By Steve Mbogo and George Omondi
23 May 2011
The cost of drugs for treating chronic diseases is set to drop in public health facilities by up to 30 per cent as the government moves to lock out private middlemen from the supply chain.
The state-owned Kenya Medical Supplies Agency (Kemsa) says it will expand its parallel wing in the next three months and stock it with all the essential drugs that patients have traditionally bought in the open market due to shortages in public facilities.
This means that the agency will now handle all drugs required at referral hospitals, dispensaries and health centres, public schools and colleges, council health facilities and state corporations, the agency’s CEO, Dr John Munyu, said.
“This not-for-profit venture will ensure that the Sh3 million that each of the public hospitals spend every month to buy additional drugs from the open market is used to obtain them cheaply from Kemsa,” Mr Dominic Kabiru, Kemsa’s spokesperson told the Business Daily last week.
The 40 per cent supply threshold, which it provides to public health facilities free of charge will be retained in the new arrangement, but the institutions will have to obtain the additional 60 per cent at prices of at least 30 per cent below market rates at its stores to be set up in Nairobi, Mombasa, Kisumu, Nakuru and Eldoret.
The new shift in strategy is backed by Sh600 million seed money from the World Bank, commitments from other multilateral donors and Kemsa’s allocation of Sh2.5 billion that will enable the agency buy drugs in large quantities, saving millions of shillings in per unit costs. It seeks to entrench Kemsa in an industry with estimated turnover of Sh27.12 billion, representing a growth of 15.4 per cent year-on-year, according to international research company, Business Monitor International.
The research firm said the value of Kenyan pharmaceutical market will reach Sh56.2 billion by 2014 and Sh95.44 billion by 2019.
Dr Munyu said the move to take complete control of drug supply network of public facilities would also help in plugging the 30 per cent annual budgetary shortfall and strengthen the agency’s quest to take the affordable medicine to a wider portion of low income earners. It means Kemsa will now import costly medicines for treatment of diseases like diabetes, heart problems and other lifestyle diseases, which some private pharmacists sell at margins of more than 500 per cent.
The agency had initially indicated it will expand its supply networks to include private health institutions but backed down after private drug suppliers mounted campaigns to force it to pay taxes saying its involvement in trade could distort market.
“Studies conducted by organisations including USAid have shown that this will be a win-win strategy for the government and consumer,” said Mr Kabiru
Key drugs manufacturers said the move by Kemsa would have a higher impact on retail prices once the many middlemen who out-price drugs are squeezed out of the distribution chain. “The price margin enjoyed by the retailers of pharmaceuticals in Kenya goes up to 60 per cent compared to 15 per cent in the European Union,” said John Musunga, the managing director of pharmaceutical manufacturer GlaxoSmithKline. “What Kemsa is likely to achieve is the price correction because the private sector pharmaceutical distribution network is very well served in terms of access.”
The move by Kemsa comes at a time that consumers are forced to dig deeper into their pockets to pay for the escalating cost of healthcare. The cost of medical services in Kenya has been rising by estimated 20 per cent annually since 2007 up to end of last year, according to data from insurance firms that bear the direct costs of health services.
“Kemsa can provide cheaper and high quality medicines through its bulk procurement networks and stringent profiling of their suppliers but their entry into the market must be right,” said Dr Dominic Karanja, the National Chairman of Pharmaceutical Society of Kenya. He said the procurement and related governance issues must be adhered to ensure its entry does not lock out private sector suppliers.
Players said pricing plays an important part pharmaceutical industry and any new player with better prices for quality products will assume dominance. “For us, we would buy from Kemsa just like any other supplier as long as the pricing is good. The private sector healthcare industry is very price sensitive,” said Dr Ernest Mureithi, the CEO of Karen Hospital. “The private sector supply system is very okay. We find the suppliers have most of what we require,” he added.
Low investment in public healthcare has meant that most Kenyans seek their medical services from relatively well equipped private hospitals that in turn charge high cost,Statistics show Kenyans pay for 52 per cent of their medical needs from out-of-pocket payments. Annual government health spend averages five per cent of the national budget, Sh50 billion this year, way below the standard World Health Organisation recommendation of 15 per cent or Sh150 billion based on current budget estimates.
Kenya Pharmaceutical Distributors Association said Kemsa should, however, first ensure adequate supply of essential drugs to public hospitals before it ventures into the private sector supply system. “Private sector pharmaceutical market operates on up to 90 days of credit and it’s often difficult for some pharmacists to pay. Kemsa must come prepared to face such realities,” said the association’s chairman, Dr Kamamia Murichu.