Application of an International Reference Price List to National Medicines Procurement Tenders

1. Application of an International Reference Price List to National Medicines Procurement Tenders BadaPharasi, Gavin Steel, Jean-Pierre Sallet, SPS, Management Sciences for Health

2. Background • South Africa has the largest ARV program in the world, yet had been purchasing ARVs at prices much higher than the average international prices for most ARVs • In 2010 4,8 million people were tested for HIV as part of the HCT campaign; Of these, 905,000 were found to be HIV positive • The treatment program would be unsustainable if prices remained at such high levels

3. Background • Ministerial Task Team on Medicines Procurement in the country’s public sector conducted a comparison of national prices of ARVs with international prices • The preliminary results indicated that there would, indeed, be merit in going the route of international benchmarking • The Team made a distinction between what is referred to as “the catalogue price” and the “landed” cost

4. International price comparison of ARVs

5. Background – outcome of the international price comparison • The greatest price difference appeared to be for efavirenz, the most widely used ARV in South Africa at the time, followed by tenofovir • The use of Tenofovir was to increase significantly following adoption of the new treatment guidelines • Massive potential savings were predicted if just these two products were procured on the international market

6. Objectives To reduce costs by improving competition among bidders through international benchmarking and publication of international reference price lists during the tender process for ARVs

7. Design • Analysis of tender prices was performed to evaluate the potential impact of this intervention • Confounders were controlled for by analyzing the impact of the number of bidders and the exchange rate Intervention • A reference price list was compiled based on international transactional prices and introduced as a stimulus for competition among local suppliers during the national ARV procurement process

8. Results – the ARV tender prices announced by Health Minister in December 2010. Some of the key products:

9. Results – discussion of findings • A 53,1% reduction in the cost of the total ARV tender was achieved – a (R4,7 billion) $0,62billion savings • The percentage decrease in the cost of each item ranges from 4% to 81% • The saving allows the state to double the number of patients on treatment

10. Results – The Minister attributed the achievement to the following measures: • Ensuring that there are an adequate number of products registered with the regulatory authority • Encouraging all potential suppliers, including international suppliers, to participate • Publication of a reference price list based on international transactional prices • Requiring suppliers to provide a breakdown of their cost components • Monitoring of price changes through the life cycle of the tender

11. Results – TB tender prices

12. Results – TB tender prices • The average reduction in price was 13% • Average price reduction taking inflation into account – 19.3% • The prices of 20 items reduced, 2 increased and 2 remained the same • Based on bid estimates, the saving would be $10.04m, which could treat an additional 312,000 adults • The tender price was on average 118% of the reference price, with 7 items higher, 17 lower and 1 the same as the reference price

13. Conclusion • The application of international reference lists during national tenders is a valuable tool for achieving optimal pricing • South Africa has traditionally sourced virtually all of its pharmaceutical requirements from local and international companies represented in the country, but recent experiences have demonstrated that resorting to international benchmarking and opening the market to international suppliers has increased competition and allowed for reduced prices