. Thus the provincial health office was designated by the committee to procure and stock these drugs to supply to all district hospitals. This sub-system not only reduces the drug price and improves quality, but also guarantees the availability of good quality low temperature drugs. In 1991, 22 such drugs were included in the sub-system.

5. Drug supply system to commune health centres

There are 287 commune health centres in the Province. Previously their drugs were supplied through the Provincial Health Office. There were problems of expired stock, overstock and shortages of some drugs due to unresponsiveness of the Provincial Health Office to meet the demand of various health centres.

Under this new system, the district hospitals maintain the district stock of drugs to be supplied to the lower level commune health centres according to their demand and allocated budget. This system gives more flexibility and reduces unnecessary expired stock. Most important of all it allows the same type of drugs to be used in the district health systems, which strengthens the referral system in the districts.

6. Monitoring the districts’ drug management system

The ordering and sampling of drugs by district hospitals is monitored closely by the Provincial Health Office’s pharmacists.

The district level drug management system is monitored through indicators covering the development and implementation of the drug management plan, continuous supply of drugs, drug utilisation, overstock and the expired stock. Forty-one specific indicators in 10 subgroups under three main groups were developed. The scores of all 41 indicators amounted to 200. The districts were classified by grades A to F according to their level of management achievement. There was much improvement after the implementation of the system (see Table 2). Satisfaction levels of the district hospitals and commune health centres were also surveyed and it was found that the system was highly accepted.

Table 2
Improvement in the district drug management system

* Scoring for each level of drug management:

A = 181 - 200
B = 161 - 180
C = 141 - 160
D = 121 - 140
F = < 120

Source: Provincial Health Office, Nakorn Ratchasima Province.

FACTORS BEHIND THE SUCCESS

Several factors contributed to the success of this system:

Strong leadership

Drug procurement often involves many vested interests and much inefficiency. In many cases 20% - 30% commission is requested or paid to the hospital authority. Thus some hospitals did not want to participate in the system, and some were hesitant. Strong leadership both from the Provincial Chief Medical Officer and peer influence among district hospital directors was essential to the initiation and the success of the preliminary phase of development.

In the case of Nakorn Ratchasima, the Provincial Chief Medical Officer, who initiated this system in 1990, used his strong leadership and perseverance to overcome the vested interests. He was strongly supported by a few leading district hospital directors and pharmacists who dedicated their time and wisdom to design, develop and manage this system.

Sound justification

The system was able to show the expected outcomes - better quality drugs at lower prices, a better drug management system, and better support to the district referral systems. Only such evidence can satisfy all partners and guarantee continuity of the system.

Partnership

Active involvement of all district hospitals created an environment to support accountability, transparency and acceptance of the system, without increasing any bureaucratic steps or any vested interests, at the provincial level. This, backed by strong leadership and sound justification, was essential to the sustainability of the system. The system in Nakorn Ratchasima Province has been on-going up to present (eight years) despite the change of four Provincial Chief Medical Officers.

A pharmacy in Thailand, where collective bargaining is helping to keep Government drug expenditure down

Photo: WHO/W. Linder

Publicity and strong civil society

Publicising the results created public awareness, strengthened civic movements and supported the sustainability of the system. It was also a strong advocacy tool to get policy support for wider implementation. The Thailand Health Research Institute evaluated the system in 1993⁴. Its report was widely publicised and finally, in 1994, discussed in the National Drug Committee chaired by the Minister of Public Health. The Minister then brought the issue into further discussion in the ministerial committee, and a Ministry policy was developed. The report, together with information on corruption in drug procurement, also prompted the Anticorruption Committee of the Prime Minister’s Office to demand the Ministry of Public Health to implement the system on a nationwide basis.

THE WAY FORWARD: OPPORTUNITIES FOR CHANGE

The success in Nakorn Ratchasima Province prompted others to follow. In 1992 Ayuthaya Province started the system, to cover not only the district hospitals and health centres but also the main provincial hospital. The number of drugs for common bargaining increased from five in 1992 to 23 in 1995. They were able to save from 0.33 million Baht in 1992 to 4.7 million Baht in 1995. Other provinces, such as Burirum, Surin and Lumpoon, started to follow.

In November 1994, three years after the system was launched and the success story was publicised, the Ministry of Public Health put forward a policy to establish such a system in all provinces. However, during an era of high economic growth with a high drug budget (1995 - 1997), the response was rather weak. Evaluation of the implementation in 1996, by the National Health Foundation, found that only three provinces implemented the system as intensively as Nakorn Ratchasima. Another 30 provinces did it weakly to moderately and the rest did not implement it at all⁵.

⁵ Thailand Health Research Institute. Evaluation of the policy for provincial bargaining drug procurement system of the MoPH, 1995 - 1996. Bangkok: Thailand Health Research Institute; 1998 (mimeograph in Thai).

The current severe economic crisis, which began in July 1997, is a good opportunity for further development. The system was promptly included in a comprehensive “Good Health at Low Cost” policy package. Inspector Generals of the Ministry of Public Health have been sent into each province to ensure its intensive implementation. Nine months later, the situation has improved with 67 provinces now actively implementing the system, although in other provinces the old system of individual purchasing prevails or implementation of the new system is still weak. The impact has been clear in the 67 provinces where collective bargaining is used: drug costs were lowered by 24.7%, from 622.05 million Baht (if purchased under the regular individual purchasing system) to 468.03 million Baht, a very significant saving⁶. Nevertheless, this 622.05 million Baht accounts for only about 10% of the Ministry of Public Health’s drug budget. Most of the drug budget is still spent on individual purchasing and procurement through GPO.

⁶ Rural Hospital Division, MoPH. Progress report on the drug management under the Good Health at Low Cost Policy Package. Report to the Permanent Secretary.

With the economic crisis, political reform, public sector reform, stronger civil society and decentralisation, a transparent and efficient public management system is essential. This will enable the provincial bargaining system to dig deeper roots and gain wider implementation in the near future.

Update: In December 1998 the Ministry of Public Health announced a policy aiming to use the collective bargaining system for 50% of its hospital drug expenses. This would mean that at least 5,000 million Baht worth of drugs would be purchased under the system, a possible saving of 1,250 million Baht. Improved drug quality would also be ensured, thus achieving greater efficiency and quality in the midst of economic crisis.