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IHS Global Insight Perspective
The establishment of India's Central Procurement Agency (CPA) has been given the go-ahead, paving the way for a single procurement system for healthcare goods for the Indian government's health services and programmes. Separately, the government has scaled up its low-cost Jan Aushadhi pharmacies, with 740 outlets planned in the next two years, and at least one for each district as part of efforts to increase drug access and affordability.
A single procurement system should improve the transparency of the drug-tender system, enabling the government to negotiate better prices and streamline the current process, while expansion of Jan Aushadhi will increase access to drugs and reduce out-of-pocket expenditure, as the stores provide generic drugs at 50% less than the retail cost equivalent.
As the sole national procurer, the CPA will enjoy greater bargaining power over pharma firms, while the expansion of Jan Aushadhi will mean that both innovative and generic firms can expect a push for lower pricing and larger volumes.
India's Planning Commission has given the go-ahead for the establishment of the Central Procurement Agency (CPA) with a one off grant of 500 million rupees (US$11.1 million), according to Pharmabiz.com. The CPA will be responsible for the procurement, storage, and distribution of health-sector goods for the various national health programmes under the Ministry of Health and Family Welfare (MOHFW). The agency is expected to implement changes to the procurement rates, a new supply chain, quality control, and monitoring systems. The main goal of the CPA will be to prevent stock-outs and reduce wastage due to excess inventory. The MOHFW will be responsible for setting policies and monitoring the agency's activities, however the CPA will take all decisions without reference to the Ministry. The timelines for implementation have not yet been disclosed.
Currently, the healthcare-procurement system is decentralised and all states have their own procurement organisations. At present, government hospitals procure drugs through the government medical stores depot (MSD) according to the national essential drugs formulary, and for drugs not on the list hospitals use a tender process. The hospitals procure equipment according to procedures in the Directorate General of Supplies & Disposals (DGS&D) manual, as well as General Financial Rules 1963, Central Vigilance Commission guidelines, and instructions issued by the MOHFW. According to an Organisation for Economic Co-operation and Development (OECD) report, in India public procurement is estimated to constitute about 30% of GDP and is a 25-billion-rupee (US$561-million) business for the government.
Jan Aushadhi Expanded
In a separate announcement, India's Department of Pharmaceuticals is set to expand the presence of the low-cost Jan Aushadhi pharmacies across the country over the next two years, with the plan to set up 740 outlets including one at every district hospital in the country. The government will invest 900–950 million rupees on the expansion plan and supply-chain management for all of the stores. The government aims to make Jan Aushadhi a self-sustaining business run on not-for-profit-principles, with leeway for minimal profits, reducing the need for current government subsidies. Jan Aushadhi is a government initiative that began in 2008 aiming to make quality generic drugs available at affordable prices; the chain currently has 79 outlets.
Outlook and Implications
The approval for setting up the CPA comes a year after it was considered by the government as a means to improve the transparency of the drug-tender system and enable the government to negotiate better prices (see India: 27 August 2009: Indian Government Considers Centralised Drug Procurement). The agency will streamline the current cumbersome process, with pharma firms having to deal with one agency rather than two or three departments. It will also help to reduce drug expenditure, as the body will be the sole procurer with better bargaining power and set lower procurement rates. The procedures for drug procurement and distribution to state-run facilities will be standardised, enabling medicare centres and government-run hospitals to submit their requests for replenishment to one agency, and helping to prevent stock-outs. For both innovative and generic firms, the single-tender system paves the way for an assured source of revenue; however, as the CPA will be the sole purchaser, they can expect a push for lower pricing and larger volumes.
The scale-up of the Jan Aushadhi stores indicates the government is back on track with the initiative, after the initial roll-out was derailed a year ago due to supply-management woes and bureaucratic interventions (see India: 23 December 2009: India's Public Generic Drug Store Roll-Out Derailed Mid-Way). The stores will help address the problem of out-of-pocket health expenditure, with approximately 70% of such spending currently going towards drugs in India. The expansion of these stores will enable the government to push through and effectively enact policies that require physicians to prescribe drugs according to generic name, as had previously been suggested (see India: 27 May 2010: India's Health Ministry Urges Use of Generics).Quality control is also one of the initiative's goals, and an expansion of the chain should see small-to-medium enterprises striving to improve the quality of their products in order to tap into procurement and tender runs with the Jan Aushadhi stores, which major generic firms have already been taking advantage of (see India: 9 February 2009: Indian Generics Majors Queue to Supply Drugs to Generic Drugs Stores and India: 23 April 2010: Cipla Offers to Supply Generics to Jan Aushadhi Scheme, Andhra Pradesh to Take Scheme Statewide). Rising prices of branded drugs will be checked by the increased access to low-cost alternatives available in every district, as Big Pharma look to maintain and gain revenues from the Indian market. The implementation of the CPA and the expansion of Jan Aushadhi stores are both in line with the Indian government's policies to increase healthcare and drug provision to the whole population at an affordable rate. Neither announcement represents good news for the innovative sector in terms of drug pricing, however, as pressure towards reduced drug prices is likely to increase, affecting innovative drug prices in the medium term—although Big Pharma may try to tap into the low-cost chain through the supply of select products as a means to expand brand presence and awareness.