E-DRUG: Mark-up percentages for Drug Revolving Funds (11)
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Dear Salisu,
In addition to what has been said on factors that could make up the mark-up for RDFs, please find below the percentages we used to put on CIF medicines cost imported from abroad, when I was working with RDF Khartoum State (KS), Sudan for more than eight years. These percentages among other factors protected the RDF from decapitalization. The RDF successfully survives for more than fifteen years (it first started in 1989). During this long period the RDF KS passed through hurdle time because of rapid local currency devaluation, before it stabilized after the oil exportation in 1999. The RDF according to its recent evaluation managed to serve more than three million patients every year and the availability of medicines was found to be high (93% of patients receive their full prescriptions). One of the factors behind this success is its pricing mechanism.
The Pricing policy was built into the system as routine administrative exercise from the very beginning of the RDF. The RDF KS reviews the medicines prices regularly to keep pace with inflation, especially in the early 1990s (2-3 times per year). Since 1999 and after the local currency becomes relatively stable, the RDF KS begins to revise its prices on annual or every eighteen months basis.
RDF general pricing policy:
1. The RDF KS does not sell medicines to its health facilities to sell on to the patients. Instead, the RDF sells directly to the patients via pharmacy outlets (i.e. health centres and hospitals). This approach means that the risk of losses, expiry of stocks, freezing of money and so on is directly borne by the RDF and not the health facility.
The RDF KS also operates a cross-subsidy system by offering the same price to all health facilities regardless of the distance from its central warehouse. Second subsidy offered by the RDFKS is that the mark-up on the cost of expensive medicines with great health impact (for example medicines for chronic diseases or medicines for children use) is subsidized by increasing the mark-up on cheaper fast moving items covers this loss.
The average mark-up on CIF price is 64% calculated to cover: operating expenses (15%), 10% for recapitalization of the lost capital in the early 1990s (after liberalization of the local currency), medicines' losses (5%), medicine price international increase (4%), and 30% to cover local inflation. The later is now reduced to only 8%. Despite this high mark-up on cost, the generic medicines sold through the RDF are much cheaper (50 to 60% less expensive) than the private sources. This is mainly due to purchasing from generic suppliers from Europe such as Missionpharma and IDA, and also because government exempted the RDF KS from import customs which was worth 10% of the invoice costs.
I wish this might help you to develop your own RDF price system.
Yours sincerely
Gamal Khalafalla Mohamed Ali
College of Business, Law and Social Sciences
The Nottingham Trent University
Burton Street
Nottingham NG1 4BU
United Kingdom
Tel. +44 79 40 25 69 42
gamalkh@hotmail.com