Elsevier

Social Science & Medicine

Volume 66, Issue 3, February 2008, Pages 569-581
Social Science & Medicine

Providing affordable essential medicines to African households: The missing policies and institutions for price containment

https://doi.org/10.1016/j.socscimed.2007.10.003Get rights and content

Abstract

Medicines are integral of any healthcare system, and limited access to medicines undermines health systems’ objectives of equity, efficiency and health development. In African countries, where it is estimated that 50–60% of the populace lack “access” to essential medicines, health problems associated with limited drug benefits are more damaging. However, there is no single solution to medicine access problem given its multiple dimensions: availability, acceptability, affordability and accessibility. This paper explores affordability dimension of medicine access and concentrates solely on price regulatory policies and institutional structures that national and international policy makers may consider in making prices of essential drugs compatible to the purchasing power of African households. The main theme is the application of the concept of bilateral dependence in creating price-sensitive purchasers to exert countervailing market power on drug price setting in African healthcare systems.

Introduction

Medicines are integral to any healthcare system and limited access to medicines undermines health systems’ objectives of equity, efficiency and better health. Effective medicines exist for the illnesses making up the greatest section of disease burden in African nations, and it is without question that access to essential medicines reduces disease burden. Access to medicines provides a proxy indicator of health systems’ performance and healthcare systems with limited access to medicines do report lower health levels measured in disability adjusted life expectancy (WHO, 2004a). According to the World Bank (1994) up to 60% of people in sub-Saharan Africa do not have access to the drugs they need. According to the WHO (2004b), in the poorest parts of Africa and Asia, the figures revolve around 50%. These aggregate indicators hide “in-country” situations, which may or may not be worse than suggested by these figures.

Whereas pharmaceuticals account for 10–20% of health expenditures in developed countries, in developing nations the figure ranges between 20% and 60%, due to a disproportionate reliance on importation for drug supplies, the relatively lower health labour costs and regulation lax that allows prescription only medicines to be acquired without written prescriptions (WHO, 2004a; World Bank, 1994). Pharmaceuticals, compared to other healthcare inputs, contribute more to production of healthcare and drug expenditures tend to exhibit relatively lower elasticities to national income per capita than health expenditures. For example, medicines consumption in developed nations averages 0.95% of GDP and 0.67% in developing countries (Schweitzer, 1997). This means that the poorer a country is, the larger the share of drug expenditures of national health budgets. Also in developed nations over 70% of drugs are public funded or reimbursed, whereas in African nations 50–90% of pharmaceutical purchases are funded by out-of-pocket expenditures, a feature encouraged by reliance on user charges as means of financing (World bank, 1994). Bar salaries, drug expenditures dominate health expenditures in African nations. However, country-level aggregations of drug expenditures might be misleading indicators of opportunity costs. According to Barnett, Creese, and Ayivor (1982), whilst drugs account for one-third of total healthcare expenditures in Ghana, drugs purchases accounted for 75–80% of running costs of primary healthcare centers.

The high pharmaceuticals proportion of healthcare budgets and household incomes in African nations has not translated into wider drug access and better health. The policy problem is thus reconciling drug expenditures (as proportion of health expenditures and GDP) with expanded access. “Access to medicines” has no clear definition, yet it can be considered as collection of different dimensions: accessibility referring to health services coverage; affordability which relates to prices and volumes of consumption; acceptability which refers to quality, safety and efficacy; and availability which relates to drug production, procurement and distribution. The various dimensions, derived from interlocking principal–agency relationships in drug markets, underscore the need for differentiated, yet simultaneously operating medicine access policies (WHO, 2004b).

This paper aims to highlight in-country strategies for drug price containment and regulation: a subset of the affordability dimension. The strategies, whilst centred mostly on public sectors, apply very well to private and not-for-profit sectors in African healthcare systems. The paper draws on pharmaceutical economics theory and international policy practice from both peer-reviewed publications and non-peer reviewed “technical reports”. Since the focus here is on in-country strategies, the paper does not consider policies linked to intellectual property rights under world trade agreements and global initiatives for neglected diseases affecting mostly developing countries.

Section snippets

Price regulation

It is well documented that drug prices create “affordability” barriers and healthcare payers, and as such governments and non-governmental agencies in African nations must consider some form of price regulation to avoid stretching what are already inadequate drug finances. Price regulation policy can be broadly classified into unconstrained free pricing, constrained free pricing and price controls. Price controls are statutorily mandated and designed to fix unit prices of drugs, patented or

Cost-containing procurement

With low-national incomes, procurement agencies in African countries cannot be price takers as global medicine prices, most likely, will fall out of their purchasing power; nor can they be passive in product selection decisions. Velasquez, Correa, and Weissman (2003) define a three-pronged strategy: (α) national and international competitive bidding (β) price discounting and (θ) bulk purchasing as the basis of cost-containing procurement. The proposals advocated by this paper build on the mix

Discussion

This paper advocates institutional structures of bilateral monopoly in African countries as the means to exerting significant downward pressures on prices. Economic theory and empirical evidence provides enough reason to suggest pro-competitive countervailing buyer power is a viable solution for affordability in African nations. The bilateral dependence solution answers concerns about voluntary differential pricing programs that are designed on charity and public relations exercises to salvage

Conclusions

Thesis of this paper is hard bargaining, country-specific; price-sensitive purchasing agencies represent a more sustainable mechanism for making essential medicines affordable to African households. The bilateral dependence solution is an institutional response that allows African nations to take charge of their own public affairs. Development partners and the international community, whose aim is to help African nations help themselves, must provide the necessary support for institution of

Acknowledgements

The author would like to acknowledge the work(s) of Professor Stuart O. Schweitzer and Professor Patricia Danzon for inspiring his thoughts on pharmaceutical pricing, economics and policy issues. Many thanks to Dr. Catherine Goodman (London School of Hygiene and Tropical Medicine) and Dr. Maria Raikou (London School of Economics) for being a ready help and guide.

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