PROCUREMENT & SUPPLY: POOLED PROCUREMENT

1. PROCUREMENT & SUPPLY:POOLED PROCUREMENT UKZN IP & Access to Medicines 2009 Professor Brook K. Baker Northeastern U. School of Law Health GAP (Global Access Project) b.baker@neu.edu

2. Outline of Presentation What are the principles of sound drug procurement? What is pooled procurement? Types of pooled procurement and their advantages and disadvantages Where has pooled procurement worked before? Pooled procurement in the SADC Region Conclusion

3. Objectives and Operational Principles for Good Procurement • Procure the right drugs in the right quantities at the lowest possible total cost • Select reliable suppliers of quality products • Ensure timely delivery and notification • Efficient and transparent management • Drug selection and quantification • Financing and competition • Supplier selection and quality assurance

4. Procurement CycleFrom Management Sciences for Health

5. Traditional Procurement Methods

6. Formal price can be deceptiveFrom Management Sciences for Health

7. Problems with Traditional Procurement • Non-transparency • Weak bargaining power/high prices • Corruption • Inefficiencies, delays, and high transaction costs • Stock-outs

8. Alternative: Pooled Procurement “Bulk purchasing,” “group purchasing,” or “pooled procurement” is defined as “purchasing done by one procurement office on behalf of a group of facilities, health systems, or countries. Group members agree to purchase certain drugs exclusively through the group” (WHO 1997) Pooled procurement can be done by any number of parties, would not need to involve all SADC countries

9. Pooled Procurement – Advantages • Can create economies-of-scale market-buying-power incentives to generic producers. • Monopsony (single buyer) purchasing power in price negotiations. • Can lead to harmonizing standard treatment guidelines (STGs), essential medicines lists (EMLs), and registration standards • Can lead to improved quality assurance and supplier monitoring • Can reduce overall transaction costs.

10. Pooled Procurement - Disadvantages • Complicated matrix of national patent and registration rules and the mixed patent/registration status of a given medicine in different countries. • Plethora of donor procurement rules and new international procurement entities. • Regional procurement risks undermining efficient and important domestic pharmaceutical capacity. • Single-source selection (disfavoured) could lead to market concentration.

11. DIFFERENT OPTIONS FOR REGIONAL PROCUREMENT

12. Informed Buying(sharing information on suppliers but individual country procurement)

13. Coordinated/Informed Buying(joint market research, sharing of information on pricing, and joint monitoring of prices but individual country procurement)

14. Group Contracting(joint selection of suppliers, joint negotiation of drug prices, joint agreement to procure from suppliers, but individual country procurement)

15. Central Contracting(joint conducting of tenders and awarding of contracts by a central organisation formed by member countries)

16. Selective Use of New Donor-Based and Multilateral Procurement Systems(UNITAID, US SCMS, UNICEF, GF)

17. Stock-Out Service(IDA-type facility)

18. Summary of Pooled Procurement Initiatives (A.Barraclogh, MSH)

19. COST-SAVINGS CARICOM

20. But, Bulk Procurement has not Produced Savings for ARVs • Findings: Large purchase volumes did not necessarily result in lower ARV prices. Although current plans for pooled procurement will further increase purchase volumes, savings are uncertain and should be balanced against programmatic costs. • Third-party negotiation by [Clinton Foundation] resulted in lower generic ARV prices. • Generics were less expensive than differentially priced branded ARVs, except where little generic competition exists. • Alternative strategies for reducing ARV prices, such as streamlining financial systems, improving demand forecasting and removing barriers to generics, should be explored. • Waning, WHO Bulletin (2009)

21. Critical Success Factors Political will and financial commitment Adherence to monopsony (large-scale buying) Secure & trustworthy finance and payment mechanism Permanent and autonomous procurement secretariat Harmonization of drug regulation Good pharmaceutical procurement practices Effective quality assurance

22. Pooled procurement in SADC Region Which is the most appropriate and practical model for cost efficient pooled procurement in the SADC region? What steps must be taken by each country to ensure that pooled procurement in the SADC region is successful? How should the existing procurement & distribution channels in member countries be upgraded in terms of: (a) skills; and (b) technology to accommodate an efficient pooled procurement mechanism?

23. Pooled Procurement in SADC Region • In SADC region, pooled procurement being driven by DFID, WHO and SADC • DFID has consulted a number of stakeholders in SADC and will be outsourcing TA and capacity building • Ambitious business plan for the harmonization of treatment regimes, medicine regulations, IP laws over 7 year period

24. SADC Pooled Procurement Initiative SADC Pharmaceutical business plan objectives: • (a) Harmonizing standard treatment guidelines and essential medicine lists; • (b) promoting local and regional pharmaceutical industry of generic essential medicines and African Traditional Medicines; • (c) Strengthening regulatory capacity and distribution of basic pharmaceutical products by having functional regulatory authority with enforcement infrastructure; • (d) Promoting joint procurement of medicines of acceptable safety, proven efficacy and quality to the people who need them most at affordable prices.

25. SADC Pooled Procurement Initiative e) Establishing a regional databank of traditional medicine, medicinal plants and procedures; f) Developing and retaining competent human resources for the pharmaceutical programme; g) Developing mechanisms to respond to emergency pharmaceutical needs of the region; and h) Facilitate the trade in pharmaceuticals within SADC

26. Pooled procurement in SADC- opportunities Regional market, estimated in 2000 at U$2.5 - 3 billion, probably twice as big now. An estimated U$1-2 billion per year is used in public sector procurement. achievable efficiency gain of 5% can translate into U$50-100 million savings per year. Advanced medicines quality assurance systems in some countries can be used to develop capacities in others – S. Africa is now considered to be a stringent drug regulator. Improved efficiency in supply chain management systems through regional collaboration.

27. Preliminary Steps SADC Health Policy Framework, SADC Protocol on Health, the SADC Trade Protocol, Pharmaceutical Programme to guide member states All SADC Member States have official or draft medicines policies and laws Existence of the Pharmaceutical Regulatory Shared Network All countries in SADC region are WTO members SADC region has developed pharmaceutical guidelines for medicines regulation

28. SADC Challenges Wide differences in capacities of 14 SADC states Outdated medicines and intellectual property laws Inconsistent regulatory systems and capacities, concerns about quality, safety and efficacy of medicines Disparities between private medical aid and stated funded health care resulting in inequities A complicated matrix of national patent and registration rules in SADC countries present real challenges to regional procurement.

29. SADC Challenges Donor rules and new procurement entities further complicate regional procurement leading to procurement fragmentation Lack of effective management information and evidence-based decision-making Lack of harmonized pricing policies and substantial variation in prices of essential medicines for the same or similar products both within and between countries Harmonization needed to ensure efficient use of limited resources and to avoid duplication/delays

30. External Threats to Pooled Procurement Unethical promotional activities by pharmaceutical manufacturers. Production of substandard/counterfeit medicines. Unethical inspection and registration of medicines and premises. Corruption in the procurement processes and in distribution systems. Irrational prescribing and dispensing practice. User fees and cost-recovery

31. CONCLUSION • Efficiencies in drug procurement are complicated by: • Patent rules and availability/use of TRIPS-compliant flexibilities • Registration status of more affordable generic equivalents (avoidance of D.E./linkage) • Balancing of risks and benefits of various forms of regional pooled procurement • Unless African countries cooperate, they cannot achieve their individual health goals and commitments.