ECONOMIC ANALYSIS OF DRUG EXPENDITURE IN GOVERNMENT MEDICAL COLLEGE HOSPITAL NAGPUR, INDIA.

1. ECONOMIC ANALYSIS OF DRUG EXPENDITURE IN GOVERNMENT MEDICAL COLLEGE HOSPITAL NAGPUR, INDIA.

2. * V.R.THAWANI,A.V.TURANKAR, S.D.SONTAKKE, S.V.PIMPALKHUTE, G.N.DAKHLE, K.S.JAISWAL, K.J.GHARPURE and S.D.DHARMADHIKARI. • Department of Pharmacology, Government Medical College, Nagpur - 440 003. INDIA. • * thawani_ngp@sancharnet.in

3. Abstract • Objectives: Primary: To conduct economic analysis of drug expenditures in the Government Medical College Hospital, Nagpur, India to: • Identify the drug categories needing stringent management • Find influence of inflation on drug purchase • Forecast the drug expenditure for future years. • Secondary: To computerize the data from the medical stores. • Method: Annual expenditure of each drug was calculated. ABC cost analysis and Vital, Essential, Desirable (VED) criticality analysis were done. A matrix based on coupling of ABC and VED was formulated. From this two priority groups were constituted. Drugs consuming >5% of the total annual drug expenditure were included in the Priority I group for greater managerial monitoring and the rest were included in group II. The Cost Inflation Index (CII) determined by the Government of India was applied to find the influence of inflation on the drug expenditure. Difference between actual expenditure and inflation derived expenditure was found. Expenditure for forthcoming years was forecast by linear regression analysis using Forecast and trend function of Excel. • Results: Annual drug expenditure was found to be 11.59 % of the total hospital budget. Division of the drug inventory into two priority categories resulted in identifying the priority I (56 out of 218) drugs for stringent control. Percentage cost for each drug helped determine economical order quantity and the schedule of placing purchase orders for drugs with high value but low criticality. Using the CII, it was observed that the overtly seen increase in annual drug expenditure over previous year was in fact 2.70% lower than CII derived expenditure. • Conclusions: Drug categorization by ABC-VED coupling helps to narrow down the number of drugs needing effective control. Application of inflation factor povides justification for increased claim for annual drug budget. Forecast of drug expenditure assists better management of the limited resources.

4. Introduction • Drug inventory management - narrowing down on select drugs - effective control and improved efficiency • Review and control measures bring down expenses • Economic analysis generates data • Various inventory control models • Cost containment - ABC • Improved drug availability - VED • Best of both

5. Objectives • Primary : Conduct economic analysis of drug expenditure to : • Identify drug categories needing stringent management • Find influence of inflation on drug purchase • Forecast drug expenditure for future years • Secondary : Computerization of data of medical stores

6. Method and Material • 1400 bedded, Govt., tertiary, teaching, FY 2001-02 • Annual Hospital Expenditure (AHE) • Total Annual Drug Expenditure (ADE) • ADE of each drug • ABC cost analysis of ADE • VED criticality analysis of ADE • Constitution of ABC - VED matrix • Identification of priority group • Group I > 5% Budget - AV, AE, AD, BV, BE • Group II - BD, CV, CE, CD

7. Contd.: Method & Material • Cost Inflation Index (CII) - Govt. of India • Indexed cost of ADE for 2001-02 = ADE of 2000-01 x Index factor for 2001-02 Index factor for base year 2000-01 • Difference between ADE and inflation derived indexed cost • Linear regression analysis done with Forecast and trend function of Excel (ADE data 1991 onwards) to forecast expenditure for forthcoming years

9. Results • Year under study 2001-02 • ADE = 315,00,749 (11.59% of AHE) • Index factor = 426 • Data of base year 2000-01 • ADE = 307,79,353 • Index factor = 405 • Indexed cost = 30779353 x 426 / 405 = 323,75,319 • Difference between actual & indexed = 315,00,749 - 323,75,319 = minus 8,74,570 2.70% lesser than base year

10. This is where a large graphic or chart can go.

12. Discussion • No such published study • ADE 11.59 % • Advantages of ABC+VED combination • Advantages of prioritization • Lesser drugs monitored (Gp 1= 56 / 218) • Implementation • Improved drug availability • Lesser emergency purchase - savings • Identification - seasonal variation

13. Better management • CV - low cost & high criticality (n =29) only 2.9% of annual budget - procure once a year • AD - high cost & low criticality (n=7) but 11.35 % of annual budget - needs monitoring • ABC cumulative projection v/s % cost - economic position of each drug • Advantages of CII application • Need of future expenditure forecast • Inflation factor for future can not be known in advance - hence regression analysis

14. Conclusions • Limited economic resources - optimum utilization • ADE - increased budgetary allocation • Application of CII - gives justification • Developing economies - inflation all pervasive - VFM decreasing • Economic analysis - better management • Policy framing • Prioritization • Resource allocation