Executive summary

In many countries, the relative roles of the public and private sectors are undergoing change. This is true for the pharmaceutical sector as well as for the overall health sector. It is essential that changes in public-private roles are designed so as to promote drug accessibility and rational drug use.

This document is targeted at policy-makers and managers at country, regional and international levels. It draws on experience and analysis to provide a practical guide to how public and private roles may affect drug accessibility and rational drug use.

Questions on public-private roles

This document addresses seven main questions:

1. How is the pharmaceutical market organized and what makes it different from other markets?

2. What are the essential responsibilities of the state in the pharmaceutical sector?

3. What is the current public-private mix in pharmaceutical markets?

4. Can market mechanisms help to improve efficiency and ensure access to essential drugs in the public sector?

5. What mechanisms best promote the availability, affordability and rational use of drugs in the private sector?

6. What role should the government play in the manufacture of pharmaceuticals?

7. What capacities are needed to manage changing roles and how can these capacities be enhanced?

Principles for assessing public-private roles

The changes in public-private roles in the pharmaceutical sector are interlinked with broader changes occurring in the macroeconomy, through health sector reform, and in the structure of the pharmaceutical industry. This context is described in this section. In addition, four principles are proposed for assessing public-private roles in the pharmaceutical sector:

· equity of access;
· efficient use of resources;
· rational use of drugs;
· drug quality.

Pharmaceutical markets: structure and performance

Pharmaceutical markets differ from markets for most other commodities, and even from markets for health care. This partly relates to the fact that drugs are a rather special commodity. Used appropriately they can save lives and improve health; used inappropriately they can be very harmful. Private drug markets are likely to suffer from a number of problems (known as market failure) including:

· informational imbalances between different actors in the sector;
· lack of competition created by patent protection, brand loyalty and market segmentation;
· external benefits in drug consumption.

In addition, unregulated drug markets will also create substantial inequity, particularly in terms of access to drugs. The special nature of drugs and of health care has led to complex market structures. To offset market failure governments have often engaged in drug financing and delivery - although not always with the desired effect. Private for-profit and not-for-profit actors also play key roles in the market.

Essential state responsibilities

Government intervention is required for pharmaceutical markets to function effectively. This section sets out the minimum functions for which government must take responsibility in the pharmaceutical sector. These are:

· policy-making (developing, implementing and monitoring national drug policies);

· drug regulation (licensing and inspecting premises and manufacturers, registration of drugs, control of marketing and independent drug information, and postmarketing surveillance);

· professional standards (education and licensing standards for pharmacists, doctors and other health professionals, developing and enforcing codes of conduct);

· access to drugs (subsidizing essential drugs for the poor and for communicable diseases, supplying drugs through government health services and ensuring universal access);

· rational use of drugs (establishing standards, educating health professionals and supporting public and patient education).

The public-private mix in drug markets

In terms of the pattern of public and private roles globally, data confirm the importance of the private sector in pharmaceutical production and supply, particularly in developing countries. In many countries of Asia, Latin America and the Middle East, over three-quarters of pharmaceutical expenditures are privately financed. Moreover, drugs in these countries account for a much larger proportion of total health care expenditures (often around 40%) than in established market economies.

Market mechanisms in public drug supply

Can market mechanisms help to ensure access to essential drugs in the public sector? This section describes ways in which market mechanisms have been used to strengthen public drug supply systems. These mechanisms include:

· autonomous drug supply agencies;
· direct delivery contracts;
· primary distributor systems.

Despite widespread efforts to reform old-style central medical stores there is very little empirical evidence on which to base policy decisions. While market mechanisms may be appealing strategies for reform, since they leave overall responsibility for drug supply in the public sector, there are a number of questions about their potential effectiveness which need to be addressed, namely:

· Will real competition take place?
· Can drug quality and service quality be maintained?
· Will efficiency actually improve?
· Can governments effectively negotiate and monitor contracts?
· Will there be sufficient financing?
· Will there be wider unforeseen consequences?

Policy-makers need to address these questions in the context of their own country before implementing such market mechanisms.

Promoting public health needs through the private sector

Provision of drugs through the private sector may conflict with principles of equity (both availability and affordability), rational use and drug quality, safety and efficacy. Government has a range of instruments that it may use to promote public health principles through the private sector. These include instruments that:

· affect the market structure (such as licensing and registration) of information and education (such as setting standards, directly providing information and regulating promotional practices);

· control prices (both producer and distribution prices, and retail margins);

· set incentives (financial and otherwise);

· address financing (such as community drug schemes and health insurance schemes).

There are often complex interactions between these instruments. This section describes these various instruments and analyses experiences with using them. Some instruments (such as legislation on drug registration and drug promotion, policies promoting generics, and continuing education) are essential elements of national drug policies. Others (such as provision of price information, training, and standard treatment protocols) are relatively straightforward instruments which are likely to be very useful to governments. A further set of potentially useful, but rather complex instruments (including incentive setting and financing schemes) are identified. Finally, for some instruments (such as regulation of producer prices for non-patent drugs and regulation of retail margins) too little evidence is available to be conclusive about their effects.

Pharmaceutical production and public-private roles

Of all the arguments for direct public sector involvement in pharmaceutical production, only a few are supported by strong empirical evidence. Although governments' objectives in establishing state production of drugs are often commendable, few governments have been able to realize these objectives. This does not mean that government cannot play an important role in strengthening local production capacity. However, the government's role is often best fulfilled by creating a stable economic and political environment, an efficient regulatory environment and favourable tax and duty structures. For governments that already have substantial involvement in the state production of drugs, the situation is rather more complex. Privatization may have costs as well as benefits and, depending on the local context, less drastic measures (such as contracting-out of management or liberalization of the sector) may be preferable.

Capacity-building and the process of change

No matter how well designed and well considered policies to change public-private roles are, they will falter if there is insufficient capacity to implement them, or if the process of implementation is insensitive to the interests of the people and groups who will be affected by them. Successful reform of public-private roles often does not mean reducing the role of government but rather transforming it. Government must learn to carry out new functions (such as contracting or establishing autonomous institutions) or alternatively improve and expand existing functions (such as regulation). Reform programmes need to forecast (and if necessary create) the capacities required to implement reforms successfully. Changes often take place at politically opportune moments rather than as a result of careful planning and consensus-building. It is essential, therefore, that monitoring, evaluation and the flexibility to adjust reforms be built into the reform programme.

Managing public-private roles

The final section of the paper provides a framework for governments that are planning reform of public and private roles. It addresses the questions:

· What are the key elements to consider in the design of a strategy?
· How can such a strategy be monitored and evaluated?

This section also draws the main substantive conclusions from the review of the evidence: what works, what does not work, and what we need to know more about.