Optimally Financing Medical Products to Ensure Affordable, Equitable Access

The affordability of safe and effective medicines is a critical determinant of equitable access. The share of total health expenditures on pharmaceutical products is extremely variable in the member countries of the Organisation for Economic Co-operation and Development, ranging from 6% (Denmark) to 34% (Bulgaria). However, obtaining accurate information about the affordability of medicines in low- and middle-income countries (LMICs) is often complex and challenging, and the information remains incomplete. While health-related out-of-pocket (OOP) expenditures tend to decrease globally due to progress achieved through social protection schemes or state transfers, OOP expenditures continue to account for around 40% of total health expenditures in low-income countries and 44% in middle-income countries. Pharmaceutical expenditures constitute the highest share of OOP expenditures and account for up to one third of all health expenditures across LMICs in the Asia Pacific region.

Countries must implement strategies to optimally finance medical products by improving value in purchasing and increasing transparency on pricing policies, contracting, priority setting, and procurement practices. USAID supports country efforts to advance towards universal health coverage (UHC) by providing guidance and strengthening countries’ capacities to 1) track pharmaceutical expenditures; 2) improve pharmaceutical coverage under health insurance and other financial protection schemes; and 3) learn and implement various approaches to pricing and procurement reform to increase the availability and affordability of quality-assured medical products.

Pharmaceutical expenditure tracking

The Lancet’s Commission on Essential Medicines Policies suggests that governments and national health systems dedicate resources to capacity-building for accurately tracking prepaid and OOP pharmaceutical expenditures among key populations in the public and private sectors.https://www.mtapsprogram.org/wp-content/uploads/2021/03/MTaPS-Technical-brief_-Registration-of-MNCH-products-in-9-countries.pdf Demand-side factors such as rational prescription behaviors, use of generics, and compliance with treatment guidelines can influence the total amount spent on pharmaceutical products. However, on the supply-side, it is essential to measure real costs, track pharmaceutical expenditures, and assess how pricing policies can be used (usually in combination) to make quality-assured medical products affordable.

Understanding health system spending patterns on medicines through pharmaceutical expenditure data optimizes the overall financing systems for pharmaceuticals by enabling better decision-making on resource mobilization, resource pooling, resource allocation, health benefit design, and strategic purchasing of pharmaceuticals. However, LMICs often lack the capacity and tools to collect, analyze, and use pharmaceutical expenditure data and ensure value-for-money in their health spending.

In response to this need, USAID developed supplementary guidelines (based on an exploratory data collection exercise from Burkina Faso) in the WHO System of Health Accounts (SHA) 2011 framework to help countries adapt the guidelines to their context to more accurately track pharmaceutical spending and use health accounts data to improve planning and policy decisions on pharmaceuticals. The goal of this draft framework is to improve the availability of quality data on pharmaceutical expenditure tracking and increase its use in decision-making – usually by planning units in ministries of health, national drug authorities, and national health insurance schemes, among others. An initial pilot of the guidelines in one country revealed that the Health Accounts team was able to collect twice as much pharmaceutical expenditure data than they collected using previous methods. 

Costing Pharmaceutical Benefit Packages (PBPs)

Costing a PBP helps policymakers set priorities and understand how much public and private payers will spend on medical products under a variety of scenarios for new or revised pharmaceutical coverage schemes. These scenarios employ a series of assumptions about disease incidence, health care utilization, and cost-sharing among eligible populations; variations in pricing for different treatments; and expected adherence by providers to standard treatment guidelines.

USAID strengthens governments’ capacities to define and cost evidence-based PBPs to promote equitable access to essential products. This involves supporting stakeholders to implement the One Health Tool (OHT) to estimate the costs of PBPs. Policymakers need to forecast spending on pharmaceutical coverage and ensure that the range of medicines available to the population is consistent with available resources. USAID has provided OHT training to nine countries in Africa and Asia and plans to support counterparts in Bangladesh to develop scenarios for PBP costing, conducting fiscal gap analyses for potential expansion of pharmaceutical coverage and supporting dissemination of the evidence through a policy dialogue.

Pricing Policies and Standards for Procurement from Local Sources and Procurement by Local Entities

As policymakers become better able to cost their PBPs, predict necessary resources for various scenarios, and track actual expenditure, they must also devise pricing policies that consider the cost and determine the price of the publicly-financed medical products in the PBPs. Strong pricing policies can contain rising health care costs and reduce OOP expenditure, thereby making essential pharmaceuticals more affordable and accessible to patients in LMICs and supporting a country’s progress towards UHC.

Many countries have developed strategies to influence the prices of publicly-financed medicines, including through ways that promote local production. Efforts to promote greater availability of locally-produced health products can improve equitable access, supply chain security, and reduce prices by making markets more competitive. However, efforts to promote local production also should be mindful of certain risks, namely that in some circumstances it can lead to price increases. USAID supported the landscape analysis of the existing and potential pricing policies in selected Asian countries to classify them and understand their differences in implementation, with some of these risks in mind. The review explains what public information is available on manufacturer, wholesale, and retail prices; how indices and international reference pricing rules are used; and whether country-level pricing policies are normative and consistently implemented by the purchaser.

Vietnam stands out as a country that uses both external reference pricing (ERP) and internal reference pricing (IRP) to regulate the prices of all medicines, in addition to tendering, cost-based pricing, and price negotiations. These strategies were introduced to stabilize price hikes in the early 2000s, before which Vietnam practiced a true free pricing approach, relying on market competition to ensure affordable prices. Current price interventions target mainly the distributor level for both generics and innovative medicines, and all medicines must declare a maximum price to be registered on the market. This price is subject to further tendering or negotiation should the medicine be included in the “National Listing.” Vietnam’s pharmaceutical pricing policies demonstrate how a combination of strategies can work together to ensure affordable pharmaceuticals for a country’s population. As a safeguard to prevent the creation of overly-protected local markets that may result in undue price increases, USAID can examine how policy efforts mitigate those risks. One example can be seen in Bangladesh, where the government encourages local pharmaceutical manufacturers to produce generic drugs and discourages importation when a medicine is produced by four or more local firmsWirtz VJ, Hogerzeil HV, Gray AL, et al. Essential medicines for universal health coverage. Lancet. 2017; 389: 403-476..

USAID is in the process of providing its field Missions with recommendations on minimum standards for purchasing commodities from local procurement agents (LPAs) through its implementing partners to ensure a best value procurement process including quality, service, and security of supply. Sometimes combined with technical assistance, these standards provide guidance on setting procurement evaluation criteria, selecting suppliers, understanding the amount of procurement an LPA will execute, tendering frequency, proactive forecasting of commodity supplies, etc. For example, with funding from USAID and other donors, the Rwanda Medical Supply Limited (RMS) is leveraging its parastatal status to procure HIV/AIDS medicines and diagnostics for the country’s HIV/AIDS patients using commercial practices. RMS expects to reduce procurement lead time by 75 percent to three months and lower patients’ marginal cost markup from 66 percent to 40 percent while improving on-time delivery and operational efficiencies.

USAID aims to strengthen the capacity of LMICs to secure maximum health value from limited financial resources when determining how to optimally finance medical products and ensure equitable access. Improving country systems for pharmaceutical expenditure tracking, pharmaceutical benefit coverage, pricing policies, and procurement standards are just some of the strategies that can be used to increase the availability and affordability of quality-assured medical products.

The views in this article are those of the authors and do not necessarily represent the views of USAID nor the United States Government. Co-authors include Andre Zida and Reva Alperson from the USAID The Medicines, Technologies, and Pharmaceutical Services (MTaPS) Program.