Public outrage and medicine men in the middle

By Azrul Mohd Khalib

A 12-page dossier with supporting documentation submitted last week to the Minister of Health Dzulkefly Ahmad continues to make its presence felt among Malaysian healthcare circles.

It describes the existence of monopolies and institutional arrangements in the public procurement of drugs and medicines allegedly favourable to companies with links to prominent political and non-political individuals and personalities of the previous government.

Dzulkefly is correct in wanting to proceed cautiously. The allegations within the dossier need to be examined carefully within the proper context and full possession of the necessary facts.

Competition plays a major role in healthcare. It encourages efficiency, innovation and entrepreneurship. These in turn promote competitive prices, improvement in the quality of products and services and provide wider choices for patients.

Placed within the context of drug access, it means the possibility of better and improved treatment options and choices being made available, lower drug prices and increased affordability, and more patients being able to take advantage of the latest developments in disease research.

This is why when a monopoly exists or opaque direct-negotiation mechanisms are practised, suspicion abounds and there is public outrage, particularly when it could affect the level of access and quality of healthcare available in Malaysia.

But it is important to state that a monopoly by itself, while considered an anti-thesis of competition, is not necessarily illegal. There might be many reasons why exclusivity is granted to a particular entity. Among the most reasonable of these include efficiency, reliability and capacity to deliver and meet expectations.

The government itself may even create such exclusivity despite anti-competition laws. Existing legislation often excludes the government from itself being beholden to regulations and rules which are binding on others, particularly if they are considered an exercise of governmental authority.

Exclusivity and monopoly

A reading of what constitutes “commercial activity” under the Competition Act 2010 provides an example of exclusion.

Exclusivity amounting to a virtual monopoly does exist. Consider the role of Pharmaniaga, a government-linked company. This company was granted an exclusive 10-year concession to supply all items on the Approved Product Purchase List (APPL) to government hospitals, institutions and clinics.

An exclusive right to supply around 39% of the Ministry of Health’s (MOH) entire drug formulary. It can’t provide these items itself so it obtains them from other companies.

Which begs the question, why can’t these suppliers instead deal directly with MOH? Why are they required to deal with an intermediary or middleman who is, ironically also a competitor?

The GLC has already publicly declared that it is confident of securing another 10-year extension to its exclusive concession agreement with MOH.

The use of intermediaries or in appropriate parlance, tender agencies, is embedded throughout the public sector drug procurement process. Most tender agents are strictly just tender agents. Some, including Pharmaniaga, also provide additional logistical services such as warehousing and distribution.

Theoretically, any company registered with the Ministry of Finance can bid to supply items called for tender.

However, the government’s current procurement policy states the following “encourage and support the evolvement of Bumiputera entrepreneurs in line with the nation’s aspirations to create a Bumiputera Commercial and Industrial Community”.

As Bumiputera preference has been dictated, suppliers, in most cases foreign and local non-Bumiputera companies, resort to employing a Bumiputera tender agent to act as intermediaries.

So how does it work?

In a non-APPL procurement tender, Bumiputera agents source for potential suppliers to supply pharmaceutical products based on MOH specifications. The agent contracts with the supplier on terms which mirror those of MOH. The ministry then evaluates and approves the pricing and other technical parameters.

The agents handle all government administrative processes, including payments, and are responsible for sourcing and supplying the required products. Penalties are imposed for delays. However, as they take no ownership of the supplied products, it implies that such penalties are most likely borne by suppliers rather than the agents.

The price per item is inclusive of the agent’s commission rate. The costs of distribution, inventory holding and procurement are also taken into consideration.

Institutionalised ‘Ali Baba’?

The question that needs to be asked is whether it is actually necessary to have any intermediaries or tender agents to act as middle men, who add on to the cost of medicines, to ensure that bids are successful? At what point does it begin to look like an institutionalised version of “Ali Baba” and rent-seeking?

As has been recently revealed to the minister, well-meaning policies intended to build capacity, expertise and credibility, have possibly been taken advantage of by opportunistic individuals and organisations for years. Arguably, this has contributed to the rising cost of Malaysian healthcare.

However, it is uncertain at this point whether anything illegal or criminal has actually been committed. The system as it is today, accepted and embraced these practices. The current situation appears more appropriate to be investigated by the myCC (Malaysian Competition Commission) investigation rather than the Malaysian Anti-Corruption Commission.

What is very clear is that public healthcare reform needs to include changing the way that pharmaceutical and non-pharmaceutical products and health services are procured.

It is neither necessary nor constructive to go on a witch-hunt and indulge in finger-pointing. What needs to happen is firstly, for an acknowledgement that these structures and institutional problems exist.

Secondly, that a plan of action is formulated and committed to, preferably one which includes encouraging direct competition and the dismantling of these monopolies and ceasing preferential treatment.

It is encouraging that the first has already occurred, with MOH concurring swiftly and forthrightly that a more competitive, accountable and transparent drug procurement and supply chain framework was needed in the best interest of patients and the rakyat, particularly to ensure more affordable medicines.

Malaysia is fortunate to already have high standards in regulating the production, storage and distribution of drugs which are in compliance with international standards and comparable to those in high-income countries.

What needs to urgently improve is the availability, affordability and accessibility of new and improved treatments for diseases such as cancer and rare diseases.

Reforming drug procurement is one way to get there. Patients should not be forced to hear that the reason why they are not getting the opportunity to choose the best possible treatment is because their country cannot afford it. We must do better.

Azrul Mohd Khalib leads Galen Centre for Health and Social Policy, a think tank concerned with public health issues.

* The views expressed are those of the author and do not necessarily reflect those of FMT.