Public health in private sector

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Promoting Public Health through the Private
Pharmaceutical Market

November 2002 Jonathan D. Quick, MD,
MPH Essential Drugs and Medicines Policy
(EDM) Health Technology and Pharmaceuticals
Cluster World Health Organization
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Promoting public health through theprivate
pharmaceutical market
Role of private market
Role of private market
Promoting public health
Private supply mechanisms
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Promoting public health through the private
pharmaceutical market
Role of private market
Promoting public health
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Over-prescribing is costly - and spending on
child health is highly cost sensitive
Irrational use
Drugs are the largest health expenditure for poor
households
Source Azerbaijan - UNICEF-Bamako Technical
Report No. 35 Bangladesh 1995 - National
Accounts 1996/97 Mali (1986) - Diarra K and
Coulibaly S. Financing of recurrent health costs
in Mali. Health Policy and planning 1990,
5(2)126-138
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In most developing countries, 50 to 90 of drugs
are obtained in the private sector
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Drug Purchases through the Private Sector

• Private drug purchases common
• most common treatment after home remedies
• 25 to 75 illness episodes self-medicated
• may be first choice even in severe illness
• Results not always therapeutic
• over-treatment of mild illness
• inadequate treatment of serious illness
• mis-use of anti-infective drugs
• over-use of injections

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Some examples of private sector therapeutic
concerns

• Among tuberculosis patients in India
• the majority of seek care through the private
  sector
• costs are high, completion rates are poor
• Qualified health practitioners prescribed only
• one-third of antibiotics sold in the Philippines,
  Equador
• lt 10 of antibiotics sold in a rural community in
  Bangladesh
• Studies from the Philippine, Indian pharmacies
  show
• 50 of customers purchased one days' supply of
  antimicrobials
• 90 of purchases for less than 3 days' supply

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Public Health Concerns thePrivate
Pharmaceutical Market

• Equity of access
• affordability (economic access)
• availability (geographic access)
• Rational use of drugs
• prescribers
• dispensers, drug sellers
• patients community
• Drug quality (public private)

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Should there be a free market for drugs?

• A perfect market requires perfect information,
  direct interchange between buyer and seller, no
  barriers to going into business
• Pharmaceutical markets are imperfect - they
  fail because
• information imbalance companies gt doctors gt
  patients
• competition failure market power due to patents,
  brand loyalty, etc.
• externalities treating your tuberculosis also
  helps me
• equity lack of access to medicines can be fatal

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Promoting public health through the private
pharmaceutical market
Role of private market
Promoting public health
Private supply mechanisms
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Taking a two-pronged approach on access to
essential drugs

• In the near-term,
• Helping consumers and households get the best
  health buy for their out-of-pocket expenditures
  on drugs.
• (The theme of this presentation)

While in the long-term, Working to expand
population coverage and drug benefits through
public financing and social health
insurance. (The theme in drug financing)
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Promoting public health goals through the private
pharmaceutical sector requires special tools

• 1. Information and education
• 2. Market regulation
• 3. Financing and affordability

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Promoting public health through the private
pharmaceutical market
Role of private market
Promoting public health
Private supply mechanisms
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1. Information and education

• Health professionals
• undergraduate training
• continuing education
• standard treatment guidelines
• Public and patient education
• Responsible drug promotion
• Training recognized drug sellers

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Ethical criteria for medicinal drug promotion -
to improve health care through rational use of
drugs
DAPs role

• The Ethical Criteria (EC)
• define proper promotion based on truthfulness
• apply to prescription, OTC, traditional medicines
• refer to all informational and persuasive
  activities
• Since 1988
• the criteria have been weakly implemented
• some measurable improvements have occurred
• significant problems remain - new problems emerge
• Action is still needed
• to implement the EC among all involved parties
• to monitor promotional practices
• to expand independent drug information

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Pharmacy service gap - nearly a 100-fold
variation in pharmacists per 100,000 population
Europe, N. America (15 to 94 per 100,000)
Asia (1 to 7 per 100,000)
Pharmacists per 100,000 population
Africa (0.1 to 3 per 100,000)
Source WHO/HST/GSP/94.1 (1994)
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Promoting public health through the private
pharmaceutical market
Role of private market
Promoting public health
Private supply mechanisms
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2. Market regulation

• drug registration
• licensing importers, wholesalers
• registration and distribution of drug outlets
• dispensing doctors / dispensing clinicians
• quality assurance
• enforcement of Good Manufacturing Practices - GMP

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Practice of dispensing doctors - drug use and
health economics
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Practice of dispensing doctors - drug use and
health economics
80
73
70
66
66
63
61
60
53
50
50
40
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Dispensing
30
doctors
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Non-dispensing
10
doctors
0
ORS in
Antidiarrhoeals
Antibacterials in
Quality of
diarrhoea
diarrhoea
history taking
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Promoting public health through the private
pharmaceutical market
Role of private market
Promoting public health
Private supply mechanisms
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3. Financing and affordability

• Financing
• health insurance schemes
• community drug schemes
• cooperatives, employers, voluntary schemes
• Affordability
• price information
• price competition - generic drugs of assured
  quality
• price control - producer, distributor, retailer
  

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Methods for communicating price information to
health professionals and consumers

• listing of price information in therapeutics
  manuals
• British National Formulary
• listing of price information in pharmacies
• Philippines
• printing retail prices on drug packages
• India, Pakistan
• regular publication of a pharmaceutical pricing
  guide
• Colombia
• publication of pharmaceutical prices in local
  newspapers
• Argentina, Philippines

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Competition is highly effective in reducing
prices - the example of antiretrovirals
Source UNAIDS, B. Samb, 2000
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Building a large generic market takes time- and
requires a combination of strategies
National strategies for generics 1. Supportive
legislation regulation 2. Reliable quality
assurance 3. Professional, public acceptance 4.
Economic incentives
Percent of new prescriptions, U.S.
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High levels of generic drug use depend on a
combination of factors - including economics
Private sector

• Supportive legislation and regulation
• ????? abbreviated registration ? development
  while patented
• ????? generic labeling ? generic substitution
• Reliable quality assurance capacity
• ????? equivalence lists ? national QC capacity ?
  GMP enforcement
• Professional and public acceptance
• ????? involvement of professional groups ? phased
  implementation
• ????? all training by generic name ? public
  promotional information
• Economic incentives
• ????? price information ??higher generic retail
  margins
• ????? use of generics by insurers ??development
  of generic industry

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Generic substitution laws can give each party a
voice
National strategies

• Regulatory authority
• may declare products as substitutable or
  non-substitutable
• Prescriber
• may write no substitution by hand on the
  prescription
• Pharmacist - must substitute a generic unless
• prescriber or patient forbid substitution
• retail price of generic is higher than the brand
• product has been declared not substitutable
• Patient
• may forbid generic substitution by the pharmacist

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Private sector
Different types of dispensing margins create
different incentives for rational dispensing
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Pharmaceutical Price ControlProducer Prices

• Methods of control
• cost-plus
• profit/return on capital
• reference pricing
• therapeutic category - internal or external
  comparison
• Point of control
• registration
• reimbursement
• marketing
• periodic increases, freezes

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The wholesale price of zidovudine (AZT) varies
nearly 6-fold among suppliers and countries
Source MSF (1999)
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The wholesale price of fluconazole varies 40-fold
among suppliers and countries
Source MSF (1999)
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Price control can complement generic price
competition - but the effects are more complex
Private sector

• In high income countries
• pharmaceutical price controls in 23/23 countries
  (1990)
• controls shown to contain individual drug prices
  increases
• impact on total expenditures uncertain
• innovation / drug development may be inhibited
• In low and middle income countries
• price controls in 26/33 countries (1990)
• consumers are more price sensitive drugs more
  essential
• scarcities (real or artificial) may result from
  controls
• impact in changing economic environment is
  uncertain

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Up to 80 of consumer price due to markups
(wholesale margins, retail margins and tax)
Affordability
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Pharmaceutical Price ControlDistribution Margins

• Point of control
• importer
• wholesaler
• retailer
• Types of margins
• cost fixed percentage
• cost declining percentage
• cost fixed dispensing fee
• cost differential dispensing fee

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Promoting public health through the private
pharmaceutical market
Role of private market
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Contracting out services with commercial and
third sector (non-governmental) organizations
Privatization

• Services which have been contracted out
• port clearing transport storage kit
  packing
• quality control testing drug evaluation
• Contracting process
• (1) Specify contact terms
• (2) Tender to select contractor (pre or post
  qualification)
• (3) Monitor contractor
• (4) Pay contractor

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Direct delivery system - supply contract includes
delivery to districts, major units no CMS
SUPPLY SYSTEMS direct delivery system
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Direct delivery system
SUPPLY SYSTEMS direct delivery system

• Advantages
• eliminates capital cost to government for
  storage, transport
• decentralized order quantities and delivery help
  adjust to variations in seasonal and local
  disease patterns
• maintains price benefits of centralized tendering
• reduces inventory costs (expiration, waste,
  theft)
• Disadvantages
• coordination and monitoring of deliveries,
  payments, quality is demanding
• feasible only where adequate private
  infrastructure exists
• suppliers limited to those able to ensure local
  distribution
• direct delivery by multiple suppliers to remote
  sites raises costs

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Primary distributor system -- supply contract for
primary distributor separate contracts for drugs
SUPPLY SYSTEMS primary distributor system
Adapted from Rankin, 1997
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Primary distributor system --
SUPPLY SYSTEMS primary distributor system

• Advantages
• maintains advantages of single distribution
  system
• potential prime vendors compete on service level
  and cost
• Disadvantages
• monitoring of service level and drug quality is
  demanding
• effectiveness depends on well-developed private
  systems

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Supply systems for public health services --
variations of privatization and decentralization

• 1. Central Medical Stores - conventional supply
  system
• central procurement and distribution
• 2. Autonomous Supply Agency - government or
  parastatal
• procurement, storage, distribution by the agency
• 3. Primary Distributor System - privatized,
  centralized
• separate drug supply contract and service
  contract
• primary distributor (prime vendor) stores and
  distributes drugs
• 4. Direct Delivery System- privatized,
  decentralized
• tenders for price and supplier for each item
• drugs delivered by supplier to districts, major
  facilities
• 5. Fully Private - private distributors and
  retail outlets

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Conclusion - strategies for promoting public
health through private pharmaceutical markets
Conclusion
Role of private market - private spending common
- irrational use, poor quality, unaffordability
are problems
Promoting public health - information,
education, market regulation, affordability
measures
Private drug supply mechanisms - various
combinations of privatization, decentralization
exist
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