DRUG FINANCING IN ETHIOPIA - WHO

capita for low income countries. The situation would be worse if we consider only thepublic drug budget. The per capita share of the government expenditure on drugs was Birr2.94, Br 2.66 and Birr 3.80 in 2003/04, 2004/05 and 2005/06, respectively.A study quoted in a WHO document published in 1997 suggested that USD10 to USD 50should be enough to satisfy the entire need of the population in a country.Sources of Drug Expenditure: The main sources of drug expenditure in Ethiopia in orderof importance are: households’ out-of-pocket account for 47% of the total drugexpenditures. Donor’s sources cover 27% and NGOs 16%. Federal and RegionalGovernment sources from taxes and revenue cover about 10% of total drug expendituresand private employers only 0.2 %. The Government share in drug finance is small whereasthe share of donors and NGOs is high reflecting the recent increases in funding from globalsources.Government Expenditure on Drugs: The Federal and Regional Government share inexpenditure on drugs has been falling from 2003/04 – 2005/06. In particular regionalgovernments have been allocating fewer funds for drugs. This is in spite of the fact thatduring the period under consideration the costs of drugs have been increasing.Donors Expenditure on Drugs: The contribution of donors on drug financing has beenincreasing over the three years covered by the study. The increase in donor financing camefrom major global initiatives instituted recently to support the health sector. This has beenvery useful in making drugs available in the health facilities.House Hold Expenditure on Drugs: The private out-of-pocket payment is the largestsingle source of drug financing. The amount in absolute terms grew from Br 934.8 millionin 2003/04 to a level of Br 1.146 billion in 2005/06. Its relative share, however, continuesto decline from 62.3% in 2003/04 and 52.2% in 2004/05 to 47% in 2005/06.NGO Expenditure on Drugs: NGOs are important providers of drugs and drug fund formany programs in Ethiopia. Many NGOs are involved in development activities, but only afew are in the health services and a limited number of them are helping communities tohave access to drugs. During epidemics and in connection with serious health threats likeHIV/AIDS, NGOs provide drugs through different programs in Ethiopia. In 2005/06, theshare of NGOs was 16.2%, which is a big jump from 4.4% in 2004/05.Parastatals Expenditure on Drugs: These are state owned commercial organizationsmanaged differently from civil service organizations. They provide health services like freemedication based on specific collective agreements with their labor unions. They have verylittle contribution to the national drug fund. It was only 0.4% in 2005/06.Private Employers Expenditure on Drugs: Private employers arrange insurance schemesfor the health of their employees. Drug costs are covered by these schemes. The scheme isat its rudimentary level and the contribution to the national drug fund is only about 0.2%.Private employers sometimes cover medical expenses of their employees by providing the2

services at their own health service providers or they refund expenses met by theiremployees.Policy Implications of the FindingsOverall Expenditure on Drugs: Both the overall level of expenditure and per capitaexpenditures in Ethiopia are low when compared with global and regional standards. Thisis because finance available for drugs from all sources is quite limited. This low level ofexpenditure becomes even more glaring if further examined form the point of view of thehigh disease burden in the country. Therefore, a review of budget allocation for drugs istimely; seeking ways and means of increasing drug funds from sources that help ensureequity and sustainable financing should be the prime issue in drug policy review.Government Expenditure on Drugs: The decline in drug budget allocation andexpenditure by the government is worrying. It means that less and less drugs would beavailable for the health facilities. This is not a healthy development. Particular attentionshould be given to this fact and measures to correct the decline should be considered.Donors Expenditure on Drugs: While it is necessary for scaling up health interventionsand improving health services delivery, NGO assistance or donation should becomplementary to government effort. Excessive dependence on aid should be avoidedsince it not sustainable. It is very important to consider appropriate drug financingmechanisms to ensure an uninterrupted supply of drugs in the event of suspension of drugfunding from donors. A policy has to be forged out to prepare the nation for sucheventuality.House Hold Expenditure on Drugs: The share of out-of-pocket expenditure on drugs isvery high. This implies that a large segment of the population purchase their drugs fromprivate drug retail outlets where prices of drugs are quite high compared to their prices inthe public sector. This results in low economic access to drugs, particularly by the poor,and creates equity problem.It is believed that out-of-pocket spending is a result of failure by the government toallocate sufficient resources and absence or inadequacy of other drug financingmechanisms which ensure sustainable and equitable access to drugs (e.g. insurance). 47%out-of-pocket spending in a country where nearly half of the population lies below povertyline introduces a lot of inequalities in the system. Therefore, there is a need for diversifyingthe health-financing portfolio in the country.The new initiative to develop social insurance by the MOH is a good start but this schemeneeds to be further expanded and look for ways to capture the majority of the poor. It isalso necessary to expedite the implementation of the revised waiver and exemption systemby the MOH.3

The Role of Insurance Intermediaries in Managing Drug Financing: In developingcountries, insurance companies are useful in managing funds from policyholders. InEthiopia, the role of the insurance companies is very much underdeveloped. Policies mayhave to be devised in order to help insurance companies play a more dominant role inmanaging funds. Although parastatals and private employers have used these, the schemesare at rudimentary level and the contribution to the national drug fund is small. This couldbe a growing sector provided that there is a well thought-out and well planned policyframework.The Role of Social Insurance: Social insurance includes schemes like employers druginsurance (along with health insurance), mutual fund for drugs, community drug schemesand other policies, which ensure that premium payments are according to ability to pay anddrug provision is according to needs. This way, the burden is shared among a larger groupand drugs are made available for a wider portion of the public. Such schemes must beconsidered as part of drug access policy framework. FMOH is currently developing suchschemes and this is a commendable beginning.Policy RecommendationsIt is recommended that sustainable and workable drug financing mechanisms should beintroduced in the country to ensure adequate and regular drug supply as well equitableaccess to them by taking the following measures: Increase government drug budget allocation to ensure sustainable and equitable access todrugs, particularly by the poor. Develop policy framework for the creation of diversified drug financing portfolio byinvolving stake holders such as government, the private sector, multilateral and bilateraldonors, NGOs, health professionals’ and the public representatives Expand comprehensive social insurance to address the issue of equity by risk –sharingmechanism. Expand further the new initiative of the Ministry of Health to develop social insuranceand look for ways to capture the majority of the poor. Expedite implementation of the revised waiver or exemption system of the Ministry ofHealth. Give due attention to the establishment of data recording and reporting system atdifferent levels of the drug supply chain such as health facilities, regional health bureaus,woreda health offices and other procurement and distribution organizations. Undertake similar studies at appropriate time intervals to track trends in drug fundallocation and expenditure as well as monitor progress towards establishment ofadequate and sustainable drug financing mechanism in the country.4

1.INTRODUCTION1.1Geography, socio-demographic and economic dataEthiopia has a total land surface area of about 1.1 million square kilometer and anestimated population of 75 million in 2005/06 of which 84% live in rural areas. Thecountry is a Federal Democratic Republic divided in to 9 National Regional States,namely, Tigray, Afar, Amhara, Oromiya, Somali, Benishangu-Gumuz, Southern Nationsand Nationalities and Peoples Region (SNNPR), Gambell, Harari and two AdministrativeStates (Addis Ababa City Administration and Dire Dawa City Council).Enrollment at the primary level has increased substantially in the last decade. However, itis still 64% (54% for females). Literacy rate is only 29%. Life expectancy at birth is 54.4for females and 53.4 years for males (1).The economy is mainly agrarian and agriculture accounts for 54% of the Gross DomesticProduct (GDP), employs 80% of the population and contributes to 90% of the export. Theannual per capita income in 2004 was US 110 and the GDP at current market price in2005/06 was 112.6 Billion Birr. (2). About 47% of the populations live below poverty line(3).1.2The health sector1.2.1Health statusEthiopia has poor health status largely attributable to preventable infectious diseases,nutritional deficiencies.The major health indicators include: Infant mortality rate 77 per 1000 live births, maternalmortality rate 673 per 100, 000 live births and Under 5 mortality rate 123 per 1000 livebirths. Potential health service coverage and EPI coverage were 76.9% and 75.6%,respectively. However, the health service utilization was 0.33. Adult prevalence ofHIV.AIDS is 3.6% (Urban 10.5%, Rural 1.9%) (1). Access to safe drinking water andexcreta disposal system were 37% and 29%, respectively (4).1.2.2The health delivery systemThe health system is guided by the National Health Policy issued in 1993 (5) and theHealth Sector Development Program (HSDP), which is currently in its third phase ofimplementation, provides a long term plan framework.The health service delivery system has a three-tier pyramidal structure with Primary HealthCare Units (PHCUs) at the base followed by district hospitals, zonal hospitals andspecialized hospitals up the hierarchy in that order. A PHCU consists of a health Centerwith 5 satellite health posts which serve as first contact points of the health service.The Federal Ministry of Health (FMOH) and Regional Health Bureaus (RHBs) areresponsible for the issuance of policy and guidelines for implementation of health careprograms. These levels oversee the strategic direction of the health sector as policy makers,manage overall resource allocation and monitor policy targets and outcomes. They ensure5

that adequate and regular supply of effective, safe and good quality drugs, medical suppliesand equipment at affordable price to reach the regions.Below each RHB, there are Zonal Health Departments (ZHDs) and Woreda (District)Health Offices. A Zonal Health Desk currently functions as sort of a branch to a RegionalHealth Bureau. Its major role is coordination and serving as a bridge between the regionsand Woreda Health Offices (WoHOs), which are structurally positioned below ZonalHealth Departments. The ZHD also provides technical support to woredas.Woreda health Offices ensure that health facilities deliver required services, providefunding and give guidance and support in planning and setting of appropriate targets. Theymake sure that each facility gets appropriate resources to reach agreed upon targets. Theyare responsible for coordinating and organizing supportive supervision, for timely supplyof sufficient drugs and medical supplies to each health facilities and for efficient utilizationof these resources. They are also responsible for ensuring the availability of staff fordelivery of health services in the Woredas. The Woredas manage the PHCUs.1.3The pharmaceutical sector1.3.1Policy and regulationThe pharmaceutical sector is guided by the National Drug Policy (6). The HSDPIII haseight components one of which is “Pharmaceutical service”. Proclamation No. 176/99provides the legal basis for the regulation of the sector and the Drug Administration andControl Agency (DACA) was established by this proclamation. The Regional HealthBureaus and Woreda Health Offices also participate in the regulation of the pharmaceuticalsector.1.3.2Procurement and distributionThe goal of the pharmaceutical sector is to ensure the regular and adequate availability ofsafe, effective and of good quality drugs and medical supplies at affordable price and theirrational use.The national demand for drugs and medical supplies is met through, import (purchase anddonation) and local production. Governmental organizations, private importers, NGOs andInternational Agencies such as UNICEF, WHO, etc. participate in the import anddistribution task. The local production is done by governmental and private companies.Currently, there are 8 private factories and one government owned factory engaged in thelocal production of drugs and medical supplies.Local and International procurement for the public health facilities is mainly done by twogovernmental agencies called PHARMID and Pharmaceutical Supply and LogisticsDepartment (PSLD) of the FMOH. PHARMID distributes drugs and medical supplies toall regions through its eight wholesale distribution branch offices located in differentregions. The RHBs and Woreda Health Offices also procure drugs from PHARMID,6

PSLD, as well as private suppliers and distribute to health facilities. Currently, about 61private importers and wholesalers (private suppliers) are involved in the procurement anddistribution task.In 2005/06, there were 246 pharmacies, 475 drug shops and 1754 rural drug vendors whichdispense drugs directly to consumers (1). The overall procurement and distribution ofdrugs and medical supplies from Federal level to public health facilities and users is shownin the figure below.Fig 1.1 Flow of procurement and distributionFederal LevelDisease Control& PreventionDeptPrivate importers &Wholesalers, NGOsPSLDPHARMIDUNICEFFamily HealthDepartmentPrivateSuppliersRegional HealthBureausZonal HealthDepartmentsRegional LevelWoredasPHC FacilitiesSource: Adapted from HSDP II Evaluation Report1.4Definition of drug and drug financing1.4.1Definition of DrugAccording to Proclamation No 176/19999 of FDRE, drugs are defined as follows:"Drugs" are substances used in the diagnosis, treatment, mitigation or prevention ofdiseases that include narcotic and psychotropic substances, pesticides, animal foodadditives, poisons, blood and blood products, vaccine, sera, radio activepharmaceuticals, cosmetics and sanitary items, medical instruments and medicalsupplies.“Medical Supplies" include articles for diagnosis or treatment of diseases such assuturing materials, syringes and needles, bandages, gauze, cotton and other similararticles, artificial teeth, chemicals and x-ray films;“Medical equipments" include various diagnostic, laboratory, surgical and dentalmedical instruments (7).7

However, for the purpose of this study, the term “Drug” encompasses modern humandrugs, medical supplies and medical equipment. It does not include animal drugs,traditional medicine, pesticides, poisons and raw materials for domesticmanufacturing.1.4.2What is drug financing study?Drug financing study is part of National Health Accounts study and it describes theflow of drug funds through the pharmaceutical system of a country. It shows wheredrug funds come from, who spends them, for whom and how much. This informationhelps policy makers and other stake holders to monitor trends of drug fund allocationand expenditure over time and develop policy and appropriate drug financingmechanism to ensure access to medicines.Figure --- shows the triangular relationship between patients (consumers), providersof drugs or pharmaceutical services and payers for drugs.Figure 1.2 Relationships in drug financing.Patients(Consumers)Direct payment /exemptiondocumentProviders of drugsDrugsTaxes orpremiumsInsuranceCoverageRequest,Claims, BillsBudget /PaymentAllocators / Payers(Government, Insurers)Source: Adapted partly from (8).In the Ethiopian case, the principal sources of drug funds include government(MoFED), private sector (households and employers), and external sources (donorsand NGOs). Drug providers (health facilities, drug dispensing outlets) receive fundsfrom the payers/intermediaries (MOH, MOE, insurance companies, etc) and use8

them to pay for drugs. Patients (Consumers) receive drugs from the providers upondirect payment (out-of-pocket) or through insurance coverage or free of chargedepending on the predetermined modalities of payment.1.5Rationale for the StudyHealth is a fundamental human right. Access to health care, which includes access toessential drugs, is a prerequisite for realizing that right. Essential medicines save livesand improve health when they are available, affordable, of assured quality andproperly used (9).Providing access to affordable essential medicines is also one of the targets (Target17) set for achieving the he

EC Ethiopian Calendar EDL Essential Drug List EDM Essential Drugs and Medicines EPI Expanded Program of Immunization ERCS Ethiopian Red Cross Society ETB Ethiopian Birr . basis was only 32 Birr or 3.80 USD in 2006/06. This figure is only 45% of the average per . 2 capita for low income countries. The situation would be worse if we consider .