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Pharmaceutical Policy and Health Systems Lunch Time Lecture April 8, 2009 Andreas Seiter, HDNHE

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Page 1: Pharmaceutical Policy and Health Systems - World Bank Internet

Pharmaceutical Policy and Health Systems

Lunch Time LectureApril 8, 2009

Andreas Seiter, HDNHE

Page 2: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 3: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 4: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 5: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 6: Pharmaceutical Policy and Health Systems - World Bank Internet

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?

Page 7: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 8: Pharmaceutical Policy and Health Systems - World Bank Internet

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?

Page 9: Pharmaceutical Policy and Health Systems - World Bank Internet

Economic Importance. . . of the Pharmaceutical Sector

Presenter
Presentation Notes
Summarize failures in health market as a review – barriers to entry (education, licensing, etc.), quasi-monopolistic behavior, lack of price signals, information asymmetry between supply and demand, degree to which supply side induces/influences demand. Other unique aspects of health: public, merit and private goods.
Page 10: Pharmaceutical Policy and Health Systems - World Bank Internet

Supplier Induced Demand

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

Page 11: Pharmaceutical Policy and Health Systems - World Bank Internet
Page 12: Pharmaceutical Policy and Health Systems - World Bank Internet

Marketing Pull

“Bonus” Push recommending specific brands

Push for high margin products

Non-rational demands

Incentives and Distortion

Page 13: Pharmaceutical Policy and Health Systems - World Bank Internet

Kickbacks & Inducements

Discounts, bonuses

Counterfeit & Substandard

Products

Diversion

Fraud and Corruption

Discounts,bonuses

Page 14: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 15: Pharmaceutical Policy and Health Systems - World Bank Internet

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?)

Page 16: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 17: Pharmaceutical Policy and Health Systems - World Bank Internet

Navigating Between Two Rocks

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

Losing political support by rationing and restricting access

Page 18: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Presenter
Presentation Notes
One of the key areas of achieving huge gains is to invest in the supply chains in order to make them efficient and effective. A WHO study found that XX amount of drugs actually made it to the consumer. The rest was lost due to pilferage, expiry, and mismanagement. This requires bringing logistics from the “backroom to the boardroom” i.e. supply chain management needs to be strategically managed rather than an afterthought. Second, there is need to invest in logistics infrastructure and especially in information systems. The systems needs to be streamlined, reducing the number of intermediary points. In most developing countries, the public sector supply chains are designed round administrative and political boundaries, instead by the best network analysis. Implement a performance metrics. As they say, behavior changes according to how one is being measured and finally the supply chain design should focus on total delivered cost and not on the unit cost. For example, the procurement unit by buying bulk and having one shipment per year, achieve the lowest unit price, however, the overall costs to the system may increase, such as warehousing, inventory management costs such as potential expiry, pilferage, and quality of the products. This concept is a huge challenge when it comes to WB procurements – which is focused on lowest unit price and economies of scale. However, if data was shown on impact of total delivered cost, any procurement officer would have to listen to.
Page 19: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 20: Pharmaceutical Policy and Health Systems - World Bank Internet

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 [email protected] 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

Presenter
Presentation Notes
Who benefits from the multiple parallel procurement and supply systems?
Page 21: Pharmaceutical Policy and Health Systems - World Bank Internet

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)

Page 22: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 23: Pharmaceutical Policy and Health Systems - World Bank Internet

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?

Page 24: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 25: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 26: Pharmaceutical Policy and Health Systems - World Bank Internet

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 …

Page 27: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 28: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 29: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 30: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 31: Pharmaceutical Policy and Health Systems - World Bank Internet

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.

Page 32: Pharmaceutical Policy and Health Systems - World Bank Internet

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!

Page 33: Pharmaceutical Policy and Health Systems - World Bank Internet

Incentive Structure in the MarketManufacturer

Wholesaler Pharmacist

VolumeProfit marginRebateBonus/giftClient satisfactionQuality perception Patient expectations

Industry inducementsQuality perceptionProfit, bonusFines/sanctionsAdditional work

Co-paymentQuality perception

Page 34: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 35: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 36: Pharmaceutical Policy and Health Systems - World Bank Internet

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.

Presenter
Presentation Notes
IT systems allow not only for control of medicine use by collecting data from patients, pharmacists and physicians on prescription, dispensing and use of medicines. They also provide direct assistance for prescribers and pharmacists through an online real-time feedback loop: the system shows a warning or rejects the transaction in the following cases (examples): The prescription is outside the formulary The patients comes for a refill after a week although the previous prescription was for a month A prescription for a pediatric medicine is issued for an adult or vice versa The patient has other prescriptions that might have unwanted interactions with the prescribed drug
Page 37: Pharmaceutical Policy and Health Systems - World Bank Internet

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)

Page 38: Pharmaceutical Policy and Health Systems - World Bank Internet

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

Page 39: Pharmaceutical Policy and Health Systems - World Bank Internet

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