Motsoaledi's tender victory
Creative procurement processes have helped the government achieve a 53,1% reduction in the cost of antiretroviral (ARV) drugs, according to health department officials.
This amounted to a R4,7-billion saving, which will allow the state to treat twice the number of people who require ARVs on the same budget, officials said this week. And the department believes it can use the same processes to achieve savings in other areas.
Aaron Motsoaledi, the minister of health, following his announcement of new tender awards on Tuesday, said the department will replicate the approach it applied to the ARV tender using a central procurement authority.
Anban Pillay, the department’s financial planning and health economics manager, said the authority will use existing tender legislation and adapt it for downstream operations to buy not just ARVs and TB drugs but also consumable items such as gloves, gauze and specialised medical equipment.
Pillay said the authority, which will coordinate procurement in the department and take responsibility for supply-chain management and some administrative tasks, should be in place by April next year.
The new contract prices are a coup for Motsoaledi, who in the past has locked horns with pharmaceutical companies that insisted their prices were market related.
In terms of the new price schedule the cost of efavirenze and tenofovir, two key ARV drugs, will drop by 63% and 65% respectively.
According to Section 27, a health advocacy group, this means the government will now pay an average of R115 per patient per month for the standard triple combination of ARVs.
Previously, just one of the drugs in the combination would have cost about R110.
South Africa has more than a million people on its ARV treatment programme, which is one of the largest in the world. This year an additional 905 000 people were found to be HIV positive through the national HIV counselling and testing campaign.
Pillay said most of the savings achieved in the ARV tender came from pharmaceutical companies’ profits. “Manufacturers lost that profit, technically that’s where the saving came from,” said Pillay. “They were forced to reduce their prices.”
Despite this, he said, the blame for high drug prices cannot be laid squarely at the door of big pharmaceutical companies.
“Where we don’t get good prices, we must blame ourselves. We weren’t smart enough to extract those prices,” he said.
“Previous procurement processes did not recognise the market forces and dynamics that exist in the pharmaceutical sector. The procurement process for medicines can’t be the same as for buying tables and chairs.”
The procurement process
The health department and treasury set up a dynamic procurement process specifically for the pharmaceutical industry. The three key elements that helped bring down prices were calling on international suppliers to bid, asking suppliers to bid at prices lower than those in a reference price list that made use of international benchmarks for ARVs and asking them to share their cost components with government.
Understanding the cost of packaging, formulation and the active pharmaceutical ingredient for each supplier allowed the government to evaluate whether the prices it was being offered were reasonable. The active ingredient makes up the bulk of the cost of producing ARVs.
The availability of more generic drugs also played a role. “Part of the problem [in 2008] was that there weren’t enough generics registered on the market,” said Pillay. In the past few months the government requested that the Medicines Control Council, which registers drugs for use in South Africa, should recognise the importance of ARVs and speed up the process of registering them.
Pillay also said that, based on past mistakes, a clause was added to the new tender agreements, allowing for the renegotiation of prices every quarter. In the past the government was locked into paying high prices for drugs even though the cost of the active pharmaceutical ingredient had dropped dramatically, reducing drug prices elsewhere.
The clause stipulates that “the state reserves the right to negotiate prices on a quarterly basis only with the approved or preferred suppliers”. But Jonathan Berger, a senior researcher with Section 27, said it is “wishful thinking” to believe that the clause could be used as a basis to compel companies to reduce their prices.
“It can certainly be used as a basis for discussion, but it can’t be used to compel a company to lower its prices,” he said.
Francois Venter, president of the HIV Clinicians’ Society, said that although he was thrilled by the renegotiated tender it does not necessarily mean that problems with ARV supply will go away.
“Drug stock-outs are not a question of money but of management. Health systems management is a completely separate issue that still needs to be dealt with at provincial level,” Venter said.