Transparency Equals 25 Million Euro in Savings

February 10, 2014

Tony Verheijen B92 Blog

I am told journalists claim that “no news is good news”.  Well, I believe good news show us direction to improve our societies for the better. So, I decided to share one of them with you: the Serbian health sector has saved 25 million Euros for 2014. And we hope in the years to come the savings will be much bigger.

In essence, this was achieved only because the Minister of Health and the director of the Health Insurance Fund made a courageous and revolutionary decision to change the model of procuring drugs. Let me explain.

Until recently Serbia had a system in which each hospital, primary health center and pharmacy procured drugs individually. They were choosing suppliers and brands which will be used for particular disease.  Rather than competing on price, suppliers competed on the amount of “rebates” they offered to the hospital or pharmacy, which were often a third of the purchase price. And, thus, there was disarray and, almost certainly, abuse. For example, Serbia had over 300 drug suppliers, while Austria has only three.  This meant the country couldn’t achieve economies of scale (one of the basic economic rules) and also created high risk of wastage and corruption.

Then the Minister of Health made a decision to go for a centralized procurement system, and she got on board her colleague who heads the Health Insurance Fund. They have chosen to pilot this new system in 2014 by centrally procuring only some third of the drugs used in Serbian health care system, starting with drugs used in hospitals. When the first tender went out there were 22 bidders and 15 of them were winners, so no supplier has a monopoly. These 15 companies will supply Serbian hospitals with selected drugs at agreed prices throughout 2014. The agreement stipulates only the minimum quantity for each drug, which means they can supply Serbia with more, but not with less. The prices achieved through this process were 27 percent lower on average than before. That’s where the 25 million Euros savings come from.

I have heard there were some allegations how this new system will lead to drug shortages. This is a mischievous argument. Namely, through centralized procurement system, the Health Insurance Fund makes the so-called “framework” agreement with selected companies, for selected drugs at an agreed price. Now, every single hospital should make separate agreements with selected companies, for selected drugs at the agreed price. Hospital and pharmacy will still place their orders with the suppliers, who will deliver directly to the facility. The staff in the hospitals will now have more time to deal with other relevant issues. In addition, this system enables patients in Serbia to be treated with the same drug for the same disease equally anywhere in the country.       

Of course, there are many interests which will be affected by the new system. Many smaller, expensive suppliers may have difficulty in this more competitive market. Those who were getting all kinds of incentives from drug companies to use their product instead of another one, will not get these incentives anymore. In short, all those who benefited from higher prices will be losers.  But what is important to have in mind is that the citizens of Serbia in general, and health care users, in particular, will benefit. Let’s also not forget that this is just a start. Applying the centralized procurement method across the whole system -in primary health care centers and pharmacies - will not only bring even bigger savings, it will help increase access to life-saving medicines.  We do believe the good work of the ministry and the fund deserves everybody’s support. 

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