CENTRALISED PROCUREMENT AS A POWERFUL HEALTH IDEA

Why in the News?

A recent paper titled “A National Cancer Grid pooled procurement initiative, India”, demonstrates the viability of idea of the centralised procurement of pharmaceuticals.

Need for a Centralised procurement system:

1. Pooled buyer model for drug procurement can address issues such as
   1. Price efficiency as they can conduct direct negotiations with pharmaceutical companies
   2. Stockouts
   3. Quality concerns
2. Such a model is being used by corporate hospital chains in drug procurement.
3. However, these merits are ignored in governmental schemes such as,
   1. Central Government Health Scheme (CGHS)
   2. Pradhan Mantri Jan Arogya Yojna (PMJAY)
   3. Employees’ State Insurance Scheme (ESI).
4. The study revealed that:
   1. Group negotiation, uniform contracts and purchases by hospitals associated with the National Cancer Grid for 40 drugs resulted in savings of ₹13.2 billion.
   2. This led to savings ranging from between 23% to 99% compared to without pooled procurement.

Central government’s central procurement in male contraceptives’ purchase:

1. The centre through the National Aids Control Organization, invites tenders from private manufacturers for procuring male contraceptives.
2. In the tender call, the govt. offers to buy from all those who are willing to match the lowest price.
3. The government ensure that the suppliers are not colluding to keep the price high by allowing HLL Lifecare Ltd., a public sector unit (PSU) to provide a benchmark price.
4. The highest manufacturing capacity PSU- HLL’s benchmark price will compel all the bidders to be competitive on price.
5. Else, the government will procure all its requirements from HLL and the bidders will be left with unused manufacturing capacity that may lead to huge fixed costs and overheads.
6. This model can be replicated for most of the drugs procured by the govt. given many pharma PSUs that can provide benchmark prices and also ensure that the government has leverage.
7. The leverage shall ensure that the govt 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

1. The buyers’ clubs can ensure better quality, in addition to cost savings.
2. Better quality can be ensured by having the supplies tested independently rather than having to rely on the drug regulator to ensure quality. This is the standard operating procedure for buyers in many developed nations.
3. Pooled procurement can also offer other benefits such as,
   1. Ensure better deployment of funds in other areas related to health care
   2. Ensure availability of life-saving drugs across the country