E-DRUG: Mark-up percentages for Drug Revolving Funds (9)
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Hi E-Druggers
There is a still classic article on establishing pricing for RDFs published
in Social Science and Medicine which I can forward as a PDF file to anyone
who is interested. It further illustrates what Libby has written about.
That article was called "RDFs: Conducting Business in the Public Sector"
However, nearly 20 years later, we have plenty of information to indicate
that the public sector is not very skilled at conducting business, and why
it's not. The Ghana experience is a good case study on this, particularly
at the central level. If one takes all of the costs into consideration for
a cost recovery program, the public sector may price itself out of the
competition. Libby makes this point, but it warrants elaboration because,
as in the old classic article, public sector thinking tends to revolve
around costing and equate costing with pricing. This is not the way the
private sector behaves for much pricing, and also the private sector has
many incentives to be more efficient than the public sector so operating
costs, the costs of wastage and losses, etc. are often significantly lower
than they are in the public sector.
I am simplifying the issues here, but I wanted to elaborate a little on
Libby's point.
Maggie Huff-Rousselle
? affiliation
? country
mhuffrousselle@ssds.net
[Maggie probably refers to:
Soc Sci Med. 1986;22(3):335-43. Revolving drug funds: conducting business in the public sector. Cross PN, Huff MA, Quick JD, Bates JA.
Medline abstract:
Pharmaceuticals are essential for preventive and therapeutic health services. Unfortunately, significant demand, limited funds and high prices contribute to frequent shortages of drugs in many public health programs. One method for financing pharmaceutical supplies has been the establishment of revolving drug funds (RDFs) in which, after an initial capital investment, drug supplies are replenished with monies collected from the sale of drugs. All too often however, the funds actually recovered are insufficient to replenish supplies and the fund is soon depleted. In this paper we consider the potential benefits and common pitfalls of revolving drug funds and then focus on the central role of financial planning in establishing drug sales programs. Experiences from a variety of countries suggest several causes for the failure of some RDFs, including: under-estimation of capitalization costs, prices set below true replacement cost, frequent failure to collect payment, delays in cash flow which make funds unavailable for replenishment of drug stocks, rapid program expansion for which additional capital funds are not available, losses due to theft and deterioration of drugs, unanticipated price increases due to inflation or changes in parity rates and foreign exchange purchase restrictions. Common to many of these problems is the lack of a businesslike orientation to RDFs and, in particular, lack of careful financial planning and management. Financial planning for an RDF includes four analytical tasks: assessment of the potential market, estimation of the costs of an RDF, establishment of the cost-recovery objectives, definition of the role of subsidies and surcharges.(ABSTRACT TRUNCATED AT 250 WORDS)
WB]