Pharmaceutical Policy and Health Systems

Lunch Time LectureApril 8, 2009

Andreas Seiter, HDNHE

Second biggest item in public expenditure for healthBiggest item in private expenditureKey for health outcomes

• Infectious diseases (malaria, TB, HIV)• Non-communicable diseases

Important for confidence in health system

Drugs Are a Key Input For Health Systems

Specific Sector Issues

Characterized by market failure, governance challenges Strong commercial influence on sector politics Nature of the commodities require adequate regulation

and enforcement Expenditures tend to grow faster than GNI and overall

health expenditures

Good medicines available and accessible in a system that uses resources efficiently

Regulation EnforcementSelection

Financing Manufacturing Procurement Distribution

Financing, PricingPayment SystemEducation

Manufacturing ProcurementDistributionPayment SystemIncentivesRational UseEducation

Policy Framework

Key Objectives for Drug Policy

For the poor (LIC): Access to affordable, effective and safe medicines

(limited to Essential Medicines concept)

For middle class (MIC): Protection against catastrophic cost of illnessCost containmentRational use of medicines

Determinants

DeterminantsDeterminants

DeterminantsDeterminants

Dete

rmin

ants

Dete

rmin

ants

Determinants

Acces

sibilit

y

Afford

abilit

yAcceptability

Interventions

Availability

Drug Supply-Type

-Quantity

Drug Demand-Type

-Quantity

UserLocation

Drug SupplyLocation

User'sAttitudes/

Expectationsof Products

and Services

Characteristicsof Products and

Services

User's IncomeAbility to Pay

Prices of DrugProducts and

Services

Quality ofProducts

& Services

Accessibility Availability

Acceptability( Source: MSH )

Affordability

What Do We Mean by. . . Access to Medicines?

Source: IMS Global Health (http://www.ims-global.com)

$0

$100

$200

$300

$400

$500

$600

2000 2001 2002 2003 2004

Expe

nditu

res

(in $

bill

ions

) Asia (exc. Japan),Africa, AustraliaLatin America

Japan

Rest of Europe

European Union

North America

Asia (exc. Japan), Africa, Australia, Latin America: 71.4% of world’s population 11.5% of medicines sales

Global Pharmaceuticals. . . The Market: 2000-2004

0

20

40

60

80

100

120

Bill

ion

USD

Bulgaria Novartis Pfizer Hungary

GNI/Sales

Source: World Bank country database, Annual Reports

Global Pharmaceuticals. . . Who Are We Dealing With?

Economic Importance. . . of the Pharmaceutical Sector

Supplier Induced Demand

“Information Asymmetry” in combination with financial incentives for providers lead to overprescribing and preference for newer, more expensive drugs

Marketing Pull

“Bonus” Push recommending specific brands

Push for high margin products

Non-rational demands

Incentives and Distortion

Kickbacks & Inducements

Discounts, bonuses

Counterfeit & Substandard

Products

Diversion

Fraud and Corruption

Discounts,bonuses

Conflicting economic and public health objectives Information asymmetry between industry, prescribers/pharmacists and

consumers Commercial incentives along the supply chain influence behavior Barriers to market entry (regulation, cartels, investment, patents, etc.) Opportunities for fraud and corruption, including wide circulation of counterfeit

drugs

Market Failure - Summary

Key Areas for Regulation

Market access (licensing) for products, manufacturers and distributors

Standards for manufacturing (GMP), distribution (GDP), testing (GLP)

Drug prices Distribution restrictions such as prescription only drugs versus OTC Pharmacovigilance – monitoring of quality breaches and side effects Clinical trials Advertising and promotion Treatment guidelines and formularies (drug lists) Reimbursement systems (which drugs used for which condition,

reimbursed at what price?)

Framework for Decision Making

Overall fiscal framework and economic growth Health financing model Governance and ethical framework – level of corruption Characteristics of existing health system and provider

payment system Regional standards, supra-national agreements (for

example ASEAN, EU) Health economics assessment capacity “Political economy” – what is doable, how can difficult

reforms be orchestrated

Navigating Between Two Rocks

Fiscal ruin by giving in to the pressure from providers and patients

Losing political support by rationing and restricting access

Logistics to the Boardroom Strategic Management: Reduce Intermediate points

Investments in Logistics and Information Systems (inventory management systems, bar codes, RFID technology, surveillance)

Focus on reducing total “landed” costs, not unit cost delivered to central warehouse

Establish Performance Measures: Monitor continually

Improving the Supply Chain

Before After

KEMSA - Kits $11.4 6%

KEMSA - Other Essential Drugs $11.4 6%

MOH - Other Products $17.1 9%

UNICEF $1.7 1%

DANIDA $3.6 2%

SIDA $0.44 0%

KfW $3.0 2%

UNFPA $3.4 2%

DFID - FP $1.10 1%

DFID - Malaria $25.5 14%

GF - Coartem $8.00 4%GF - Nets & Kits $20.1 11%

GF -TB $1.20 1%

GF HIV/AIDS $23.5 13%

DFID - Kits $0.70 0%

MSF $5.8 3%

PEPFAR $44.6 24%

KEMSA & MOHKits & Other Essential

Drugs, etc. $40.0 M

Contraceptives & Other Essential Drugs $13.4 M

MalariaCoartem, Nets,

etc. $54.7 M

HIV, TB & Other Opportunistic

Infections, etc. $77.1 M(includes lab & tests)

Total Value in US Dollars for Fiscal Year 2005/6: $185.2 Million

Donor Support in Kenya

Contra-ceptives and

RHequipment

STIDrugs

EssentialDrugs

Vaccinesand

Vitamin ATB/Leprosy

BloodSafety

Reagents(inc. HIV

tests)

DFID

KfW

UNICEF

JICA

GOK, WB/IDA

Source offunds for

commodities

CommodityType

(colour coded) MOHEquip-ment

Point of firstwarehousing KEMSA Central Warehouse

KEMSARegionalDepots

Organizationresponsible

for delivery todistrict levels

KEMSA and KEMSA Regional Depots (essential drugs, malaria drugs,

consumable supplies)

ProcurementAgent/Body Crown

AgentsGovernment

of Kenya

GOK

GTZ(procurement

implementationunit)

JSI/DELIVER/KEMSA LogisticsManagement Unit (contraceptives,

condoms, STI kits, HIV test kits, TBdrugs, RH equipment etc)

EU

KfW

UNICEF

KEPI ColdStore

KEPI(vaccines

andvitamin A)

Malaria

USAID

USAID

UNFPA

EUROPA

Condomsfor STI/

HIV/AIDSprevention

CIDA

UNFPA

USGov

CDC

NPHLS store

MEDS(to Missionfacilities)

PrivateDrug

Source

GDF

Government

NGO/Private

Bilateral Donor

Multilateral Donor

World Bank Loan

Organization Key

JapanesePrivate

Company

WHO

GAVI

SIDA

NLTP(TB/

Leprosydrugs

Commodity Logistics System in Kenya (as of July 2006) Constructed and produced by Steve Kinzett, JSI/Kenya - please communicateany inaccuracies to skinzett@cb.jsikenya.com or telephone 2727210

Anti-RetroVirals

(ARVs)

Labor-atorysupp-lies

GlobalFund forAIDS, TB

and Malaria

PSCMC(CrownAgents,GTZ, JSI

and KEMSA)

BTC

MEDS

DANIDA

Mainly District level staff: DPHO, DPHN, DTLP, DASCO, DPHO, etc or staff from the Health Centres,Dispensaries come up and collect from the District level

MEDS

Provincial andDistrictHospital

LaboratoryStaff

Organizationresponsible fordelivery to sub-district levels

KNCV

MSF

MSF

JSI/DELIVER

KEMSA

JSI

WHO

Example Kenya: Supply Chain Fragmentation

Alternative Supply Chain Options

Full or partial outsourcing to private logistics companies Integrated models (from procurement to retail) based

on a franchise or pharmacy chain concept (example: Community Outreach Pharmacies in Liberia)

Drug Selection – LIC Perspective

Purpose: set priorities for public spending Essential Drug List as a basis Treatment guidelines and drug list need to be

aligned Regulatory and procurement/logistics functions

need to collaborate well Lacking but important: partnership with private

sector to improve access and suppress illicit drug market

Drug Selection – MIC Perspective

Partial financing of drug benefit through health insurance

Drug benefit package key for financial sustainability Contracting with private service providers more

common More choices = more pressures Generics should have preference assuming quality

is in line with regulation Innovative branded drugs need to be assessed to

decide on inclusion But how does this assessment work in practice?

A Standard MIC Drug Selection Process

MOH or insurance fund appoint expert commission (membership? accountability for economic consequences of its decisions?)

Industry submits application (and runs a lobbying campaign)

Commission members review and debate Decision on inclusion, criteria for prescription,

reimbursement level Criteria and process lack predictability and transparency

How Can Decision Making Be Improved?

Full transparency, publication of detailed minutes on the web

Clear criteria for inclusion, published Capacity building for pharmaco-economic assessment Algorithms and scoring systems for assessment of

primary and/or secondary data Review of new inclusions after 1-3 years? Pooling/sharing of knowledge between countries to

overcome capacity problems

Criteria for Inclusion of New Drugs

Decisions in countries with highly developed pharmaco-economic assessment capacity (UK, Australia, Canada etc.) Disease burden, public

health impact Now good treatment

alternatives Individual suffering

Impact on budget Cost acceptable

compared to current treatment Ability to deliver new

treatment according to guidelines Ability to limit “out-of-

label” use …

A Simple Score to Assess Drugs

Parameter Yes = 2 partially = 1 no = 0Positive NICE opinion

Positive opinion in Australia

Positive opinion in ….

Directly life threatening or debilitating disease

No satisfactory treatment available yet

New product has disease-modifying action

New product has strong action on symptoms

Current treatment costs high

High indirect costs of disease

High priority disease for public health

Not more expensive than current treatment

Infrastructure/knowledge for safe and effective use of product exist in country

Out-of-label use can be contained

Needs to be refined, tested and developed as a full scale instrument with detailed instructions for use

Selection Algorithm

Submission of application by manufacturer

Assessment and scoring by expert team

High score on priority list

Low score on priority list

Rejection, potential re-submission once more positive data are available

Low cost impact

High cost impact

Acceptance

Negotiations with manufacturer on volume controls or other risk sharing measures

Acceptance if solution found that fits into budget, otherwise rejection with possibility for re-submission

Pricing Regulation

For what purpose – saving public funds or protecting consumers?

Problem: information asymmetry; formation of provider cartels

Cross-border comparisons and referencing discourage price discounts for poor countries, charitable organizations

Potential unwanted effects of regulated generic prices: volume competition with hidden discounts in generic markets

Using Market Mechanisms and Public Purchasing Power

Open tenders for multi-source products (prequalification recommended to ensure equal quality standards)

Pooling, framework contracts (for example for hospital procurement, health insurance funds)

Negotiations with manufacturers to get better prices or share volume risk

Creating market conditions that support price competition for generics

Using Reimbursement Policy to Create Competition Among Generics

0

2

4

6

8

10

12

14

16

Brand 1 Brand 2 Brand 3 Brand 4 Brand 5 Brand 6

Patient co-paymentReimbursement

In this example, the reimbursement authority invites bids from makers of a given generic. Bidders have to state the maximum volume they can supply. Winners 1 and 2 together can supply the whole market and get higher reimbursement than all others (90%). Brands 3-6 only get 70% of the price of Brand 2 as reimbursement, creating a significant commercial barrier for these brands. Their manufacturers can come back with a better offer in the next round.

Influencing Provider Behavior

Policy tool kit for Rational Use of Drugs: treatment guidelines; formularies (example positive list, essential drug list) Effective management requires monitoring tool and

adequate incentives or sanctions “Natural” incentives are working against Rational Use –

providers make money on medicines!

Incentive Structure in the MarketManufacturer

Wholesaler Pharmacist

VolumeProfit marginRebateBonus/giftClient satisfactionQuality perception Patient expectations

Industry inducementsQuality perceptionProfit, bonusFines/sanctionsAdditional work

Co-paymentQuality perception

Rational Use of Medicines

Based on scientific evidence Following agreed guidelines (Standard Treatment

Guidelines) Taking into account cost-benefit aspects Adjusted to the specific situation and the economic

circumstances of the patient Transparent and open to peer (and payer) review

Effectively Influencing Providers

Drugs mainly purchased out-of-pocket: only limited possibilities through targeted interventions to educate providers and consumers

Third party payer: monitoring in combination with feedback, “academic detailing” and financial incentives can change behavior

Systems to Monitor Medicine Use

Information on doctor, pharmacy, drug and patient is coded on the Rx form and centrally collected

Online feedback in real time can inform doctors and pharmacists about deviations from formulary, drug interactions, pre-clearance requirements etc.

Synergy Between “Control Knobs”

Regulation alone is too static to bring order into a very dynamic environment created by private sector providers

Other “control knobs” need to be applied in a coordinated way, with dynamic monitoring and regular adjustments

Important: knowing where you want to end up! (clear definition of policy goals)

Example - Generic Drug Policy

Formulary based on generic drugs

Pharmacists can substitute, margins for pharmacists in favor of generics

Doctors informed about available quality generics

Patients trust generics

Strict regulatory control of generics

Regulatory/financing

Behavior Payment mechanism

Prices and retail margins favor generic competition

Reimbursement favors low cost generic option

Pharmaceutical Policy “Packages”

Essential drugs policy – LIC Generic drug policy – MIC Policy favoring innovative drugs – HIC Policy favoring national manufacturers Combination of the above with market segmentation