1. Problem statement Pharmaceutical procurement

1. Problem statement
Pharmaceutical procurement is a complex process which involves many steps,
agencies, ministries and manufacturers. Existing government policies, rules and
regulations for procurement as well as institutional structures are frequently
inadequate and sometimes hinder overall efficiency in responding to the modern
pharmaceutical market.
Market constraints differ from country to country. Public sector drug
procurement must take place in the context of both the local pharmaceutical
market and the international market. In many countries public health officials
have limited experience in designing an optimal procurement system to fit their
market context. An increasing number of countries have moved, or are moving,
away from a pharmaceutical procurement and distribution system which is
totally operated by the public sector, and are investigating various options for
involving the private sector in order to enhance public health. A recent
MSH/WHO publication1 explores various models which exist. Each of the
models discussed in that book has advantages and disadvantages, and each
presents a different challenge to effective procurement management.
There are many steps in the procurement process. No matter what model is used
to manage the procurement and distribution system, efficient procedures should
be in place: to select the most cost-effective essential drugs to treat commonly
encountered diseases; to quantify the needs; to pre-select potential suppliers; to
manage procurement and delivery; to ensure good product quality; and to
monitor the performance of suppliers and the procurement system. Failure in
any of these areas leads to lack of access to appropriate drugs and to waste. In
many public supply systems, breakdowns regularly occur at multiple points in
this process.
If there is an appearance of special influence on the selection of products and
suppliers or if the procurement process is not managed in an efficient and
transparent manner, interest among suppliers in competing for procurement
contracts decreases, leading to fewer choices and higher prices for drugs.
If the procurement system cannot guarantee access to funds at the time they are
needed, drug shortages and procurement inefficiencies are inevitable.
Government funds for procurement are, in some countries, released irregularly
during the financial year. In some countries government regulations specify that
funds must be spent in the year for which they are allocated or be returned to the
treasury; this compounds the problem. Where this combination exists it
1 Management Sciences for Health in collaboration with the World Health Organization, Action
Programme on Essential Drugs. Managing drug supply, 2nd ed. Edited by J.D. Quick, J. Rankin,
R. Laing, R. O’Connor, H.V. Hogerzeil, M.N.G. Dukes and A. Garnett. Hartford, CT: Kumarian
Press; 1997.
Operational principles for good pharmaceutical procurement
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compromises procurement planning and execution. Limited or irregular funding
which leads to delays in payments worsens procurement problems as suppliers
deny credit or insist on advance payments. A degree of financial autonomy for
the health system, while providing flexibility, requires proper accountability and
efficient management.
External financing of drug procurement for the public sector by international
agencies, bilateral donors or development banks can also be a source of problems
in some countries. In such cases the donors or banks may have conflicting
policies and regulations regarding drug procurement, which in turn may conflict
with existing local laws and regulations. In these situations it is extremely
difficult to carry out procurement in a timely and efficient manner. Development
assistance should be more consistent with the policies of the country. And it is
essential that this assistance should reinforce good pharmaceutical procurement
practices and aim at sustainability, rather than undermining or delaying the
development of such procurement practices. Thus international, multilateral and
bilateral agencies may need to review their own procedures, requirements and
technical advice in the light of the operational principles presented here.
The recent trend towards decentralizing responsibility for procurement can be
positive, in that local authorities should have the strongest interest in
maintaining a consistently effective drug supply system. However, without
procedures to maintain economically viable procurement quantities, drug prices
may increase dramatically. Moreover, without mechanisms to monitor local
performance and to ensure adherence to good procurement practice, public
health objectives may not be met and scarce funds may be wasted on
inappropriate purchases. Contracting out parts of the procurement/distribution
function may improve efficiency and reduce costs. But this will only be true if
public health systems can properly monitor and manage such contracts. In many
countries the necessary experience and information systems for this are lacking.
In some countries initial decentralization of drug procurement was followed by
pooled procurement by hospitals or cooperatives.
Unbiased market information on product availability, comparative pricing,
product quality and supplier performance is difficult to obtain in many countries.
Poor access to information is most common in countries where it is most needed
in the light of inadequate regulation of the local market. This information
deficiency can result in gaps in essential drug availability and in procurement of
poor-quality products at unnecessarily high prices. It may also facilitate undue
influence on the procurement process by special interest groups.
Even if appropriate policies and procedures are in place, lack of properly trained
staff in key positions can doom any procurement system to failure. While
effective training programmes can remedy this problem, in many supply systems
there is limited access to training in good procurement practices. Also
unattractive public sector salaries and lack of career development tend to restrict
capacity to attract and retain qualified staff.
Problem statement
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Summary of main problems
· inadequate rules, regulations and structures;
· public sector staff with little experience in responding to market situations;
· absence of a comprehensive procurement policy;
· government funding which is insufficient and/or released irregularly;
· donor agencies with conflicting procurement regulations;
· fragmented drug procurement at provincial or district level;
· lack of unbiased market information;
· lack of trained procurement staff.