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Making The Pharamceutical Market Work For The Poor

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Presentation by Prashant Yadav on the medicines supply chain at the launch of the Medicines Transparency Alliance (MeTA), London 15 May 2008

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Making The Pharamceutical Market Work For The Poor

  1. 1. Prashant Yadev Making the Pharmaceutical Market Work For The Poor 06/04/09
  2. 2. Medicines as a percentage of household health expenditure Source: WHO UK~ 12% Patients in low-income countries spend a disproportionate amount on medicines
  3. 3. Intra-country variation in coverage of treatment for common illnesses The lowest income quintiles have poor coverage for essential medicines Source: Gwatkin et al 2006
  4. 4. Who avails government subsidized health-care and medicines? Public sector subsidized drug distribution tries fulfill the coverage gap for the poor but doesn’t always reach them effectively Source: Gwatkin et al 2006 15% 26% Poorest 20% Wealthiest 20%
  5. 5. Examples of pharmaceutical systems in OECD countries
  6. 6. Pharmaceutical distribution structure in the UK Around 45 full-line pharmaceutical wholesalers Three large national wholesalers contribute to over 85% of the market share Large network of pharmaceutical warehouses More than once a day delivery to each pharmacy 800 million prescriptions £6 billion worth medicines dispensed Approximately 12,600 pharmacies
  7. 7. UK pharmaceutical system: Financial flows
  8. 8. UK pharmaceutical system: information flows
  9. 9. Pharmaceutical distribution structure in the US <ul><li>3.4 billion prescriptions </li></ul><ul><li>$ 275 Billion worth medicines dispensed </li></ul><ul><li>Approximately 57,490 pharmacies </li></ul><ul><li>Average distance to a the nearest pharmacy is 2.36 miles </li></ul><ul><li>Three large national wholesalers contribute to over 85% of the market share </li></ul><ul><li>Large network of pharmaceutical warehouses </li></ul><ul><li>More than once a day delivery to each pharmacy </li></ul>
  10. 10. US pharmaceutical market: physical flows Source: GAO Report 2006 26% out-of-pocket expenditure on medicines
  11. 11. US pharmaceutical market: financial flows
  12. 12. US pharmaceutical market: information flows
  13. 13. Spain pharmaceutical market: physical flows Source: Farmaindustria 2004
  14. 14. Performance indicators in some of these markets
  15. 15. Order Fill Rates at the Point of Dispensing Source: European Pharmaceutical Wholesaler Industry, Technical Report 2006 EU-15 average at retail pharmacy Average across low and middle income countries in state-run health clinics?
  16. 16. Margins at different supply chain stages Source: Alliance Unichem
  17. 17. These markets differ in many ways but they have several commonalities <ul><li>A self-regulating framework that balances power between the patient, the payer, the supply chain actors and the government (either by market forces or by fiat) </li></ul><ul><li>Legal structures that allow the freedom to contract each activity resulting in optimal levels of market competition at each stage </li></ul><ul><li>No information opacity at any node of the supply chain </li></ul><ul><li>A civil society that creates a well-informed and knowledgeable patient population </li></ul><ul><li>Clear and transparent regulatory structures </li></ul><ul><li>Roles that require agility in contracting have minimal involvement of the state e.g. physical logistics and distribution of medicines </li></ul><ul><li>Roles in which the power of state can be leveraged (or those that require rigor in enforcement) are state monopolies e.g. price negotiation and control with the manufacturer, quality approvals </li></ul>
  18. 18. Pharmaceutical systems in developing countries
  19. 19. Low and middle income countries: physical flows
  20. 20. Low and middle income countries: financial flows
  21. 21. Low and middle income countries: information flows
  22. 22. Margins at different supply chain stages in developing countries Data based on small sample analysis of anti-rabies vaccine in Lusaka, Zambia Data based on small sample analysis of antibiotic-vials in Zambia Retail margins are very high for most products. For imported and single-sourced drugs wholesale margins are also often high.
  23. 23. Characteristics of developing country pharmaceutical markets <ul><li>Lack of competition at one or more stages in the supply chain (especially retail) </li></ul><ul><li>Hyper-competition at some stages in the supply chain e.g. wholesale </li></ul><ul><li>Longer supply chains: More intermediaries, brokers, agents involved </li></ul><ul><li>Payer/patient in the private market has little power </li></ul><ul><li>Little contracting flexibility to utilize efficiencies in procurement, distribution and logistics </li></ul><ul><li>Myths and Perceptions </li></ul><ul><ul><li>Private-sector = “ super-normal profit taker” </li></ul></ul><ul><ul><li>Public-sector = “ lacking agility and responsiveness” </li></ul></ul>
  24. 24. How can we facilitate retail competition ? <ul><li>Reducing barriers to entry for retail pharmacies </li></ul><ul><ul><li>E.g. accredited second-tier drug shops with lower fixed operating costs will force registered pharmacies to either reduce prices or offer premium quality of service in order to differentiate themselves </li></ul></ul><ul><li>Sharing fixed costs of operating a pharmacy </li></ul><ul><li>Creating shared product delivery platforms </li></ul><ul><li>Alternatively, to counter lack of retail competition </li></ul><ul><li>Create equilibrium by shifting balance of power towards wholesaler and end-patient </li></ul><ul><ul><li>Broadcasting price information to consumer </li></ul></ul><ul><ul><li>The “three” full-line wholesalers model </li></ul></ul>
  25. 25. What drives channel markups? Based on various published studies, author’s interviews with wholesalers, retailers and pharmacists, C. Goodman thesis, Channel Markups Balance of Power Wholesaler , Retailer or Customer Competitive Intensity at different Levels Channel Cost Structure Fixed vs. Variable Consumer Price Awareness Pull vs. Push
  26. 26. Price information and impact on equilibrium prices Public knowledge of price information reduces equilibrium prices http://rx.nyhealth.gov
  27. 27. Does the presence of more intermediaries in a supply chain necessarily hurt performance (prices, quality)?
  28. 28. Apparel Supply Chain
  29. 29. What makes this happen? <ul><li>An “orchestrator” of trust and information in the very fragmented apparel supply chain </li></ul>
  30. 30. An orchestrator of trust and transparency in the global health network ?

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