Pharmaceutical sector of the Western Balkan countries

1. Pharmaceutical sector of the Western Balkan countries 2008 Annual Meeting & Exposition San Diego, CA October 25-29, 2008

2. Acknowledgements The author acknowledge Andreas Seiter, Sr.Health Specialist at the World Bank for overall guidance and support for this work The author is thankful to Michele Gragnolati, Task Team Leader and Caryn Bredenkamp for initiating work in this area As well as peer reviewers: Kees Kosterman

3. Structure of the presentation The World Bank Group and HNP: Organizational structure Western Balkans: background Health sector reform challenges Pharmaceutical sector of Western Balkans

4. The World Bank Group The World Bank is like a cooperative, where its 185 member countries are shareholders. The shareholders are represented by a Board of Governors, who are the ultimate policy makers at the World Bank. Generally, the governors are member countries' ministers of finance or ministers of development. They meet once a year at the Annual Meetingsof the Boards of Governors of the World Bank Groupand the International Monetary Fund. Because the governors only meet annually, they delegate specific duties to 24 Executive Directors, who work on-site at the Bank. The five largest shareholders, France, Germany, Japan, the United Kingdom and the United States appoint an executive director, while other member countries are represented by 19 executive directors. The President of the World Bank, Robert B. Zoellick, chairs meetings of the Boards of Directors and is responsible for overall management of the Bank. By tradition, the Bank president is a U.S. national and is nominated by the United States, the Bank's largest shareholder. The President is elected by the Board of Governors for a five-year, renewable term. The World Bank is like a cooperative, where its 185 member countries are shareholders. The shareholders are represented by a Board of Governors, who are the ultimate policy makers at the World Bank. Generally, the governors are member countries' ministers of finance or ministers of development. They meet once a year at the Annual Meetingsof the Boards of Governors of the World Bank Groupand the International Monetary Fund. Because the governors only meet annually, they delegate specific duties to 24 Executive Directors, who work on-site at the Bank. The five largest shareholders, France, Germany, Japan, the United Kingdom and the United States appoint an executive director, while other member countries are represented by 19 executive directors. The President of the World Bank, Robert B. Zoellick, chairs meetings of the Boards of Directors and is responsible for overall management of the Bank. By tradition, the Bank president is a U.S. national and is nominated by the United States, the Bank's largest shareholder. The President is elected by the Board of Governors for a five-year, renewable term.

5. Human Development Network and HNP

6. From trade policy to health policy: Trade policy in the Western Balkans is an essential instrument to contribute to the economic development and stabilisation of the region The future of Western Balkans is within the EU Three levels of integration: Bilateral: Stabilisation and Association Agreements (include health services and goods) Regional:Central European Free Trade Agreement (CEFTA) Multilateral: Accession to the World Trade Organisation Albania and Croatia have been members of WTO since 2000. The former Yugoslav Republic of Macedonia was granted candidate status in December 2005 (Report of Comission of European Communities). Bosnia and Herzegovina, the Republic of Montenegro and the Republic of Serbia have started their accession process relatively recently.

7. Health policy Free trade area for goods Pharmaceuticals is a special type of good affecting lives of millions people Desire to join EU as a common vision that has the potential to transcend the historic divisions Harmonization of health sector reforms and pharmaceutical sector is key for successful integration into EU system

8. Characteristics of the region

10. Characteristics of the Sector History of centralized administered health systems by government Today transition towards health insurance system with increasingly private service delivery Pre-existing national industry, partially consolidated and taken over by multinational companies Post-conflict issues such as displaced people, mistrust between former conflict parties, external influences Updated pharmaceutical legislation but problems with enforcement Governance issues; pockets of alleged corruption

11. Regulation Most countries updated their drug laws in the last five years Assimilation to EU standards Transition clauses for industry and trade to comply with stricter requirements Preference for independent drug agencies Inconsistencies in BiH: approval in one entity allows access to the entire market

12. Pricing Regulation and Control Trend towards reference price system for single-source drugs (comparison with neighboring and EU countries) Generic drugs from local manufacturers in Serbia priced according to external reference standards as well (35% of the price average from Italy, Croatia and Slovenia, compared to 80% for imported generics) Price finding through tenders in Montenegro, Macedonia and Kosovo (public sector only) Price differences of >100% possible, depending on effectiveness of procurement process and on competition Distribution margins vary to a significant extent, augmented by “bonuses” given in form of free goods and preferential payment terms by competing manufacturers

13. Enforcement and Governance Issues Generally weak enforcement capacity Lack of controls at wholesale and retail level (danger that counterfeit drugs penetrate the market) Conflicts of interest potentially influencing decision making (example pharmacy licenses, inclusion into positive lists) Vulnerability for corruption where decisions with financial consequences are made Porous borders make control of cross-border trade difficult

14. Market and Expenditure Total market about 1 billion USD (Serbia, Montenegro, Bosnia & Herzegovina, Macedonia, Kosovo and Albania combined) Growth rate <10% Per capita drug expenditure between 25 and 65 USD (including private out-of-pocket spending) Significant differences between urban centers and poorer rural communities

15. Pharmaceutical Markets in Western Balkan Countries (2005)

16. Domestic Industry Significant industrial tradition in pharmaceutical manufacturing (mainly Serbia, Macedonia) Partially upgraded to European GMP standards and integrated into generic multinationals (Actavis-Hemofarm) Very limited API capacities Vaccines/biologicals capacity at Torlak Institute (Serbia) but in urgent need of investment for upgrades Focus on domestic and regional markets Dominant in the regional generics market with prices significantly below EU average

17. Wholesale and Retail Sector Fragmented wholesale sector, difficult to regulate and inefficient High density of pharmacies in urban areas Serbia, Montenegro, BiH still have “public” pharmacies, acting as contract partners for insurance funds Lack of enforcement of legal requirements allows for many private pharmacies to be run by a technician only (paying for a licensed pharmacists to act as pro-forma supervisor without actually being present)

18. Wholesalers and Pharmacies

19. Financing of Drugs Except for Kosovo, all countries have health insurance funds In some countries expensive drugs for cancer, AIDS etc. are centrally procured and dispensed Positive lists define reimbursable drugs in outpatient care Limited lists and co-payments up to 75% make the systems less attractive for the urban middle-class Hospital usually procure drugs themselves; under-funding and inefficient procurement lead to shortages Significant out-of-pocket expenditure for drugs, growing faster than insurance spending

20. Access to Medicines is an Issue

21. Health Insurance as Purchaser Some insurance funds negotiate prices for expensive drugs For generics, the trend is to set reimbursement ceilings by INN; some funds making steps towards grouping of similar drugs under one ceiling Access to positive list controlled by expert commissions; additions not always coordinated with insurance budget limits Expenditure control is a constant challenge; management capacity of funds limited

22. Savings potential through good procurement practice – example BiH

23. Management Systems Integrated management system with automatic data gathering only in Montenegro Budgeting for health centers in Serbia, BiH (RS only) Manual control systems in other countries, with limited effectiveness in data gathering and even less effectiveness in influencing provider behavior

24. Rational Use of Drugs General shortage of resources limits excessive prescribing Limited data on utilization; some indicators point at over-use of injections and antibiotics General lack of quality control in primary health care Promotional pressure by innovator companies changing prescriber preference towards more expensive new drugs

25. Priority Reform Steps Strengthen enforcement capacity to cover all layers of the supply chain Improve overall governance and transparency to discourage corrupt practices De-regulate generic prices in favor of more competitive markets Update reimbursement systems and encourage insurance funds to become “active purchasers”, for example by introducing “preferred brands” with lower co-payments Set up rules-based, transparent systems for adding new drugs to reimbursement lists Create conditions for consolidation of wholesale sector by purchasing directly from manufacturers (“landed costs” – the manufacturer deals with the distribution company) Develop/implement monitoring systems for utilization and measures to improve rational use of drugs

26. Ways to Overcome Resistance High-level support in the government Publicity, exposure of bad performance Patient empowerment through information sharing Learning from success stories Pilot projects for new tools, technologies

27. Comments, questions, contact: aimasheva@worldbank.org or aseiter@worldbank.org www.worldbank.org