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11 November 2018
By Rolando Satzke, CEO, Cosmos Limited
Private health insurance companies in Kenya informed losses claiming that over 40 per cent of health expenditure go into pharmaceuticals. If we compare this with international standards, we find out that Kenya is spending almost double in pharmaceuticals. On the other hand, even the 20 per cent of the Kenyan population, with some kind of health insurance, public or private, have to spend out of pocket for most of the healthcare costs, as the insurance topping is exhausted fast by purchasing the prescribed medicines.
What are some of the reasons for this disproportionately high pharmaceutical expenditure?
The supply chain of imported medicines is surely one of them. Importation of medicines involves six to seven intermediation’s from the manufacturer to the end patient, each of them adding operational costs and margins. In an environment without regulations, this system could increase up to 400 per cent the original price, explaining how in most cases same medicine brands are more expensive in Kenya than in their origin countries, where the purchase power is higher, and the health insurance system achieved universal coverage. Some countries like India have overcome this challenge by having a Maximum Retail Price (MRP), which is printed on the package of the drugs. This ensures that patients cannot be charged higher than the MRP.
Another reason for the high medicine costs is the low prescription rate per generic denomination. In Kenya, almost all prescriptions are branded. In addition to the lack of patient awareness and poor empowerment of the key pharmacist roll, the situation leads to the dispensation of high-priced medicines. The first 20 purchased products in private hospitals, representing more than 30 per cent of the total spend in medicines, are originator brands, many times more expensive than quality generics available in the market. Substituting these 20 brands could save over Ksh 1 billion per annum to patients and insurance companies. A nice business for few, but it is not sustainable in the long term. The dispensation of generics in the U.S. is at 86 per cent, Germany at 81 per cent, UK at 78 per cent and Canada at 73 per cent. Most of these countries have achieved universal health coverage for their population and it is imperative that we adopt this prescribing pattern as well.
Another topic is the missing insurance premiums for low income patients. Service providers seem to not care about medicine costs as long insurances pay most of it. In countries with a strong health insurance system, like Rwanda, medicine costs are much lower as a result of defined product formularies and standardised treatment guidelines and costs. With prescriptions guided by generic product formularies, pubic and private health insurances could offer much more affordable premiums for a larger portion of the population without access to healthcare. At the end, with an enlarged market, everybody is going to benefit.
Finally, there is the opportunity of the contribution of local pharmaceutical manufacturing. Some stakeholders argue that local manufacturing is poor in capacities and quality. But facts are telling the opposite. Local manufacturing companies in Kenya, like Cosmos Ltd., are leading the market in consumption, supplying the public sector to much lower costs than the imported brands. Kenya has about 33 local pharmaceutical manufacturing companies, some of them have reached international quality standards, recognised and certified by international agencies of strong regulated markets. The contribution of local manufacturing to the country economy and to the reduction of healthcare costs is largely proven. The success of the industry in Bangladesh and Ghana are the result of strong government support that created an enabling environment for growth and improvements to quality, scope and scale of production. Locally manufactured drugs can be up to 40 per cent cheaper than those that are imported since they do not incur to the costs related to the long supply chains, improving the much-needed availability and affordability.
The Pharmacy and Poisons Board should lead the public education on generics, highlighting the measures put in place to guarantee the quality and safety of all drugs manufactured locally. The quality of the locally manufactured drugs is also better guaranteed since the regulators are able to adequately monitor and supervise, as opposed to costly supervision of manufacturing sites in other countries. Even the U.S. FDA with its relatively high capacity and much larger budget for inspections, is concerned that it is unable to effectively control production quality in the entire Asian region. Studies claim that about 35 per cent of worldwide sales of counterfeit medicines can be traced back to India. A recent investigation showed, for instance, that generic drugs exported from India to Africa are of lower quality than those for domestic sales or exports to middle income countries.
Most countries that have vibrant pharmaceutical manufacturing industry achieved it because of the goodwill and support from their governments, which is something we need to embrace in Kenya. We fully support the country’s Four Pillars Strategy of President Uhuru Kenyatta, as local manufacturing could decisively contribute to two of the four pillars, including universal health coverage.
To achieve the ambitious and possible goal, strong coordination and leadership among policy makers is required. Some successful proven measures, like price preferences in public procurement and corporate tax exceptions, will definitively enhance the local manufacturing sector. Larger production scales will have an impact in quality and costs, improve the access to medicines by reduction of prices, reduce supply chain costs, contribute to the national commercial balance, develop local capacities, employ professional talents, promote joint ventures, technology transfers and attract foreign investments.