More Bang for the Buck

As an amateur economist, I’ve thought that one mechanism for increasing the availability and affordability of medicines in the low- and moderate income countries is that in which volume purchasers, like governments, pool their orders, put out a request for bids (make a tender offer), and have an agent negotiate a supply contract with interested manufacturers.  Two challenges to implementing such a scheme are convincing governments to give up some sovereignty (and opportunities for graft?) and setting up a workable operation, as I learned from my struggle reading a thorough report on the feasibility of a regional buying group for East African countries (EAC Pooled Procurement Report 2007).  Perhaps this is why there are few examples of this approach at the international level, and not much information on performance.  As I noted in a recent post (“Hunting the Elusive Snark” 2/23/12), two such programs are the WHO/Contracting and Procurement Service (WHO/CPS) for purchase of HIV meds and diagnostics for WHO-affiliated groups and the Pan American Health Organization’s Revolving Fund through which member states can pool their funds and purchase vaccines and related supplies at negotiated prices (Revolving Fund).

Recently, I learned about the largest program of this type and what I thought was an evaluation of its performance.  The program is the Voluntary Pooled Procurement program (VPP) of the Global Fund to Fight AIDS, Tuberculosis, and Malaria.  The VPP is part of the Fund’s GF Procurement Support Services (PSS) which was started in 2009 to support “cost effective and efficient procurement of core health commodities,” those being antiretroviral and antimalarial medicines, rapid diagnostic kits for HIV and malaria, and insecticide-treated nets.  The actual volume of business handled by the PSS is not noted on its site, but what is noted is that 40% of Fund’s $20 billion in commitments are to be spent on the procurement of pharmaceuticals and other health products.  I was puzzled that the VPP was “voluntary;” after all, if the Fund is giving participating countries money to purchase health products, it could also require them to buy through its purchasing program and therefore get the best price, but apparently European-based international aid organizations shy away from requirements for participating governments in general.  However, I guess someone noted the possibilities of all that buying power, and, early in 2011, the Fund’s responsible committee, the Market Dynamics and Commodities Ad-hoc Committee, engaged a consulting firm, Results for Development Institute (R4D), to review the VPP and recommend how “to leverage its large-scale purchasing power to improve global market dynamics for health products” (R4D), i.e., get more bang for its bucks or, to use the acronym of the Committee, more VFM (value for money).  However, other than statements about achieving VFM though “market shaping,” specific actions were hard to find among in the Committee’s report (MDC Report).  As near as I could tell, the most radical recommendation was to make VPP participation less voluntary and more required, but only for procuring selected products (the first will be pediatric anti-virals) and for only a limited time.  Other recommendations seemed pretty obvious ways to run a procurement program:  “1) guaranteeing volumes; 2) splitting tenders among suppliers; 3) awarding volumes based on factors other than price (e.g., breadth of registration in recipient countries and/or past track record on meeting supply commitments); and 4) directly negotiating prices and other terms on the basis of volumes and/or costs.”

Apparently though, the R4D team quantified some substantial savings that may be achieved.  In a Huffington blog post in August 2011, David de Ferranti, the R4D president, noted that “our recommended market strategy could result in savings of $520 million for the global community over five years” (Huffpost Blog).  Since I was interested in the R4D’s sources, the numbers behind the estimated saving, and authors (especially those from the pharma industry), I looked for their report, but could only find the executive summary which was not informative (R4D report exec summary).  Disconcerting but not surprising is that nowhere could I find if the Fund’s executives had accepted the Ad-hoc Committee’s report and its proposed start in October 2011.

That left me hunting about for another source of information about the effectiveness of procurement pooling for essential medicines.  I found a group that has an interest in improving procurement but also in many other issues affecting access to meds, the Medicines Transparency Alliance (MeTA).  MeTA is a new group started in 2009, is run by the UK’s Department for International Development, is funded by the Department and the World Bank but is attached to WHO, and is tackling many issues including supply chain inefficiencies, quality, promotion, corruption/transparency, and procurement practices.  MeTA has a somewhat radical view that the prices of essential medicines is not just a result of profit-seeking by the manufacturers and notes that they increase 2-3 times from manufacturer to user due to poor transport, illegal diversion from public to private sale, and poor procurement practices by governments (Key Issue Price).  MeTA has completed a pilot stage involving seven countries, and apparently is trying to refine its mission and funding.  I suggest they rewrite their business plan to focus on an issue where they can get some near-term progress and get the manufacturers involved who have a vested interest in better-functioning markets.  As is noted in MeTA’s 2012 evaluation report:  “There has been much contact with major international manufacturers who have expressed interest in the MeTA concept. However, none had been prepared to commit at the time of the evaluation (although discussions were ongoing). This may be because there is still not a clear message being articulated about what they are being asked to commit to” (MeTA Evaluation).  And I recommend they start with setting up a model essential medicines pooled procurement system.

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