MeTA making the Pharmaceutical Market Work for the Poor

Publication date: 2008

Prashant Yadev Making the Pharmaceutical Market Work For The Poor * MeTA * Medicines as a percentage of household health expenditure Source: WHO UK~ 12% Patients in low-income countries spend a disproportionate amount on medicines MeTA * Intra-country variation in coverage of treatment for common illnesses The lowest income quintiles have poor coverage for essential medicines Source: Gwatkin et al 2006 MeTA * Who avails government subsidized health-care and medicines? Public sector subsidized drug distribution tries fulfill the coverage gap for the poor but doesn’t always reach them effectively Source: Gwatkin et al 2006 MeTA * Examples of pharmaceutical systems in OECD countries MeTA * Around 45 full-line pharmaceutical wholesalers Three large national wholesalers contribute to over 85% of the market share Large network of pharmaceutical warehouses More than once a day delivery to each pharmacy Pharmaceutical distribution structure in the UK 800 million prescriptions £6 billion worth medicines dispensed Approximately 12,600 pharmacies MeTA * UK pharmaceutical system: Financial flows MeTA * UK pharmaceutical system: information flows MeTA * Pharmaceutical distribution structure in the US 3.4 billion prescriptions $ 275 Billion worth medicines dispensed Approximately 57,490 pharmacies Average distance to a the nearest pharmacy is 2.36 miles Three large national wholesalers contribute to over 85% of the market share Large network of pharmaceutical warehouses More than once a day delivery to each pharmacy MeTA * US pharmaceutical market: physical flows Source: GAO Report 2006 26% out-of-pocket expenditure on medicines MeTA * US pharmaceutical market: financial flows MeTA * US pharmaceutical market: information flows MeTA * Source: Farmaindustria 2004 Spain pharmaceutical market: physical flows MeTA * Performance indicators in some of these markets MeTA * Order Fill Rates at the Point of Dispensing Source: European Pharmaceutical Wholesaler Industry, Technical Report 2006 EU-15 average at retail pharmacy Average across low and middle income countries in state-run health clinics? MeTA * Margins at different supply chain stages Source: Alliance Unichem MeTA * These markets differ in many ways but they have several commonalities A self-regulating framework that balances power between the patient, the payer, the supply chain actors and the government (either by market forces or by fiat) Legal structures that allow the freedom to contract each activity resulting in optimal levels of market competition at each stage No information opacity at any node of the supply chain A civil society that creates a well-informed and knowledgeable patient population Clear and transparent regulatory structures Roles that require agility in contracting have minimal involvement of the state e.g. physical logistics and distribution of medicines Roles in which the power of state can be leveraged (or those that require rigor in enforcement) are state monopolies e.g. price negotiation and control with the manufacturer, quality approvals MeTA * Pharmaceutical systems in developing countries MeTA * Low and middle income countries: physical flows MeTA * Low and middle income countries: financial flows MeTA Manufacturers Procurement Agents National Medical Stores & MoH Private Importers Wholesalers and sub-wholesalers Pharmacies Drug Shops Private Clinics Other informal outlets Patient Prescribers & Dispensers International Financing Organizations MoH budget * Low and middle income countries: information flows MeTA * Data based on small sample analysis of anti-rabies vaccine in Lusaka, Zambia Data based on small sample analysis of antibiotic-vials in Zambia Margins at different supply chain stages in developing countries Retail margins are very high for most products. For imported and single-sourced drugs wholesale margins are also often high. MeTA * Characteristics of developing country pharmaceutical markets Lack of competition at one or more stages in the supply chain (especially retail) Hyper-competition at some stages in the supply chain e.g. wholesale Longer supply chains: More intermediaries, brokers, agents involved Payer/patient in the private market has little power Little contracting flexibility to utilize efficiencies in procurement, distribution and logistics Myths and Perceptions Private-sector = “ super-normal profit taker” Public-sector = “ lacking agility and responsiveness” MeTA * How can we facilitate retail competition ? Reducing barriers to entry for retail pharmacies E.g. accredited second-tier drug shops with lower fixed operating costs will force registered pharmacies to either reduce prices or offer premium quality of service in order to differentiate themselves Sharing fixed costs of operating a pharmacy Creating shared product delivery platforms Alternatively, to counter lack of retail competition Create equilibrium by shifting balance of power towards wholesaler and end-patient Broadcasting price information to consumer The “three” full-line wholesalers model MeTA * What drives channel markups? Based on various published studies, author’s interviews with wholesalers, retailers and pharmacists, C. Goodman thesis, MeTA * Price information and impact on equilibrium prices Public knowledge of price information reduces equilibrium prices http://rx.nyhealth.gov MeTA * Does the presence of more intermediaries in a supply chain necessarily hurt performance (prices, quality)? MeTA * MeTA * What makes this happen? An “orchestrator” of trust and information in the very fragmented apparel supply chain MeTA * An orchestrator of trust and transparency in the global health network ? MeTA * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

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