Pharmaceutical Procurement Service

Towards a Solution

The nine members of the Organization of Eastern Caribbean States (OECS) discovered a collective means to reduce the costs of health-care services for their citizens by pooling the procurement and management of pharmaceutical and medical supplies for the public sector. Medicines are either dispensed free of charge or at a nominal cost to the end user. The initiative also provides countries with a wide range of related services, including training and technical assistance, common drug formulary manuals, drug utilization studies and quality assurance, thereby sharing benefits, skills and knowledge throughout the region.

The Pharmaceutical Procurement Service (PPS), created by OECS countries, aggregates country demands, issues a centralized tender and pays suppliers from the accounts of the countries at the Eastern Caribbean Central Bank. When OECS countries first created the PPS, they deposited one third of their annual pharmaceutical budget to individual country drug accounts at the Eastern Caribbean Central Bank to ensure payment to suppliers and to maintain a revolving fund. In turn, the OECS PPS created a buyers' cartel so that products are purchased exclusively through 18-month contracts. All approved suppliers are pre-qualified by a vendors' registration questionnaire. Once bidding is completed, the OECS PPS awards annual contracts to individual suppliers and monitors performance. Suppliers ship products directly to participating countries, which reimburse their Eastern Caribbean Central Bank drug accounts.

Evidence has shown that, with the creation of a sizeable market basket for 20 essential medicines, the regional prices were 20 per cent lower than the prices that a country would pay if it procured the same medicines on its own. Continuous annual cost savings accrued after 30 years have reinforced the OECS PPS as an excellent cost-benefit model of economic and functional cooperation among OECS countries. The OECS PPS has also expanded its 840-product portfolio to include a diverse set of non-pharmaceutical items including medical supplies, contraceptives and x-ray items.

By forming a monopsony (a single buyer), the programme has led to significant economies of scale by increasing its bargaining power with over 50 competing suppliers. Consequently, as a group, the OECS PPS has leveraged its influence against a single country’s purchasing capacity. The OECS PPS initially covered its operating costs by charging countries a 15-per cent surcharge on invoices. Consistent with the OECS PPS policy to produce greater cost savings for member States, the OECS ministers of health implemented a policy to reduce the surcharge to 13 per cent in 2005 and 11 per cent in 2007. The OECS PPS is currently exploring the possibility of further lowering the surcharge.

WHO has assisted other regions, such as seven Fiji Islands and Southern and Eastern Africa, in replicating the OECS model. The conditions required for replication include: (a) a common medicines formulary with standard treatment guidelines; (b) similar procurement and supply chain management systems; and (c) an organized and coordinated payment mechanism.

Partners and beneficiaries include OECS countries, the OECS PPS, ministries of health, and the Eastern Caribbean Central Bank. The Eastern Caribbean Central Bank operates the individual accounts of the countries and facilitates payment to suppliers in foreign exchange at no cost to the OECS PPS.