Tender purchasing of medicines as strategy for medical services cost containment: in Health Insurance Corporation - Khartoum State Complementary research paper submitted for the award of the M.Sc. degree in Health Economics Supervisor: Dr. Elwasila Saeed Elamin Mohamed PhD in Economics Department of Economics University of Khartoum Submitted by: Ammar Osman AbdAlla Annaw M.Sc. Health Economics University of Khartoum University of Khartoum Faculty of Economic & Social Studies Health Economics Centre

2  To understand the cost components of medical services in HICKS, an actuary seminar on SHI was conducted in December  The main assumption was that “as judged by the Health Insurance Corporation, the future tariffs of the benefit package in the following three to five years is expected to increase by about 20-25% of the current price of the different medical services”. This means that, on annual basis, cost will increase in a range from 3.7 to 7.7 per cent, the size being dependent on the specific medical service [9]. Accordingly, HICKS was advised to conduct a detailed evaluation of cost of medical services under three scenarios, namely: 1. Low scenario: annual medical cost increase 3%. 2. Middle scenario: annual medical cost increase 5%. 3. High scenario: annual medical cost increase 7%. Research Problem and Questions

3  The main question of this research arises from the cost scenarios identified in the actuarial study, particularly the high one. However, the cost of medical services i.e. the cost of the scheme raised from 115,337, SDG in 2010 to 127,093, SDG in 2011 equivalent to an increase of 10.19%. Hence the cost exceeded the highest scenario by about 3%.  The major part of this cost is the cost of medicines which was 50,560, SDG in 2011 i.e. about 40% of the total medical cost (see figure 1-1). Research Problem and Questions (cont..)

4 Figure 1- 1 Medicines cost vs. other medical costs Source: Khartoum State Health Insurance, Opportunities and Challenges, WHO Health Finance consultant, Sep.2011 Research Problem and Questions (cont..)

5  A study about pharmaceutical management strategies of health insurance systems that improve cost-effective use of medicines in LMICs identified many factors affecting the cost of medicines in LMICs particularly the medicines selection, purchasing mechanisms, contracting and utilization management [10].  Accordingly, the research questions can be stated as follows: 1. How to analyze the components of HICKS’s total cost of pharmaceuticals (TCPs)? 2. Is tender purchasing of medicines as strategy contains the total cost of medical services in HICKS? Research Problem and Questions (cont..)

6  The research hypotheses are the following: 1. Tender purchasing of medicines as strategy does not contain the total cost of medical services in HICKS. 2. Tender purchasing of medicines as strategy contains the total cost of medical services in HICKS. Research Hypotheses

7  The research aims to reach the following objectives: 1.To analyze the TCPs provided by HICKS in To investigate the possibility and liability of introducing tender purchasing as a substitute strategy to contain increasing cost of medicines in HICKS. Research Objectives

8  The research methodology is a retrospective, comparative study, namely a cross sectional study.  Thus we would study the medicines consumption during the year 2011 according to current way of purchasing.  We would also analyze the costs of medicines during that year by using Microsoft Office Excel Worksheet.  A comparison between the current way of purchasing in HICKS and other way of delivering the medicines services i.e. tender purchasing-which is the way of medicines delivery system in National Health Insurance Fund in Sudan (NHIF) - would be done.  Accordingly the main outcome is expected to be the possibility and validity of adopting the tender purchasing as strategy or not.. Research Methodology

9  Data required would be of secondary nature and sources and would be collected from HICKS, NHIF the head quarter and Revolving Drug Fund (RDF).  Before using secondary data, we would examine the data in terms of reliability, suitability and adequacy.  Data would be analyzed using SPSS. Since the data is paired, t-test would be used if the data is normally distributed, otherwise nonparametric test would be conducted. Research Methodology (cont…)

10 Table 3-1 Distribution of HICKS medicines list according to therapeutics groups  % of medicines were antibacterials.  % medicines of nervous system &psychotropic agents.  % were cardiovascular agents.  The rest of therapeutic groups were below (10%). Source: Researcher’s calculations. Results & Discussions

11 Table 3- 2 Distribution of total costs of HICKS medicines in 2011 according to therapeutic groups  Antibacterial medicines represent (36.77%) of total costs.  Hormones and endocrine agents represent (13.33%).  Cardiovascular agents represent (11.99%).  The rest of therapeutic groups were below (7%). Results & Discussions

12 Table 3- 3 Distribution of medicines that represent 80% of total costs of HICKS in 2011 according to therapeutic groups  Table 3-3 shows medicines that represent 80% of total costs i.e.116 items.  About (33.62%) were antibacterial medicines.  13.79% were cardiovascular agents.  9.48% were hormones and endocrine agents.  Other therapeutic groups were below (7%). Source: Researcher’s calculations. Results & Discussions

13 Table 3- 4 Distribution of the costs of medicines that represent 80% of total costs of HICKS according to therapeutic groups  Antibacterial medicines lead the list with (43.56%) of the costs.  Hormones and Endocrine agents with (14.75%).  Cardiovascular agents with (11.61%). Source: Researcher’s calculations. Results & Discussions

14 Table 3-5 Comparison between HICKS & NHIF’s TENDER according to therapeutic groups  Out of (405) consumed medicines; the highest percentage was of the antibacterials, (13.83%) of medicines consumed.  Nervous system and psychotropic agents with (12.60%).  Cardiovascular agents with (11.60%).. Results & Discussions

15 Table 3- 6 Cost statistics of HICKS total cost and NHIF total cost scenarios  HICKS total cost’s mean was the highest (160,369.51) and the lowest mean (99,310.17) was of tender total cost.  The highest median (34,254.40) was of HICKS total cost and the lowest (21,004.25) was of tender total cost.  The sum of HICKS total cost was (64, 949,650.97), tender total cost was (40,220,620.16), tender total cost +20 was (48,264,744.20), tender total cost +30 was (52,286,806.21) and tender total cost +40 was (56,308,868.23).  25% of HICKS total costs were below (5,628.50) comparing to (3,377.10), (4,052.52), (4,390.23) and (4,727.94) as in tender total cost, tender total cost +20, tender total cost +30 and tender total cost +40 respectively.  75% of HICKS total cost were below (136,221.25) in contrast to (83,559.70), (100,271.64), (108,627.61) and (116,983.58) as in tender total cost, tender total cost +20, tender total cost +30 and tender total cost +40 respectively.. Results & Discussions

16 Table 3- 7 Medicines consumed in both HICKS & NHIF according to suppliers’ type 108 medicines items represented 26.7% were uni-suppliers’ and 297 medicines items counted for 73.3% were multi-suppliers’. Among all therapeutic groups, there were only two groups totally uni-suppliers’, namely; anesthetics& related agents and Iv-fluids. There was no totally multi-suppliers’ medicines group. There were 12 groups -out of 16 groups- more than 60% of their items were multi-suppliers’ medicines. Results & Discussions

17 Figure 3- 1 Distribution of HICKS total cost  The majority of items cost was in the cost range ( SDGs), by other words the total cost of more than 250 items was below SDGs.  There were very few items lay in the upper two cost ranges ( SDGs) and ( SDGs), not more than 5 items.  The rest of items i.e. less than 150 items lay in the cost ranges between what mentioned upper. Results & Discussions

18 Figure 3- 2 Distribution of tender total cost  The lower cost range ( SDGs) contained the majority of the items, more than 290 items.  The upper two cost ranges were ( SDGs) and ( SDGs), both of them contained only two items.  The rest of items i.e. less than 110 items lay in the cost ranges between what previously mentioned. Results & Discussions

19 Table Test of normality  Table 3-10 showed the test of normality for HICKS total cost, tender total cost and other suggested cost scenarios.  The significance values of both Kolmogorov-Smirnova and Shapiro-Wilk were all less than Results & Discussions

20 Table Wilcoxon Signed Ranks test of consumed medicines in both HICKS & NHIF  Regarding the ranks of “Tender total cost minus HICKS total cost”, the negative ranks were 351 and the sum of them was 69,134 and the positive ranks were 31 and the sum of them was 4,019.  The ranks of “Tender total cost+20% minus HICKS total cost” were 308 negative ranks summed for 60,964 and 70 positive ranks summed for 10,667.  Concerning the ranks of “Tender total cost+30% minus HICKS total cost”, the negative ranks were 263 and the sum of them was 55, and the positive ranks were 121 and the sum of them was 17,  The last situation “Tender total cost+40% minus HICKS total cost” ranks were 241 negative ranks summed for 50,021 and 142 positive ranks summed for 23,515.  P.value of all situations was less than Results & Discussions

21 Table Wilcoxon Signed Ranks test of multi-suppliers’ medicines  The ranks of “Tender total cost minus HICKS total cost” were 272 negative ranks summed for 39,344 and 14 positive ranks summed for 1,697.  Regarding the ranks of “Tender total cost+20% minus HICKS total cost”, the negative ranks were 254 summed for 37,004 and the positive ranks were 29 summed for 3,182.  The negative and positive ranks of “Tender total cost+30% minus HICKS total cost” were 224 summed for 35, and 62 summed for 5, respectively.  “Tender total cost+40% minus HICKS total cost” ranks were 208 negative ranks summed for 31,919 and 77 positive ranks summed for 8,836.  P.value throughout the table was less than Results & Discussions

22 Table Wilcoxon Signed Ranks test of uni-suppliers’ medicines  Regarding the ranks of “Tender total cost minus HICKS total cost”, the negative ranks were 79 and the sum of them was 4,060 and the positive ranks were 17 and the sum of them was 596.  The ranks of “Tender total cost+20% minus HICKS total cost” were 54 negative ranks summed for 2,453 and 41 positive ranks summed for 2,107.  The negative and positive ranks of “Tender total cost+30% minus HICKS total cost” were 39 summed for 1,831 and 59 summed for 3,020 respectively.  The last scenario, “Tender total cost+40% minus HICKS total cost”, ranks were 33 negative ranks summed for 1,473 and 65 positive ranks summed for 3,378.  P.value for all scenarios was less than Results & Discussions

23  HICKS’ medicines list was massive with large number of medicines.  Only 15% of medicines in the list incurred 80% of HICKS pharmaceutical costs.  Antibiotics and chronic non communicable diseases (CNCDs) medicines took the biggest share of this 15%.  HICKS’ pharmaceuticals cost was the highest comparing to NHIF’s pharmaceuticals tender cost and the three suggested tender costs scenarios.  Pooled procurement or tender purchasing mechanism was suitable for purchasing of medicines that produced by many or multi suppliers.  Negotiation, not tender purchasing, was right purchasing mechanism regarding medicines produced by single or uni suppliers. Conclusions

24  Annual revision of HICKS’ medicines especially in terms of prescribing levels.  Periodic analysis of HICKS’ pharmaceuticals cost and other medical cost elements.  Direction of pharmaceuticals cost containment interventions towards the percentage of medicines that incurred most of pharmaceuticals’ cost, especially towards antibiotics and chronic non communicable diseases (CNCDs) medicines.  Adoption of tender purchasing as procurement strategy for medicines that produced by multi suppliers.  Negotiation in procurement of monopolized medicines. Recommendations

25  The prescribing pattern is different between HICKS and NHIF as a result of differences in the demographic aspects and diseases map.  The study was cross-sectional which is known to be weak in verifying causal association, longitudinal and interventional studies are necessary to build up a valuable regression and trends. Study Limitations