Pooled procurement of medicine

 Pooled procurement by the central government when it comes to drug procurement can revolutionise the health-care system in India 

why should hospitals be any different when it comes to drug procurement?

In India

Many countries and international organisations (including McDonald’s) have shown that a pooled buyer model for drug procurement addresses many issues that are related to price efficiency, stockouts and quality concerns. 

but government chooses to ignore 

But for reasons that have remained mysterious for decades, the central government chooses to ignore the merits of pooled procurement 

when it comes to schemes such as the Central Government Health Scheme (CGHS), the Pradhan Mantri Jan Arogya Yojna (PMJAY) and the Employees’ State Insurance Scheme (ESI).

Corporate hospital chains

1 on the other hand, are well aware of the benefits of pooled procurement.

2  For years on end, they have conducted direct negotiations with pharmaceutical companies, and availed of significant discounts.

 3 Patients at these hospitals end up buying these drugs at maximum retail price of course, but that is another story.

 buyers’ clubs 

We cannot help but wonder why many more hospitals cannot team up to form buyers’ clubs, benefit from better bargaining power, and then, being not-for-profit institutions, pass on these cost savings to patients.

The focus in these papers

A recent paper, “A National Cancer Grid pooled procurement initiative, India”

1 it demonstrates the viability of just such an idea. 

2 Group negotiation, uniform contracts, and, finally, purchases by hospitals associated with the National Cancer Grid for 40 drugs resulted in savings of ₹13.2 billion. 

3 Without pooled procurement, the cost would have been ₹15.6 billion, with savings ranging from between 23% to 99%.

 This approach, they conclude, can be applied to other health systems besides cancer.

We are in complete agreement; our paper, “Unifying India’s Healthcare Markets” makes just such an argument

 We show that the central government is not consistent in how it covers different categories of beneficiaries under the CGHS, ESI and PMJAY. 

The same procedure, for example, might be available in one scheme, but not the other. And, centralised procurement, sadly, is not yet a reality.

It is not that the central government is unaware of the benefits of pooled procurement and price discovery.

When the government (through the National Aids Control Organization) procures male contraceptives

 it invites tenders from private manufacturers and then offers to buy from all those who are willing to match the lowest price.

 How does the government ensure that the suppliers are not colluding /  मिली भगत  to keep the price high? 

HLL Lifecare Ltd as a example

 a public sector unit (PSU), with the highest manufacturing capacity in India, provides a benchmark price. 

All the bidders know that if they are not competitive on price, the government will just procure all its requirements from HLL and

 they will be left with unused manufacturing capacity — and as a result, face huge fixed costs and overheads.

The government can follow this model for most of the drugs it procures. 

It has many pharma PSUs that can provide benchmark prices and also ensure that the government has leverage. 

Such leverage ensures that the government is not forced to buy from private manufacturers, given that there is competition from PSUs which can make supplies at a competitive price.

The issue of better quality

 to cost savings

 buyers’ clubs can ensure better quality by having the supplies tested independently rather than having to rely on the drug regulator to ensure quality.

 This is not a new idea; this is standard operating procedure for buyers in many developed nations.

Centralised procurement, or pooled procurement

is a simple yet powerful idea that has the power and the potential to

•  reduce costs, 
• 
  
• ensure better deployment of funds in other areas related to health care, and ensure availability of life-saving drugs in this country. 
• 
  
• It is an idea with both theoretical backing, and now empirical validation. It is an idea that India should implement at scale, and as soon as possible.