West Africa Reproductive Health Commodity Security: Reproductive Health Commodity Pricing: Potential Benefits of Pooled Procurement

Publication date: 2005

1 West Africa Reproductive Health Commodity Security Study Phase 1 Task Report: 2 Reproductive Health Commodity Pricing: Potential Benefits of Pooled Procurement West Africa Reproductive Health Commodity Security Study Phase 1 Task Report: 2 Reproductive Health Commodity Pricing: Potential Benefits of Pooled Procurement Raja Rao DELIVER DELIVER, a six-year worldwide technical assistance support contract, is funded by the U.S. Agency for International Development (USAID). Implemented by John Snow, Inc. (JSI) (contract no. HRN-C-00-00-00010-00), and subcontractors (Manoff Group, Program for Appropriate Technology in Health [PATH], and Social Sectors Development Strategies, Inc.), DELIVER strengthens the supply chains of health and family planning programs in developing countries to ensure the availability of critical health products for customers. DELIVER also provides technical support to USAID’s central contraceptive procurement and management, and analysis of USAID’s central commodity management information system (NEWVERN). This document does not necessarily represent the views or opinions of USAID. It may be reproduced if credit is given to John Snow, Inc./DELIVER. Recommended Citation Rao, Raja. 2005. West Africa Reproductive Health Commodity Security. “Reproductive Health Commodity Pricing: Potential Benefits of Pooled Procurement.” Arlington, Va.: John Snow, Inc./DELIVER, for the United States Agency for International Development. John Snow, Inc. 1616 North Fort Myer Drive, 11th Floor Arlington, VA 22209 USA Phone: 703-528-7474 Fax: 703-528-7480 Email: deliver_project@jsi.com Internet: deliver.jsi.com Contents Summary . 1 Reproductive Health Tracer Commodities . 3 Comparing International Reference Prices and Pooled Procurement Prices. 5 Cost Comparison. 6 Impact of Nigeria. 9 Comparing Prices in Ghana and Burkina Faso. 11 Ghana: Comparison of International Reference Prices and Country Prices . 11 Ghana: Comparison of Pooled Procurement and Country Price. 11 Burkina Faso: Comparison of International Reference Prices and Country Prices . 13 Burkina Faso: Comparison of Pooled and Country Price . 13 Scope for Pooled Procurement . 15 Tables 1. Reproductive Health Tracer Commodities . 3 2. Comparison of International Reference Price and Pooled Volume Price . 5 3. Aggregate Costs of Reproductive Health Tracer Commodities 2002–2010: Comparison of International Reference Prices and Pooled Procurement Unit Prices . 6 4. ECOWAS Region Reproductive Health Tracer Commodity Demand 2002–2010 Inclusive and Exclusive of Nigeria. 9 5. Reproductive Health Commodity Price Variance. 12 6. Contraceptive Costs and Savings by Year: Ghana and Burkina Faso . 16 Figures 1. IRP vs. Pooled Price for Select RH Commodities 2002–2010 . 8 2. Contraceptive Costs 2003–2010: Price Comparison between Ghana and Pooled Procurement Prices. 15 3. Contraceptive Costs 2003–2010: Price Comparison between Burkina Faso and Pooled Procurement Prices . 16 iii iv Summary Governments in West Africa, their donors, and other health partners have been increasingly concerned about achieving reproductive health commodity security (RHCS) in the region. Contraceptive prevalence rates (CPR) in the sub-region are among the lowest in the world; the prevalence rates in most countries are below 10 percent. Recent Demographic and Health Surveys (DHS) and other data, however, indicate that the unmet need for reproductive health (RH) commodities is, in many cases, three times the current use rates for contraceptives. Part of the reason for low CPR and high unmet need in the region is the lack of access and information, and other impediments related to demand generation. Another cause is the absence of adequate financing for RH commodities. This report examines the potential savings for governments in the sub-region and for donors by pooling procurements of RH commodities. By using international reference prices (IRPs) as a baseline, a comparison can be made with unit prices that are achievable by pooling commodity requirements among Economic Community of West African States (ECOWAS) countries. A further comparison can then be made with prices that two countries in the sub-region (Ghana and Burkina Faso) are currently paying. Strictly in terms of cost savings, the feasibility of pooled procurement is uneven; it is made more complicated by the multiple and overlapping financing sources that currently exist for RH commodities. However, if the sub-region successfully implements a pooled procurement model, the cost savings that can result in lower unit prices, can be used to finance additional procurements, mitigating part, but not all, of the enormous RH commodity financing burden faced by countries in the sub-region. 1 2 Reproductive Health Tracer Commodities Study partners established a list of 22 reproductive health (RH) tracer commodities that represent a cross-section of commodities needed to provide RH services (see table 1). These commodities were sub-categorized into contraceptives, sexually transmitted infection (STI)/HIV/opportunistic infection (OI), antenatal, obstetrics/neonatal, and other. To determine the lowest IRP for each commodity, a number of sources were used to establish a benchmark for further price comparisons. Table 1. Reproductive Health Tracer Commodities Product Dosage/Strength Product Dosage/Strength Contraceptives Antenatal Male condom 52 mm Tetanus vaccine Inj/.5 ml Injectable Vial/150 mg/1 ml Iron Tab/65 mg IUD Copper device Folic Acid Tab/5 mg Implant Rod/36 mg Fansidar Tab/500 mg/25 mg Combined oral pill Tab/.03/.15 mg OB/NEONATAL STI/HIV/OI Oxytocin Amp/10IU Nevirapine Tab/200 mg Ergometrine Inj/.2 mg Nevirapine Syrup/50 mg/5 ml Ergometrine Tab/.2 mg Benzathine penicillin Vial/1.44 g/2.4 million IU Other Cotrimoxazole Tab/480 mg Gloves (examination) Piece Doxycycline Tab/100 mg Gloves (surgical) Pair Metronidazole Inj./500 mg/100 ml ORS Sachet/1000 ml Metronidazole Tab/250 mg 3 4 Comparing International Reference Prices and Pooled Procurement Prices After the IRPs were established, demand forecasts were developed for 2002–2010 for each ECOWAS country to determine the total RH tracer commodity demand for the sub-region. By aggregating the total demand for the sub-region, the potential pooled volume of RH tracer commodities was determined. As a next step in determining the potential price benefit from regional bulk purchases, the aggregated volume of RH commodities were presented to a number of procurement agents and suppliers; they provided a unit price that they could probably offer, based on the aggregated volume of RH tracer commodities. Based on the quoted unit prices for the pooled volume of RH tracer commodities for the sub- region, a 14 percent unweighted average savings is possible, compared to the lowest IRPs. While this is only an estimate provided by procurement agents, and the averages provided are unweighted, it indicates that bulk procurements can have an affect on unit prices. As table 2 indicates, the unit price reductions were most significant for contraceptives at 28 percent, while the savings in the Other category (examination and surgical gloves, and ORS) were minimal at 2 percent. The combined oral pill showed the greatest price reduction. Reference prices indicated .35/cycle. However, when the sub-region’s projected demand was aggregated, the total projected volume amounted to nearly 26 million cycles for 2004, resulting in a lower .22/unit—a 60 percent reduction over the IRP. Table 2. Comparison of International Reference Price and Pooled Volume Price Commodities Dosage IRP Pooled Price Variance (%) Contraceptives Condom Condom 0.026 0.020 -31 Injectable Inj. 0.893 0.850 -5 IUD IUD 0.404 0.310 -30 Implant Rod 26.565 23.000 -16 Pill Tablet 0.347 0.217 -60 Subtotal Average -28 STI/HIV/OI Nevirapine tabs Tablet 0.145 0.143 -2 Nevirapine syrup Syrup 2.232 Benzath. pen. 2.4 MIU Vial 0.236 0.203 -16 Co-trimoxazole 480 mg Tablet 0.009 0.008 -9 Doxycycline 100 mg Tablet 0.008 0.008 -8 Metronidazole Inj. 0.775 0.688 -13 Metronidazole tab 250 mg Tablet 0.004 0.004 -9 Subtotal Average -9 (continued) 5 Commodities Antenatal Tetanus vaccine.5ml Inj. 1.020 0.952 -7 Iron (tabs) 65mg Tablet 0.002 0.002 -10 Folic acid 5 mg Tablet 0.003 0.003 -9 Fansidar (tabs) 500/25 mg Tablet 0.020 0.019 -7 Subtotal Average -8 Obstetrics/Neonatal Oxytocin10/IU Ampoule 0.095 0.093 -2 Ergometrine injection Inj. 0.158 0.140 -13 Ergometrine (tabs) .2 mg Tablet 0.013 0.009 -44 Subtotal Average -20 Other Gloves (examination) Piece 0.025 0.025 -1 Gloves (surgical) Pair 0.160 0.153 -5 ORS 1000 ml Sachet 0.060 0.059 -1 Subtotal Average -2 Total Average -14 Cost Comparison The prices in table 2 assume that countries in the sub-region are able to obtain unit prices at or near the IRP for the RH tracer commodities. If this were the case, the aggregate savings for the RH tracer commodities would be substantial. Table 3 indicates the total estimated cost of the RH tracer commodities for 2002–2010. The first column indicates the cost for meeting the estimated demand for each commodity using IRFs. The second column uses the same set of demand projections but the cost is based on the potential bulk (pooled) procurement of the sub-regions demand for the same period. Table 3. Aggregate Costs of Reproductive Health Tracer Commodities 2002–2010: Comparison of International Reference Prices and Pooled Procurement Unit Prices RH Tracer Commodities IRP (U.S.$) Pooled (U.S.$) Contraceptives Condom (male) 27,203,458 20,759,660 Implant 18,424,634 15,952,064 Injectable 54,923,148 52,307,760 IUD 1,647,731 1,263,566 Pill 92,337,762 63,084,752 STI/HIV/OI Nevirapine (tabs) 387,011 381,291 Nevirapine syrup 1,896,242 1,971,004 (continued) 6 RH Tracer Commodities IRP (U.S.$) Pooled (U.S.$) Benzathine penicillin 919,079 789,259 Cotrimoxazole 759,321 699,647 Doxycycline 1,924,024 1,778,419 Metronidazole (tabs) 384,224 351,199 Antenatal Tetanus vaccine 11,840,340 11,840,220 Iron (tabs) 20,103,160 18,332,163 Folic Acid (tabs) 116,075,094 106,326,545 Fansidar (tabs) 8,077,982 7,577,294 Obstetrical/Neonatal Oxytocin 4,250,144 4,249,077 Ergometrine (tabs) 457,078 439,912 Other Gloves (examination) 1,964,632 1,947,595 Gloves (surgical) 5,233,857 5,000,862 ORS 27,035,955 27,055,912 Total 395,844,876 342,108,200 Table 3 also indicates that the 14 percent unit price variation can result in a potential $53 million savings for the sub-region between 2002–2010. For the RH commodities, where a significant demand is expected, the savings are more significant. The price variation on condoms, for example, (.026 versus .02) can likely result in a $7 million savings. For the combined oral pill, the savings are closer to $30 million for the same period. However, where there is a slight demand relative to the other commodities (e.g., nevirapine for prevention of mother-to-child transmission [PMTCT], tetanus vaccine) the savings are negligible. Figure 1 shows the total aggregate price (2002–2010) for select RH tracer commodities. In addition to condoms and pills, potential cost savings exists for Fansidar and iron tablets, if the sub-region is able to obtain the pooled procurement price through sole source purchasing. 7 Figure 1. IRP vs. Pooled Price for Select RH Commodities 2002–2010 Pill Iron Fansidar Condom IRP Pooled $- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 8 Impact of Nigeria The RH commodity demand projections for all ECOWAS countries also revealed the impact that Nigeria would have in any potential pooled procurement mechanism. As the most populous country in West Africa, Nigeria’s projected demand for the basket of RH commodities is 52 percent of total demand. Without Nigeria’s participation in a pooled procurement system, demand for folic acid, for example, is reduced from 36 billion to 20 billion units in the sub-region (as an aggregate) for 2002–2010. The demand for condoms decreases from 1 billion to 500 million (see table 4). Table 4. ECOWAS Region Reproductive Health Tracer Commodity Demand 2002–2010 Inclusive and Exclusive of Nigeria RH Tracer Commodities With Nigeria W/O Nigeria Contraceptives Condom (male) 1,037,982,987 528,641,343 Implant 693,568 213,733 Injectable 61,538,541 31,232,715 IUD 4,076,020 877,132 Pill 290,713,142 163,377,726 STI/HIV/OI Nevirapine (tabs) 2,666,372 1,173,644 Nevirapine syrup 849,571 351,995 Benzathine penicillin 3,897,576 1,851,152 Co-trimoxazole 88,562,903 50,596,336 Doxycycline 228,002,497 131,583,574 Metronidazole (tabs) 92,420,689 51,468,585 Antenatal Tetanus vaccine 12,443,741 6,483,558 Iron (tabs) 12,221,441,955 6,681,485,126 Folic acid (tabs) 36,664,325,865 20,044,455,377 Fansidar (tabs) 407,381,398 222,716,171 Obstetrical/Neonatal Oxytocin 45,836,857 22,733,967 Ergometrine (tabs) 48,879,059 15,711,390 Other Gloves (examination) 77,903,805 42,441,032 Gloves (surgical) 32,685,369 14,353,349 ORS 455,486,733 184,857,641 9 10 Comparing Prices in Ghana and Burkina Faso As part of the RH commodity pricing analysis, two RHCS country assessments were conducted in Ghana and Burkina Faso in April and May 2004. Assessment teams identified actual prices paid by the Ministries of Health and donors for many of the commodities on the tracer list. The objective of collecting the country price data was to confirm the accuracy of the reference prices and, therefore, determine the feasibility, on the basis of cost, of a pooled procurement system. Prices paid at the country level were then compared to both IRPs and the pooled volume prices quoted by major suppliers. Ghana: Comparison of International Reference Prices and Country Prices An assessment team collected unit price information for 18 of 22 RH commodities on the tracer list from the Ghana Ministry of Health (MOH) procurement unit and country donors. Procurement records for Nevirapine syrup, benzathine penicillin, doxycycline, and ergometrine tablets were not found. For the records that were found, the most recent procurements were used to obtain unit price information. Several records from 2003 were used, as well as some from the first quarter of 2004. Based on the information available, Ghana is able to obtain a 57 percent total unweighted average lower price compared to the lowest international reference price. As table 5 indicates, the procurement unit obtained a 330 percent and 407 percent lower price for metronidazole tablets and folic acid tablets, respectively. As categories, the unit prices Ghana is able to achieve over IRPs exceeds 100 percent for STI/HIV/OI and antenatal RH commodities. It is likely that at least part of the reason the Ghana MOH can obtain such significant price reductions is that it procures many of its RH commodities (and essential medicines) from local manufacturers. Procurement records indicate that folic acid was purchased through a local manufacturer, M&G Pharmaceuticals. Similarly, ergometrine injections were purchased through another local supplier, Mission Pharmaceuticals, which resulted in a 35 percent lower price. Ghana: Comparison of Pooled Procurement and Country Price A second comparison was made using the pooled volume price quoted by suppliers and the actual prices obtained in Ghana. Surprisingly, while the pooled volume price, as expected, was lower than the IRPs, the total unweighted average for the list of RH tracer commodities was still 43 percent lower than the volume price quoted by suppliers. The price difference for folic acid and metronidazole remained significant; a comparison between each category of RH commodities (except contraceptives) indicated a lower country price between 31 and 84 percent. This very simple price comparison indicates that it would be difficult to justify the participation of Ghana (based on price alone) in a sole source pooled procurement system for four out of the five RH commodity categories. 11 Table 5. Reproductive Health Commodity Price Variance Commodities RH Commodity Prices IRP Variance Pooled Variance Dosage IRP Pooled Price Ghana Burkina Faso Pooled Price (%) Ghana (%) Burkina Faso (%) Ghana (%) Burkina Faso Contraceptives Condom Condom 0.026 0.020 0.041 0.030 -31 36 13 51 33 Injectable Inj. 0.893 0.850 0.803 0.790 -5 -11 -13 -6 -8 IUD IUD 0.404 0.310 1.800 1.000 -30 78 60 83 69 Implant Rod 26.565 23.000 26.18 0 23.883 -16 -1 -11 12 4 Pill Tablet 0.347 0.217 0.270 0.204 -60 -28 -70 20 -6 Subtotal Average -28 15 -4 32 18 STI/HIV/OI Nevirapine tabs Tablet 0.145 0.143 0.193 -2 25 26 Nevirapine syrup Syrup 2.232 2.232 0 Benzath. pen. 2.4 MIU Vial 0.236 0.203 0.139 -16 -69 -45 Cotrimoxazole 480 mg Tablet 0.009 0.008 0.007 0.007 -9 -25 -24 -15 -14 Doxycycline 100 mg Tablet 0.008 0.008 0.010 -8 14 20 Metronidazole Inj. 0.775 0.688 0.180 0.440 -13 -330 -76 -282 -56 Metronidazole tab 250 mg Tablet 0.004 0.004 0.002 0.004 -9 -79 6 -64 14 Subtotal Average -8 -103 -30 -84 -16 Antenatal Tetanus vaccine .5 ml Inj. 1.020 0.952 0.600 -7 -70 -59 Iron (tabs) 65 mg Tablet 0.002 0.002 0.002 0.002 -10 14 3 22 12 Folic acid 5 mg Tablet 0.003 0.003 0.001 0.002 -9 -407 -86 -364 -71 Fansidar (tabs) 500/25 mg Tablet 0.020 0.019 0.048 0.026 -7 59 24 61 28 Subtotal Average -8 -101 -20 -85 -10 Obstetrics/Neonatal Oxytocin10/IU Ampoule 0.095 0.093 0.065 0.130 -2 -46 27 -43 29 Ergometrine injection Inj. 0.158 0.140 0.117 0.161 -13 -35 2 -20 13 Ergometrine (tabs) .2 mg Tablet 0.013 0.009 -44 (continued) 12 Commodities RH Commodity Prices IRP Variance Pooled Variance Dosage IRP Pooled Price Ghana Burkina Faso Pooled Price (%) Ghana (%) Burkina Faso (%) Ghana (%) Burkina Faso Subtotal Average -20 -41 14 -31 21 Other Gloves (examination) Piece 0.025 0.025 0.020 0.025 -1 -27 -3 -26 -2 Gloves (surgical) Pair 0.160 0.153 0.110 0.145 -5 -46 -11 -39 -6 ORS 1000 ml Sachet 0.060 0.059 0.027 0.100 -1 -126 40 -123 41 Subtotal Average -2 -66 9 -63 11 Total Average -14 -57 -10 -43 3 Burkina Faso: Comparison of International Reference Prices and Country Prices Of the 22 RH tracer commodities, unit prices for 18 were obtained from CAMEG, the central stores unit charged with procurement for the public sector. The total unweighted price variance between the lowest IRPs and those obtained by the Burkina Faso MOH procurement unit, CAMEG, was 10 percent, based on the most recently available procurement records (see table 5). In each category, the prices obtained were significantly higher than those obtained in Ghana, except for contraceptives. However, as in Ghana, Burkina was able to achieve the greatest procurement price reductions for metronidazole and folic acid (76 percent and 86 percent). Burkina Faso is also purchasing STI/HIV/OI and antenatal commodities at 30 percent and 20 percent lower than the lowest IRPs. In contrast, CAMEG is paying between 14 and 40 percent more for number commodities, including doxycycline, Fansidar, oxytocin, and oral rehydration solution (ORS). Burkina Faso: Comparison of Pooled and Country Price Comparing the unit prices paid by CAMEG with the pooled procurement prices quoted by suppliers indicates little variation as a total unweighted average. In fact, Burkina Faso is paying 3 percent more compared to the illustrative pooled price (see table 5). Examination gloves and implants, for example, indicate minimal price variance (.145/.16 and 23.00/23.88). However, CAMEG is procuring at higher prices for oxytocin (29 percent), Fansidar (28 percent), doxycycline (20 percent), and ORS (41 percent) when compared with the pooled prices. By category of RH commodities, Burkina Faso is paying more for OB/neonatal, other (gloves and ORS), and contraceptives. This preliminary price comparison indicates that there is scope for price reductions for a number of RH commodities. 13 14 Scope for Pooled Procurement The most recent unit price information obtained through the Ghana and Burkina Faso RHCS country assessments indicates that the scope for a future pooled procurement mechanism in the sub-region should probably focus first on contraceptives. Donors and lenders in Ghana are paying a total average of 15 percent more for contraceptives (condoms, injectables, IUDs, implants, and pills) compared to the lowest IRP (see table 5). In Burkina Faso, the price variance at 4 percent, compared to IRPs, is less significant. However, when the country prices are compared to the pooled procurement price (based on the aggregate demand of the sub-region), the price variations become more significant, indicating the potential for large savings through volume purchases. As table 5 indicates, Ghana is paying 32 percent and Burkina Faso 18 percent above pooled prices for contraceptives. The only contraceptive that each country is paying less for are injectables (pooled: .85; Ghana: .803; Burkina Faso: .79). If Ghana and Burkina Faso were able to obtain the pooled procurement price for contraceptives, the resulting savings over the next several years would probably be several million dollars. As figure 2 indicates, based on the contraceptive unit prices differences between prices obtained in Ghana and quoted pooled procurement prices, savings in 2003 is more than $500,000, rising to nearly $900,000 in 2010. The aggregate savings (2003–2010) is more than $5.0 million dollars. Figure 2. Contraceptive Costs 2003–2010: Price Comparison between Ghana and Pooled Procurement Prices $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 Pooled Ghana 2003 2004 2005 2006 2007 2008 2009 2010 Compared with Ghana, potential savings on contraceptives for the same period are less significant in Burkina Faso due to the lower price variance and relatively smaller size of the population. However, there is scope for savings (see figure 3). 15 Figure 3. Contraceptive Costs 2003–2010: Price Comparison between Burkina Faso and Pooled Procurement Prices $400,000 $450,000 $500,000 $550,000 $600,000 $650,000 $700,000 $750,000 $800,000 $850,000 $900,000 Pooled Burkina Faso 2003 2004 2005 2006 2007 2008 2009 2010 In 2003, the savings amount to under $30,000, rising to over $50,000 in 2010. If Burkina Faso were to obtain the pooled procurement prices for contraceptives, the aggregate savings between 2003–2010 would be over $300,000 (see table 6). Table 6. Contraceptive Costs and Savings by Year: Ghana and Burkina Faso Potential Pooled Procurement and Current Country Prices 2003 (U.S.$) 2004 (U.S.$) 2005 (U.S.$) 2006 (U.S.$) 2007 (U.S.$) 2008 (U.S.$) 2009 (U.S.$) 2010 TOTAL Pooled 1,593,079 1,752,485 1,909,456 2,082,187 2,252,057 2,437,091 2,606,621 2,794,257 $17,427,233 Ghana 2,106,250 2,316,565 2,524,146 2,752,036 2,976,660 3,220,493 3,444,663 3,692,618 $23,033,431 Pooled 404,995 451,470 495,447 542,001 591,419 655,616 723,818 795,981 4,660,746 Burkina Faso 432,968 482,467 529,420 579,127 632,174 700,725 773,543 850,662 4,981,087 Ghana Savings 513,171 564,080 614,690 669,849 724,603 783,401 838,042 898,362 5,606,199 B.F. Savings 27,973 30,996 33,973 37,126 40,755 45,109 49,725 54,682 320,340 % Savings Ghana 24% % Savings Burkina Faso 6% 16 17

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