Bitter Pills:Medicines & The Third World Poor | Page 147

Sri Lanka was the first country to prove that the drug import bill could be cut
dramatically when it pioneered its system of bulk purchasing through a centralised
government agency. Initially the Sri Lankan system was limited to drugs imported
for the health services. But a major drug policy review in 1971/72 identified the
need to stop the massive wastage of valuable foreign exchange caused by private
importers paying high prices to monopoly suppliers. Wide disparities were
discovered between the private importers' prices and those that the Government
was paying for the same drugs by buying by generic name on worldwide,
competitive tender - in other words, by 'shopping around' for the best price, after
inviting a range of manufacturers to compete for an order. (37)
During 1972/73 the State Pharmaceutical Corporation (SPC) began a phased
takeover of drug imports that had previously been carried out by 134 private
importers. The prices paid by the private importers in the first half of 1972 were
later compared with those paid by the SPC for the same drugs in the second half
of the year. This showed that centralised purchasing achieved a 40% overall saving
on the cost of importing just 52 drugs. For example, chloroquine had previously
been imported from six different suppliers. After choosing from a variety of
quotes, the SPC bought chloroquine from Sterling UK at less than half the price
paid earlier to another manufacturer by the private importers. (381
The SPC only accepted the cheapest offer for 11 of the 52 drugs. It lacked the
quality control facilities to test drugs offered at exceptionally low prices by
unknown suppliers. So Sri Lanka continued to buy from the research-based
manufacturers, but at far lower prices. The experience proved that it was possible
to challenge the market power of leading manufacturers. In the words of SPC
Chairman, Dr. Bibile, "The results demonstrate the kind of foreign- exchange
savings that accrue to a developing country when it establishes a state buying agency
and adopts an open-tender procedure for purchasing. It places the agency in a
strong bargaining position and compels competition even among the transnational
corporations which had previously monopolised the market." ( "'
Encouraged by Sri Lanka's success, a number of countries have since set up national
procurement agencies to bulk buy drugs on the world market. In most cases these
public tenders are used to buy drugs only for the health services, not for the private
market as happened in Sri Lanka. (40) Centralised procurement has been
particularly successful in Costa Rica, where the Social Security Agency is estimated
to have saved the country £17.6 million in 1978 alone. The policy has contributed
to the Social Security Agency's success in increasing its ability to meet the people's
drug needs from 46.8% in 1970 to 81.5% in 1976. {411
Previously the Costa Rican Government's ability to buy the cheapest reliable
generics was seriously hampered by laws protecting patents. But its bargaining
power has increased with reforms in patent laws enacted after a dispute over the
result of a 1978 tender. At the time a foreign manufacturer filed a case against
the Costa Rican agency for deciding to buy from a generics producer instead of
paying the much higher price for its own patented product. |42)
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