Health Systems Strengthening from a Developing Country Perspective. 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj

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1 Health Systems Strengthening from a Developing Country Perspective 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj

2 Why Pharmaceuticals Matter in Health Systems Revolutionized the practice of medicine! 10-40% of public & 20-50% of total health exp. (12% in OECD) Substantial OOP payments, with poor spending >twice the household income on drugs compared to richest 10% Governments have to be efficient, but must also ensure that pharmaceutical resources are distributed equitably Governments must decide how to allocate resources between expanding access to new, more expensive drugs versus improving access to existing drugs In countries with significant local production (e.g. India, Bangladesh), the industry is a major employer/export earner Governments with a local pharmaceutical industry face the dilemma of make or buy? 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 2

3 Pharmaceuticals are Health Sector Inputs But Trade Industry Pharmaceuticals Health 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 3

4 This Unique Location of Pharmaceuticals Matters Inter-sectoral Interactions: Health policy can conflict with Trade/Industrial policy imperatives (e.g. IPR versus Access or Local Production versus Affordability) Intra-sectoral Interactions: Pharmaceuticals are both products and services. Within health systems, pharmaceuticals can complement (e.g. antibiotics) or substitute (e.g. ambulatory TB treatment vs. sanatoria) for other health inputs, such as physician services or capital equipment in health facilities 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 4

5 Govt.. Goal: Ensuring Efficient/Equitable Access to & Rational Use of Quality Medicines Availability (Physical) Affordability (Financial) Accessibility (Geographical) Acceptability (Social/Cultural) Access Quality Manufacturing Quality Product Quality Storage Quality Distribution Quality Quality of Service Delivery Rational Use Rational Selection Rational Prescribing Rational Dispensing Rational Use 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj

6 Rationale for Government Intervention Pharmaceutical Value Chain Absence of Market Non-Competitive Market R&D Public Goods Property Rights Production/ Importation Registration Public Goods Monopoly, Informational Asymmetries Adverse Selection, No Therap. Gain Competitive Market Quality Assurance, Self-Sufficiency Quality Assurance, Adverse Selection Selection Monopoly Low Benefit-Cost Procurement/ Financing Storage/ Distribution Service Delivery/Promotion/ Use Externalities (Vaccines, Comm. Diseases) Monopoly, Cartels Cost-Benefit, Equity Public Goods Equity Quality Assurance Externalities Agency Relationships, Brand Loyalty Public Goods (info, norms, standards), Quality Assurance 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 6

7 Instruments for Government Intervention Stewardship & Regulation Policy: Developing, Implementing, Monitoring NDPs Informational /Educational Role Normative Aspects: Professional Standards, Codes of Conduct, Registration and Licensing Scientific Assessments (Registration/Licensing): Efficacy, Safety, QA/QC Regulation of Access and Rational Use: Drug Selection, Prices, Patents, Drug Promotion & RUD Financing Tax Based - Subsidies, Subventions, Incentives Insurance Social Health Insurance, Community Insurance Service Delivery R&D/Production Procurement and Supply Management Prescribing/Dispensing 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 7

8 Impact of Selected Interventions on Outcomes Intervention Access Quality RUD Price Controls Cost Plus (India) Reference Pricing (Germany/Croatia) Profit control (UK) Control of Margins & Markups (Kenya, Indonesia) Price Information (Philippines, Colombia, Argentina) Pooled Procurement (South Africa, Eastern Caribbean) Generic Substitution (Argentina, Sri Lanka Philippines, Bangladesh) Dispensing Clinicians (Netherlands, India, South Africa) Positive Nil or Negative Nil Positive Nil or Negative Nil Positive Nil Positive Positive Positive Positive Positive Nil Positive Positive Positive Positive or Negative 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 8

9 Empirical Evidence on Government Financing Public financing usually smaller than private spending but play an important role in ensuring access to medicines, particularly for the poor Public Financing with Public/Private Provision Large inefficiencies in public expenditures limit benefit of subsidies Public financing of private provision success depends on contracting skills Social Insurance Coverage usually limited to formal sector, although some success in covering informal sector Mechanisms of drug supply depend on whether the insurer functions only as a financier or as a Managed Care organization Insurance schemes can control costs and promote rational prescribing, but payment mechanisms (Prospective payments vs. FFS) affect drug utilization Pharmaceutical Benefits Management (PBM) schemes can reduce costs and increase efficiency of drug expenditures Community Financing (RDFs) In smaller settings, shown to increase access & RUD Require significant management skills for funds to revolve Few successful examples of large scale community drug schemes 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 9

10 Evidence on Government Role in Service Delivery R&D Strong case for government involvement in R&D, particularly for neglected diseases Manufacturing Empirical support for government manufacturing weak But governments can encourage manufacturing capacity in the domestic private sector (where a business case exists) through a stable political/economic environment, efficient regulation and favorable tax/duty structures Provision of Services Justification for government involvement in direct provision of pharmaceutical services, particularly for the poor Can use monopsony power to get lower prices But effectiveness varies depending on government capacities, efficiency, transparency and accountability Even in public systems, drug logistics often better addressed through contracting out and the provision of incentives 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 10

11 Evidence on Government Regulation One of the most regulated industries, e.g. Drug Approval/Registration regulations Quality regulations Patent regulations Pricing regulations Reimbursement regulations Prescription and dispensing regulations Drug regulation difficult because of rapidly evolving technologies & substantial information asymmetries between regulators and the regulated entities Pharmaceutical regulation is as much art as science, requiring a delicate balancing of several policy imperatives (that can vary over time), e.g. between: Ensuring safety/efficacy & Avoiding harmful drug lags Rewarding innovation & Preserving access to drugs Guaranteeing drug quality & Restricting market competition 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 11

12 Summary Pharmaceuticals are a significant facet of health systems Pharmaceuticals sit at nexus of health, trade, industry, which affects government policy Pharmaceuticals are both a product and a service, making their valuations difficult Governments aspire to ensure efficient/equitable access to and rational use of quality medicines There are multiple rationales for government intervention in the pharmaceuticals market The government has several instruments available for intervening in the market with varying impacts on the desired outcomes Evidence on the effective use of these instruments is mixed 5/3/ Maldives Role of Govt. in Pharma - Ramesh Govindaraj 12