Centralised procurement as a powerful health idea – Benefits of Pooled Drug Procurement in India’s Healthcare System | 18 October 2023 | UPSC Daily Editorial Analysis

What's the article about?

• It talks about the benefits of Pooled Drug Procurement in India's Healthcare System.

Relevance:

• GS2: Issues Relating to Development and Management of Social Sector/Services relating to Health, Education, Human Resources.

Context:

• The article discusses the advantages of a pooled buyer model for drug procurement in the Indian healthcare system.
• It draws parallels with the franchise model in the food industry, where a centralized procurement team can address issues of price, quality, and consistency.
• The author questions why the central government ignores the merits of pooled procurement in schemes such as the Central Government Health Scheme (CGHS), the Pradhan Mantri Jan Arogya Yojna (PMJAY), and the Employees' State Insurance Scheme (ESI), while corporate hospital chains have been benefiting from it.

Analysis:

• Problems with Individual Procurement:
  • Price: Each franchisee conducting negotiations with potato sellers becomes a problem when it comes to price. The centralised team can negotiate a better price due to the larger quantity of potatoes needed.
  • Quality: Each franchisee might have a different idea of what is acceptable quality, leading to inconsistent taste in the final product. Similarly, individual hospitals may have different quality standards for drugs, which can be addressed through a pooled procurement model.
• Benefits of Pooled Procurement:
  • Price Efficiency: Many countries and international organizations have shown that a pooled buyer model for drug procurement addresses issues related to price efficiency, stockouts, and quality concerns.
  • Cost Savings: A recent paper on the National Cancer Grid pooled procurement initiative in India demonstrated savings of ₹13.2 billion ($177 million) for 40 drugs, with savings ranging from 23% to 99%.
  • Consistency and Quality: Pooled procurement ensures uniform contracts and group negotiation, leading to better quality and consistency in the supply of drugs.
• Inconsistencies in Government Schemes:
  • Coverage: The central government is not consistent in how it covers different categories of beneficiaries under the CGHS, ESI, and PMJAY. The same procedure might be available in one scheme but not the other.
  • Centralized Procurement: The article highlights that centralized procurement is not yet a reality, despite the government's awareness of its benefits. The government can follow the model of procuring male contraceptives, where it invites tenders from private manufacturers and offers to buy from those willing to match the lowest price, with HLL Lifecare Ltd. providing a benchmark price.
• Ensuring Better Quality:
  • Independent Testing: Buyers' clubs can ensure better quality by having the supplies tested independently, rather than relying solely on the drug regulator to ensure quality. This is a standard operating procedure for buyers in many developed nations.

Way Forward:

• Pooled procurement is a simple yet powerful idea that can reduce costs, ensure better deployment of funds in other areas related to healthcare, and ensure the availability of life-saving drugs in India. The article calls for the implementation of this model at scale and as soon as possible, citing both theoretical backing and empirical validation.