Can private sector mechanisms help to improve efficiency and ensure access to essential drugs in the public sector?

In many countries a large share of clinical health services continues to be provided through government health facilities. Among the decisions that governments in these countries face regarding the pharmaceutical sector, the most complex and the most costly often concern the financing and supply of drugs for government health services. In some countries public sector drug supply is well-financed and administratively efficient. In other countries the drug supply system is unreliable and shortages are common; such systems suffer from inadequate funding, outdated procedures and a variety of other problems.

The failure of government drug supply systems to provide adequate and efficient services is often seen to be symptomatic of fundamental problems in the public sector, including:

• public sector rigidities, particularly bureaucratic staff regulations;
• lack of incentives for efficient behaviour;
• unclear institutional relationships and responsibilities;
• political interference;
• lack of managerial autonomy, responsibility and accountability;
• absence of competition;
• inadequate financial resources.

Drug supply systems need to achieve three main objectives:

- a high level of service, as measured by low rates of shortages and stockouts;
- efficiency, as measured by having low total costs for a given level of service;
- quality, in terms of delivering drugs of satisfactory quality.

Can market mechanisms be used to improve public sector efficiency and service levels and thereby improve access to essential drugs through government health services?

In recent years, a variety of attempts have been made to introduce private sector management methods and elements of competition into public health services in developed [90,91] as well as developing [11,12,120,122,125] countries. These attempts were based on the belief that the key issue was not public ownership, but rather the nature of management and the market environment within which the organization operates.

Market mechanisms are often implemented parallel with or subsequent to decentralization measures. Decentralization may pave the way for market mechanisms by giving different public units control over their own budgets which they can use to purchase goods and services. Furthermore, certain types of market mechanism (such as the establishment of autonomous agencies) entail a degree of decentralization.

User fees for drugs and revolving drug funds introduce an element of private financing into public health services. Experiences with such schemes are described elsewhere [32,81,106]. The focus of this section is on market mechanisms in public sector drug supply systems.