Analysis Of The Public, Private And Mission Sector Supply .

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Analysis of the Public, Private and Mission SectorSupply Chains for Essential Drugs in ZambiaPrashant YadavMIT-Zaragoza International Logistics ProgramDRAFT VersionAugust 2007Please send comments topyadav@zlc.edu.es or pyadav@mit.eduA study conducted for DFID Health Resource CenterThe views and opinions expressed in this report are those of the authors and should not beattributed to the MIT-Zaragoza International Logistics Program, the Zaragoza Logistics Center,DFID Health Resource Center or the policy directors and funders of these research institutes.0

Table of ContentsACKNOWLEDGEMENTS2ACRONYMS31. BACKGROUND42. OVERIEW OF HEALTH SECTOR IN ZAMBIA43. PUBLIC SECTOR SUPPLY CHAIN FOR MEDICINES74. MISSION SECTOR SUPPLY CHAIN FOR MEDICINES145. PRIVATE SECTOR SUPPLY CHAIN FOR MEDICINES16APPENDIX23REFERENCES24

AcknowledgementsThe author gratefully acknowledges the contributions of the individuals listed below who providedinsights and facilitated this study by arranging interviews and other support. Any errors,inaccuracies or omissions are, however, entirely the responsibility of the author.Michael BorowitzDFID, LondonBonface FundafundaDrug Budget Supply Line, MoH, GRZDyness KasungamiDFID, LusakaJane MillerDFID, LusakaMay OngolaMIT-Zaragoza International Logistics ProgramOriol RamisEpirus Consulting, Barcelona (Consultant to MeTA)In addition the following individuals provided inputs through interviews during the visitTom BrownMedical Stores Ltd.Caesar CheeloUniversity Of Zambia, Lusaka.Nicholas ChikwenyaMoH,GRZOliver HazembaMSH, ZambiaMr. K (?)Jubilee Pharmacy, Lusaka.Goodwell LunguTransparency International, ZambiaHenry MalikyamaMoH,GRZClement MandalaNgansa Pharmaceuticals, Ltd.Esnart MwapePharmaceutical Regulatory Agency, Lusaka.Alison NabugwereCanadian International Dev. Agency., LusakaHarold RugaraCirclepharma, ZambiaChristoper SalakaNorthmead Pharmacy, LusakaDavid ThompsonMedical Stores Ltd.Ngoza Phiri YeziTransparency International, Zambia2

AcronymsARVAntiretroviralCHAZChurch Health Association of ZambiaCIDACanadian International Development AgencyCPCooperating PartnerDFIDDepartment for International DevelopmentDRCDemocratic Republic of CongoDSBLDrug Supply Budget LineEDLEssential Drugs ListGFATMGlobal Fund to fight AIDS, Tuberculosis and MalariaGMPGood Manufacturing PracticesGRNGood Received NoteGRZGovernment of the Republic of ZambiaGWPGood Wholesaling PracticesHAIHealth Action InternationalIDAInternational Dispensary Association (procurement agent)LICLow Income CountryMeTAMedicines Transparency AllianceMoFMinistry of FinanceMoHMinistry of HealthMSLMedical Stores LimitedMSHManagement Sciences for HealthMSFMedicines Sans FrontiersOTCOver-the-Counter (medicine)PEPFARPresident's Emergency Plan for AIDS ReliefPRAPharmaceutical Regulatory AuthoritySWAPSector Wide APproachWBWorld BankWHOWorld Health OrganizationZNANZambia National Aids NetworkZKZambian Kwacha (1 US 4050 ZK)3

1 BackgroundTransparent and institutionally strong pharmaceutical supply chains can strongly contributetowards improving access to essential drugs. However, pharmaceutical supply and distributionsystems in most countries are often a complex network of heterogeneous stake-holders from thepublic, private-for-profit and private-non-profit sectors. The purpose of this report is to provide anoverview of the different players, their roles and functions within the public sector, the privatesector and the mission sector supply chain for medicines in Zambia. We present these supplychain maps with additional considerations on possible entry points for the MeTA initiative withinthe various functions outlined in this report.The methodology used for this study consisted of primarily qualitative and some quantitativeanalysis. The study traces the flow of essential medicines from the manufacturer to the patient inthe three sectors outlined above. Primary research was conducted using in-person interviewswith various stake-holders in the supply chain in Zambia. A template to assess role andresponsibilities and the extent of markups at each stage was used wherever possible. This initialstudy was used to assess the feasibility and value of a detailed supply chain mapping exercise forthe MeTA initiative. This should be viewed as a preliminary-level study as all information couldnot be obtained in the short time frame.2 Overview of Health Sector in ZambiaZambia is classified as a low income country and has a population of 11.6 million. The publicsector is the largest provider of health care in Zambia followed by the Churches HealthAssociation of Zambia (CHAZ) member institutions and the mine hospitals. The for-profit privatesector is relatively small in Zambia as compared other countries in the region such as SouthAfrica. Interestingly, Zambia is also one of the most urbanized countries in sub-Saharan Africa,with approximately 38% of the population living in urban areas.Malaria is the primary public health problem in Zambia with an estimated 3.5 million cases in2004-05. HIV/AIDS also is another key public health problem with approximately 1.1M peopleliving with HIV/AIDS of which only 75,000 are on antiretroviral therapy.Table 1 : Health and demographic indicators (Source: UNAIDS, MoH GRZ Annual Report 2005)Population11.6 MillionPer Capita Government Health Expenditure (Intl dollar rate) 26Percentage of people living with less than US 2 a day87.4%Number of people living with HIVProvinces1.1 Million9Districts724

The MoH annual report released in September 2006 lists erratic supply of drugs and inadequatelogistics for health services delivery as two of the six main challenges facing the health system.The report also states that the need for pharmaceuticals in Zambia is roughly 21 million.Health care in Zambia is provided through a network of public sector facilities, complemented bymission facilities in the rural areas, mine hospitals in the Copperbelt province and a small butgrowing private sector largely in Lusaka and other urban areas.Public SectorPrimary health care in the public sector is provided by primary health centers that service acatchment population of between 30,000 and 50,000 (urban areas) or a designated catchmentarea of 29km (rural)1.The public sector system consists of one general hospital in each provincial center and a districthospital in each district. There are many primary health centers (typically 20 ) under each of thedistrict hospitals but their number varies from region to region. Some areas also have healthposts that offer a very limited range of health care.In urban areas there is a small user fee to access the public health system but access is free inrural areas. Drugs are dispensed free of charge in both rural and urban centers in the publicsector.Mission and mine hospitalsMission and church hospitals are usually located in the rural areas of the country. According toestimates, between 20-30% of health care in Zambia is obtained through the mission hospitalsand clinics (this fraction is much higher in the rural areas). The Churches Health Association ofZambia (CHAZ) is an organization which collectively represents these hospitals and healthcenters (approximately 97 member institutions 28 non member institutions) and doesprocurement and storage for them. CHAZ works in close partnership with the MoH and withZambia National Aids Network (ZNAN) to procure, store and distribute drugs to certain publicfacilities.In the Copper-belt province there is also a strong presence of mine hospitals. These healthfacilities are for the mine employees and were largely funded by the mining companies. Thesehospitals now have a quasi public status and many of them are supplied drugs by the publicsystem.In addition, organizations such as MSF operate their health facilities in the border areas withCongo (DRC) to cater to the health needs of refugees from DRC. Similar clinics exist aroundother orders of Zambia and are operated by different NGOs.5

Private (for-profit) facilitiesPrivate-for-profit health facilities are limited to the urban areas either around Lusaka or in theCopperbelt province and occasionally in Livingston. Some private clinics also dispense drugs.There is no clear distinction between a private clinic and a private hospital. Patients seekingtreatment in the private sector purchase drugs primarily from retail pharmacies which are againconcentrated in Lusaka and the Copperbelt and very few (most respondents said none) in therural areas. In addition to registered pharmacies, drugs are also sold in drug stores as over-thecounter (OTC) medicines. There is also a small market for drugs that are sold in non-fixedstructure stores that are located either in far flung rural areas or in the shanty compoundsneighboring Lusaka.In the following sections we provide sector-by-sector maps of the supply chains and analyze thekey issues and challenges.1Source: Global Fund background paper on Zambia6

3 Public-Sector Supply Chain for MedicinesThe public sector contributes to over 60% of health care obtained in Zambia. In figure 1 weprovide an ‘at-a-glance view’ of the public sector supply chain with salient characteristicspertaining to Zambia. Each of the functions is then analyzed in detail.RegistrationPRA is severelyunderstaffed andhas skeletalsystemsinfrastructure tohandle thisfunctionNo clearrequirements onlabelling ormarketingcurrently exist butare being plannedLow fees for drugregistrationCurrently, there islittle capacity tocarry out routinequality testing ,pharmacovigilance orother ementDistributionDeliveryEDL prepared bythe pharmacy unitat the MoHMoH isresponsible forthis functionMedical StoresLtd. carries outthis functionConsistent withWHO EDLA combination ofInternationalTenders,RestrictedTenders andLocal Purchasingis usedOperationalmanagement ofMSL isoutsourced toCrown AgentsDispensing ofpharmaceuticalsis carried out atmost healthfacilities free ofchargeBudget and costbenefit analysis isused to guidedrug selectionSelection (andquantification) isbased onresourceavailability anddoes not alwaysreflect true needsPRA also toregulate andmonitor theprivate market forpharmaceuticalsGFATM portion ofthe procurementis done throughIDADBSL (within theMoH) carries outthe key role ofcoordinating thefunding streamsof different CPswith the drugneeds andprocurementplansGreater flexibilityin procurementoptions and theuse of frameworkcontracts requiredReasonably goodstorage, demandmonitoring, orderfulfilment andinventory trackingcapabilities atMSLThe challenge liesin managingoptimal stocklevels becauseprocurement leadtimes are highlyuncertainThe author doesnot haveadequateinformation tostate whether ornot adverse drugmonitoring andpatientcomplianceinformation isrecorded in asystemic mannerat the healthfacilities andcommunicated tothe district/centrallevels.Little visibility ofdistribution fromthe district level tothe primary healthfacilitiesPoor demandmonitoring andvisibility at lowerechelonsFigure 1 : Characterizing the public sector supply chain for medicines in ZambiaRegistrationThe Pharmaceutical Regulatory Authority of Zambia (PRA) has the responsibility to register alldrugs before they can be imported or sold in Zambia. The PRA is still in a state of transition as itwas formed in 2004 from the former Pharmacy and Poisons Board (PPB). Its responsibilitiesinclude i) product registration, ii) licensing of pharmaceutical establishments and iii) postmarketing surveillance.7

Approximately 500 new drug applications are received every year in Zambia. The fee forregistering a new drug is only 150 as compared to 1000 in some other countries in the region.Despite that, many unregistered drugs can be found on the market. These include drugs whoseregistrations have expired or drugs that were never registered. In addition, herbal medicines arealso found on the market. The PRA wants to include these herbal and traditional medicines underits purview but currently has very little capacity to do that.The time required to register a new drug can vary significantly although prioritized registration iscarried out in special circumstances. There is no two-tiered system for product registration todifferentiate between products that have received regulatory approvals by other regional or globalregulatory authorities and those that have not. The variability in the approval time is attributed tothe lack of people and skills to evaluate the dossiers. The PRA relies on quality and safety dataprovided by the manufacturers and has virtually no capacity to do its own tests and qualitychecks. It has 3 quality mini-labs that were provided by the WHO and MSH and plans to have amedium sized quality control lab by 2010.The PRA currently has very little capacity to carry out its other two roles of licensingpharmaceutical establishments and post-marketing surveillance. There is lack of a fleet for theinspectorate and a lack of trained GMP/GWP inspectors to successfully monitor the privatepharmaceutical market in Zambia. Also, it is not clear if policy decisions will mandate the PRA tobe actively involved in regulating or monitoring wholesaler and retailer markupsSelectionCost benefit analysis and other efficacy data are used to update the Essential Drug Listperiodically. This activity is carried out primarily by the pharmacy unit within the MoH. WHOrecommendations on Essential Drugs List (EDL) in resource constrained setting are used toupdate the list. The author did not have enough time to ascertain other details of the selectionprocess during the visit.ProcurementBefore delving into the procurement function in detail it is important to understand the financialflows for procurement in Zambia (many of which are typical for low income countries). The MoHrelies extensively on external donors (Cooperating Partners or CPs) for the national drug needs.The CPs can be categorized into three typesi)those who buy drugs and provide in-kind assistance with drugs (e.g. CIDA,PEPFAR)ii)those who bring money in-country to purchase drugs (e.g. GFATM)iii)those who provide budgetary support to the MoH (e.g. DFID)8

In the past this led to a coordination problem across programs that were buying drugs. It led toflooding of some drug and shortages of other drugs as CPs would not purchase a certain drugassuming others were buying it. The shortages led to emergency procurement by both the MoHand at times by the CPs. Also, this had on various occasions resulted in CPs bringing in drugsinto the country that were not even on the essential drug list. Those who procured from thecountry are now asked to contribute to the drug-basket (SWAp) and others who provide drugs inkind now play the role of filling in any gaps or short-tem shortages. The drug supply budget line(DBSL) within the MoH plays the role of coordination across multiple CPs and the MoH budgetand procurement plans.CoordinatedFunds to Needs MatchingProcurement Plan and BudgetMoHFunds release schedule from MoF/MoHPayment terms etc.Donors(CPs) Funds CommittedDisbursement PlanPurchasing restrictionsDrug Supply BudgetLine (DSBL)Drug SelectionQuantificationProjected RequirementsPlanned vs. Actual Stock LevelsFinance andAccounts UnitPharmacyUnitProcurementand SupplyUnitNationalMedical StoresFigure 2 : Coordination role of the DSBL in Zambia public sector supply chain (adapted from aslide by Bonface Fundafunda, head DSBL)The drug procurement function in Zambia requires many institutions to be involved and can oftenbe a coordination challenge. The MoH receives funds for health financing from both the Ministryof Finance (MoF) and the bilateral and multilateral Cooperating Partners. Some CPs channel theirfunds directly to the MoH and others channel it through the MoF. The MoF makes the fundsavailable to the MoH for drug purchasing based on a quarterly/monthly disbursal schedule. Thisoften leads to purchasing in fragmented quantities some of which are too small to even float aninternational tender. Thus the MoH pays a higher price for drugs that could have been procuredcheaper if international bulk procurement was carried out. The MoF often cites poor accountabilityas the reason for controlled and staggered disbursal of the budgeted funds to the MoH.The pharmacy unit at the MoH carries out the quantification and forecasting and this inconjunction with the needs communicated by the national medical stores and availability ofresources is used to create a procurement plan. The required quantities are then converted into a9

value based on international reference prices available from the MSH price survey. If the valueof the bid is higher than ZK 2.5 Billion, the tender is floated by the Zambia National Tender Board(ZNTB). For smaller value bids the MoH is authorized to float the tender. In practice howevermost tenders go through the ZNTB as the MoH threshold is very small.In the event of a stock-out, emergency purchases in smaller quantities are made by the MoHwhich do not follow the above outlined process. Private in-country importers are awarded thecontracts for such emergency procurement. Additionally, the districts and provincial hospitals arepermitted to spend a tiny fraction of their total budget (between 4%-10%) for emergency drugpurchases when the national medical stores cannot supply them.In the event of a severe shortage of essential drugs (crisis) some CPs tend to support the MoH byexpedited purchasing of the required drugs. This however leads to the consequences of a stockout not being perceived as severe by the MoH procurement staff because over a period of timethey may have become conditioned to the fact that if the delivery or procurement drastically fails,they can always depend on the CPs as a ‘measure of last resort’.DSBLMoF FundsDisbursement Schedule Funds Disbursement Plan(Direct Contributors) Funds Disbursement PlanTime-PhasedNeeds Quantification and ForecastProcurementand SupplyUnitCompute approximate valueusing InternationalReference Prices (MSH)Prepare Draft bidDonors(CPs)Is value 520,000PharmacyUnitNationalMedical StoresNationalTender Boardfloats tenderFinance andAccounts UnitMoH FloatsTenderOpen L/CContract ManagementFunds Disbursal to selected supplierFigure 3: Public Sector Procurement Process in Zambia10

The MoH procurement unit has started to utilize framework contracts with a few local suppliers toavoid the long lead-times (2 months to 8 months) associated with procuring through the regularinternational open-tender process. Such framework contracts also need to be setup with a fewlarge international suppliers where the price and lead-time terms are set per a long-term contractand quantities to be shipped are communicated periodically. However, currently large donors donot permit such arrangements or it is viewed as a competition limiting measure by variousothers.2DistributionMedical Stores Limited (MSL) is the national medical store and it manages the storage anddistribution of drugs for the MoH. The government has contracted out the management of MSL toCrown Agents. The MoH pays Crown agents a management fee to run the efficient working ofMSL. Operating expenses are paid directly into the MSL account. Capital investments that wererecommended by Crown Agents have been implemented and better physical infrastructure forstorage and distribution now exists at the MSL. MSL currently has a staff of 85 including CrownAgents management personnel.Each district is served once a month by MSL (some may require additional deliveries) incompliance with a preset schedule. All districts are required to place their orders before a presetdate each month (hand-delivered or faxed) and then MSL prepares and ships the orders usuallywithin a week if in stock. MSL has a fleet of 14 ten-ton trucks for delivery and fixed route plans forthe deliveries are made every year and updated based on any new demand/ route informationThe distribution system follows a pull

Association of Zambia (CHAZ) member institutions and the mine hospitals. The for-profit private sector is relatively small in Zambia as compared other countries in the region such as South Africa. Interestingly, Zambia is also one of the most urbanized countries in sub-Saharan Africa, with approximately 38% of the population living in urban areas.

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