India Today - Oct 22, 2012
Kiran Mazumdar-Shaw, Chairman & Managing Director, Biocon
With the government deciding to move forward on providing free essential medicines to all, India is finally on the road to ensuring universal healthcare for its citizens. The destination may be a long way away, but it is significant that the journey has started.
According to the Planning Commission, until recently, when the government was spending a mere 1% of the GDP on healthcare, 39 million Indians were pushed into poverty because of health-related expenses every year. Even with the government now allocating 1.95% of GDP on health, India’s healthcare spending is amongst the lowest in the world.
However, more than funding it is mostly the lack of political will and effective administration that have kept accessible and affordable healthcare out of the reach of most Indians. There is no doubt that public healthcare funding needs to be much higher; but even the admittedly small allocations now are largely frittered away through apathy and bad governance. That is an unforgivable situation given that we have the capability to secure the health of all.
It is not merely about more money, but also the effective utilization of the funds allocated. We can meet many of our healthcare objectives even if there are funding constraints. We need only look at Tamil Nadu’s example to understand what a transparent and accountable program can achieve in terms of delivering efficient healthcare. It also makes the issue of market-based drug pricing quite irrelevant.
Since 1994, the Tamil Nadu Medical Services Corporation (TNMSC) has been mandated with ensuring that essential drugs are affordable and available to all. Its success has led the Center to replicate TNMSC’s model through a national healthcare plan. Through the plan, the government aims to provide 348 essential life-saving drugs free of cost – and a set of basic health services called the Essential Health Package (EHP) – to every Indian.
How competitive tendering drives down prices
Tamil Nadu’s drugs procurement and distribution mechanism is driven by a competitive tendering process and an IT-enabled Supply Chain Management (SCM) system.
The competitive tenders at the centralized procurement stage ensure that the lowest bidder wins. This sets the stage for a robust weeding-out phase wherein a branded formulation will not stand a chance in the tendering process if it is charging, say Rs 90 for 10 tablets, when a generics maker is charging Rs 9. In this process, it is the patients who are the winners since they gain access to good quality drugs at the most competitive price.
This good quality is ensured through a stringent quality control system. TNMSC follows a rigorous testing process wherein each batch undergoes laboratories checks. Failure in the quality test means that the supplier must take it back. If the company fails the tests thrice, TNMSC has a simple and effective solution – it blacklists the supplier.
Drug pricing debate unnecessary
The recent debate which ended with the Group of Ministers deciding on a market-based pricing mechanism for essential drugs is unnecessary in the context of supply of free medicines for all. Through competitive and bulk procurement in the open market, the process automatically drives down drug prices. The streamlining of drug procurement through this model has lowered costs by about 30% in Rajasthan and Andhra Pradesh where the TNMSC model has been replicated. The drugs TNMSC provides are procured at extremely low profit margins – around 0.01%. While the Rajasthan Medical Services Corporation’s costs are three to four times higher, they are still quite low compared with retail prices.
Other countries have had significant success with generics. German watchdog IQWiG (Institute for Quality and Efficiency in Health Care) conducts a value-based analysis of drugs and decides the level of reimbursement. The process has spurred greater use of generics and brought down prices nearer to generic drug levels, saving Germany's public health insurance funds 12.9 billion euro in 2011. In the US, PCORI (Patient-Centered Outcomes Research Institute) has been instituted to control ballooning healthcare costs.
It is important to note that while there will always be a retail market for branded drugs, such formulations will have no place in bulk procurement for universal healthcare owing to competitive tendering. The increasing use of biosimilars will also drive down prices.
Making it work with IT
In addition to competitive tendering for drugs procurement, IT will play a key role in ensuring that the free drugs system works. TNSMC has a robust IT supply chain management platform that transparently tracks the movement of drugs all the way from the manufacturer to the patient. The data collected by the IT set-up is highly visible, helping secure drug quality and transparency in drug procurement and distribution. It ensures that free essential drugs can be supplied without the fear of abuse.
To make the Universal Health Plan truly effective, the system also needs to track the health outcome of each patient through electronic health records (EHR). Linking EHRs to patient-level drug distribution will make the impact of health delivery measurable.
Further, procurement forecasting must be mapped to disease burden at the district level. This will enable efficient inventory management and timely delivery of essential drugs even in contingency situations like epidemics and natural disasters.
Such a system will not only deliver on the promise of universal healthcare but also set a global benchmark for other nations to emulate.