Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized A Guide to ImprovingEquity and Performance Reform Pharmaceutical http://www.worldbank.org/pdt Interactive textbook at textbook Interactive Michael R.Reich J.Robertsand Marc Pharmaceutical Reform Pharmaceutical Reform is available as an interactive textbook at http://www .worldbank.org/pdt. The electronic version allows communities of practice and colleagues working in sectors and regions, as well as students and teachers, to share notes and related materials for an enhanced, multimedia learning and knowledge-exchange experience. Pharmaceutical Reform A Guide to Improving Performance and Equity Marc J. Roberts and Michael R. Reich THE WORLD BANK Washington, D.C. © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 :: 14 13 12 11 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The fi ndings, interpretations, and conclusions expressed in this volume do not necessarily refl ect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Offi ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. ISBN 978-0-8213-8760-3 eISBN 978-0-8213-8771-9 DOI 10.1596/978-0-8213-8760-3 Library of Congress Cataloging-in-Publication Data Roberts, Marc J. Pharmaceutical reform : a guide to improving performance and equity / by Marc J. Roberts and Michael R. Reich. p. ; cm. Includes bibliographical references and index. ISBN 978-0-8213-8760-3 — ISBN 978-0-8213-8771-9 (eISBN) 1. Pharmaceutical policy. 2. Pharmaceutical industry. 3. Health care reform. I. Reich, Michael, 1950- II. World Bank. III. Title. [DNLM: 1. Drug Industry—organization & administration. 2. Health Care Reform— organization & administration. 3. Pharmaceutical Preparations. QV 736] RA401.A1R63 2011 615.1—dc22 2011012020 CONTENTS Foreword xi Preface xiii Acknowledgments xix Chapter 1. Introduction 1 Why Care about Pharmaceutical Policy? 1 What Is Pharmaceutical Policy? 5 What the Book Seeks to Accomplish 7 References 9 Chapter 2. Using the Flagship Framework to Reform Pharmaceutical Policy 11 How to Begin the Process of Reform 11 Ultimate Performance Goals 13 The Role of Cost in Setting Reform Goals 17 The Role of Politics and Ethics in Identifying Problems and Choosing Reform Priorities 20 The Reform Cycle 22 The Control Knobs 24 Government Failures and Market Failures 26 Summary on the Flagship Framework 32 References 33 Chapter 3. Introduction to the Pharmaceutical Sector 35 The World Pharmaceutical Market 35 Consolidation of Research and Development Companies 42 Pharmaceutical Pricing 44 The Role of National Policy 47 Summary on the Pharmaceutical Sector 50 References 51 v Chapter 4. Ethics and Priority Setting in Pharmaceutical Reform 53 Commonly Identifi ed Pharmaceutical Sector Problems 55 Relating Identifi ed Problems to Performance Goals 56 Relating Performance Goals to Ethical Perspectives: Utilitarianism 58 Relating Performance Goals to Ethical Perspectives: Liberalism 61 Relating Performance Goals to Ethical Perspectives: Communitarianism 63 The Flagship Framework and Economic Development Goals 66 The International Dimension of Pharmaceutical Policy 67 The Importance of Fair Process 69 Summary on Ethics (and Some Suggestions) 70 Case Studies for Chapter 4 (Ethics) 71 References 72 Chapter 5. Diagnosing Performance Problems and Developing a Policy Response 75 A Simple Pharmaceutical Example to Illustrate the Method 77 The Intermediate Performance Goals and Their Role in the Diagnostic Process 79 Using the Intermediate Performance Measures 82 A Systems Approach to Process Improvement 84 Developing Policy Responses 85 Summary on Diagnosis 87 References 88 Chapter 6. Managing the Politics of Pharmaceutical Policy Reform 89 The Role of Politics in Pharmaceutical Policy Making 89 Stakeholder Analysis and Political Context 91 Moving to Strategy Development 93 The Politics of Pharmaceutical Policy Reform—Some Examples 96 Summary on Politics 98 Case Study on Politics 98 References 98 Chapter 7. Financing the Pharmaceutical Sector 101 Pharmaceutical Financing and Health Sector Financing 102 Judging the Distributional Impact of Financing Options 103 Pharmaceutical Financing Choices 115 Summary on Financing 118 Case Study on Financing and Payment 119 References 119 vi Contents Chapter 8. Paying for Pharmaceuticals 121 Pharmaceutical Payment Reform and Health Sector Reform 122 Pharmaceutical Payment and Corruption 123 Procurement 124 Wholesale Payments 129 Payments by End Users 133 Summary on Payment 139 Case Studies on Financing and Payment 140 References 140 Chapter 9. Organizing the Public Sector to Improve Pharmaceutical Performance 143 Pharmaceutical Sector Performance: The Six Keys 144 Autonomy, Corporatization, and Marketization 149 Contracting In and Contracting Out 151 Decentralization 152 Social Franchising 154 Using the New Public Sector Management 156 Essential Medicines Lists 157 The Potential Contribution of Process Improvement 158 The Challenges of Change 160 Summary on Organization 161 Case Studies on Organization 162 References 162 Chapter 10. Improving Pharmaceutical Sector Performance through Regulation 165 The Conditions for Successful Regulation 167 Regulating Product Quality 170 Regulating Use 176 Regulation Directed at Controlling Prices 178 Summary on Regulation 179 Case Studies on Regulation 180 References 180 Chapter 11. Using Persuasion to Infl uence Pharmaceutical Use 181 Elements of Human Decision Making 181 Using Persuasion: The Lessons of Social Marketing 184 Changing Behavior in the Pharmaceutical Sector 187 Summary on Persuasion 192 Case Studies on Persuasion 193 References 193 Contents vii Chapter 12. Conclusions 195 Thinking about Pharmaceutical Systems 195 Steps in the Process 196 Final Thoughts 198 Case Study A. Defi ning an Essential Medicines List in Sudamerica 201 Case Study B. Registering Misoprostol in Sri Lanka 211 Case Study C. Disentangling Prescribing and Dispensing in the Republic of Korea 225 Case Study D. Last Mile Logistics for Essential Drugs: The Case of Zambia 235 Case Study E. Drug Procurement in East Africania 247 Case Study F. Converting Basic Drug Shops to Accredited Drug Dispensing Outlets in Tanzania 255 Case Study G. Counterfeit Medicines in Nigeria 267 Case Study H. Changing the Use of Antibiotics in Peru 279 Case Study I. Preparing for Microbicide Introduction in South Africa 289 Case Study J. Drug Coverage in Ghana’s National Health Insurance Scheme 301 Index. 321 Figures 1.1 The Pharmaceutical System 5 2.1 The Flagship Framework for Health System Performance 16 2.2 Cost-Performance Trade-Offs 17 2.3 The Reform Cycle 22 3.1 Growth Forecasts for Global Pharmaceutical Sales by Region 36 3.2 Distribution of Population and Total Pharmaceutical Expenditure by Country Income Level, 2005–06 37 3.3 Medicines in Countries’ International Trade, Exports minus Imports, 2009 38 3.4 Evolution of the Pharmaceutical Sector in Countries of Different Income Levels 40 4.1 The Relationship of Pharmaceutical Sector Problems to Ultimate Performance Goals 57 5.1 Pharmaceutical Performance Diagnostic Tree 77 5.2 Schematic Overview of the Determinants of System Performance 83 viii Contents 5.3 The Effect of Alternative Quality Improvement Strategies: The “Rotten Apple” View 84 5.4 The Effect of Alternative Quality Improvement Strategies: The Systems View 85 7.1 National Health Insurance Coverage for Countries by Region 107 7.2 Commodity Logistics System in Kenya 116 8.1 Private Sector Patient Prices for Selected Medicines in Pakistan Compared to International Reference Prices 135 9.1 The Six Keys to Organizational Performance 144 10.1 The Regulatory Cycle 167 D1 Current Public Health Sector Distribution System 236 D2 Unfi lled Posts in the Health Sector 241 F1 Tiers of Drug Retailers 257 F2 Accredited Drug Dispensing Outlet Program Outline 259 J1 Drug Costs as a Proportion of Total National Health Insurance Claims Costs 307 J2 Regional Analysis of National Health Insurance Per Capita Costs and Participation Rates 308 Tables 1.1 Top 10 Causes of Death by Income Group, 2004 2 1.2 Pharmaceutical Expenditures by Country Income Level, 2006 4 3.1 R&D Expenditures by Government