Theory is one thing, implementation is a whole other story

In a paper written earlier this year, I and my co-author, Murali Neelakantan argued for unifying India’s (many) healthcare markets. Part of our proposal touched upon the need to unify a crucial aspect of these markets: procurement.

Furthermore, to ensure cost eff iciency and streamlined operations, the government will act as a monopsony buyer, procuring medical goods and services for all empanelled hospitals. This centralised approach will enable economies of scale, reduce costs, and guarantee steady demand for healthcare providers. By taking on the responsibility of procuring medical supplies, the government can negotiate better prices and allocation of resources within the healthcare system. We recognise that the healthcare requirements will vary across the country and even across states but we argue that there can be central procurement nevertheless. The local hospital or health authority will purchase based on the price notified by the central procurement agency.

It is one thing to say this as a theorist. As any public policy analyst will tell you, it is quite another to actually implement a scheme such as this. There will be teething troubles, there will be glitches. There will be leakages and pilferages. There will be stumbling blocks and unforeseen issues. Why, where will you start even, leave alone the question of actually making the whole thing work!

All good questions, of course. Entirely valid points. But we did point out that at least one state in India has already taken steps in this direction. Tamil Nadu already does centralized procurement of medicines, among other things worth emulating:

Another instance of successful healthcare reform at the state level can be found in Tamil Nadu, where the state government has implemented a range of innovative measures to improve the accessibility and affordability of healthcare services. These initiatives include the Tamil Nadu Medical Services Corporation (TNMSC), which centralises the procurement and distribution of drugs and medical equipment, resulting in more efficient and cost-effective processes (Parthasarathi and Sinha 2016).

But then, about two weeks ago, came news of a most excellent paper, written by CS Pramesh et al. Allow me to quote the abstract in its entirety:

In health systems with little public funding and decentralized procurement processes, the pricing and quality of anti-cancer medicines directly affects access to effective anti-cancer therapy. Factors such as differential pricing, volume-dependent negotiation and reliance on low-priced generics without any evaluation of their quality can lead to supply and demand lags, high out-of-pocket expenditures for patients and poor treatment outcomes. While pooled procurement of medicines can help address some of these challenges, monitoring of the procurement process requires considerable administrative investment. Group negotiation to fix prices, issuing of uniform contracts with standardized terms and conditions, and procurement by individual hospitals also reduce costs and improve quality without significant investment. The National Cancer Grid, a network of more than 250 cancer centres in India, piloted pooled procurement to improve negotiability of high-value oncology and supportive care medicines. A total of 40 drugs were included in this pilot. The pooled demand for the drugs from 23 centres was equivalent to 15.6 billion Indian rupees (197 million United States dollars (US$)) based on maximum retail prices. The process included technical and financial evaluation followed by contracts between individual centres and the selected vendors. Savings of 13.2 billion Indian Rupees (US$ 166.7million) were made compared to the maximum retail prices. The savings ranged from 23% to 99% (median: 82%) and were more with generics than innovator and newly patented medicines. This study reveals the advantages of group negotiation in pooled procurement for high-value medicines, an approach that can be applied to other health systems. (Emphasis added)

There is an important difference between what was attempted here and what we are suggesting in our paper. Our paper talks of centralized procurement, while this paper speaks of implementing a pooled procurement approach. As they go on to say in their paper, “…centralized procurement systems require considerable administrative and managerial resources. A pooled procurement approach that is less resource-intensive and sustainable without significant investment is the WHO-suggested group contracting approach”.

But note that they did not give up on centralized procurement – they thought it easier to begin with pooled procurement, before tackling the much bigger beast that is centralized procurement. (Also note that there is academic research on how centralized procurement can be of benefit, especially in developing nations.)

And they’re quite right, of course. Beginning at a relatively smaller scale and then attempting more ambitious targets is unglamorous, perhaps – but it is also a much more sensible way of doing things. These four paragraphs in particular make for fascinating reading in terms of actually working through the nitty-gritty of implementing pooled procurement. And if you are going to spend time reading those four paragraphs later, please also do spend time on Fig.2.

What were the key takeaways?

  1. Considerable savings, both on generic drugs, as well as on innovator drugs.
    “This outcome suggests that the concentration of demand significantly strengthened our negotiating power, while the centralized negotiation approach, combined with larger purchase quantities, allowed us to secure substantial price discounts.”
  2. Opportunity costs matter!
    “The potential impact of cost savings is huge, in not only improving the affordability of care and decreasing out-of-pocket costs for patients, but allowing for the re-allocation of drug procurement funds towards other initiatives to deliver high-quality care”
  3. Enforcement of quality standards became easier, because of pooled procurement.
    “These savings are notable because they were achieved without compromising on quality, due to strict standards imposed on both the drugs and the companies.”
  4. Pooled procurement helps individual patients across India, regardless of region-wise differences.
  5. Lower treatment abandonment rates (yay!), and therefore higher survival rates (double yay!).
  6. Lesser financial burden on the patients!

And to end, the paragraph that I hope will launch a thousand studies, and eventually, the implementation of centralized procurement of drugs and consumables in India:

Based on the success of our piloting of pooled procurement in the network, conducting such negotiations may be relevant at a larger scale for oncology drugs, such as through the national health authority, as that will enhance the bargaining power as well as have far-reaching impact on access and affordability across the entire national network. Negotiation on a national level could also address the challenges of vendor monopoly or patented drugs supplied by a single vendor. Furthermore, to determine the final price for innovator and single vendor drugs, a comprehensive evaluation of the available literature on efficacy and safety data is crucial. If a drug meets the threshold for significant clinical benefits, cost-effectiveness assessment using adaptive health technology can provide guidance for negotiating prices.