Study from IIT Madras and Krea University suggest ways to boost medicine supply

The Indian Institute of Technology (IIT) Madras and Krea University, Chennai, have conducted a study that can help states boost medical deliveries. The study showed that fill rates of Tamil Nadu, Kerala, Odisha and Punjab could potentially rise to 53 per cent as compared to an average fill rate of 30.95 per cent, a statement from IIT Madras notified.

Further, according to the statement, the study found that despite the operational, logistic and infrastructural challenges that exist in the current drug supply system, several measures can be undertaken by state governments to considerably ease the system and address medicine shortage. The study, conducted between the period 2015 and 2019, focussed on issues that are identified in the procurement process of essential medicines. The medicine procurement data and contract information from the four states were central to the current study.

The statement also said that these four states were chosen for the study as these were the largest Indian states with the largest populations in the country. Essential medicine procurement in the Indian public health system is undertaken by the state-level Medical Service Corporations (MSCs). Some states, such as Kerala, follow a centralised system, while others like Punjab, Tamil Nadu and Odisha follow a decentralised system, which is a mix of the two. The study was published recently in the journal Social Science and Medicine.

The study confirmed the intuition that order timing is important to meet demands and that states must consider staggering their orders instead of batching them. While the current processes of applying penalties and blacklisting suppliers are important levers with a state, a graded manner of applying these can help alleviate issues. Moreover, instead of a blacklisting process that is binary (i.e., suppliers can be blacklisted or not) states can consider blacklisting as well in a graded manner, proportional to the extent of default by a supplier, the statement mentioned.

The statement quoted Professor R P Sundarraj, Department of Management Studies, IIT Madras, as saying, “Essential medicine is a key issue affecting health outcomes. This is especially an issue in Low and Middle-Income Countries (LMICs). The Indian government recognises this, and has enabled the import and production of APIs and KSMs for the manufacturing of such medicines. We were fortunate to have the active support of a key policymaker who could point us to the right data sources and more importantly scope the project to address the key issues faced by state governments.”

The statement also said that there are still some shortcomings in spite of the model used and the changes implemented. Several other factors can affect procurement and can be studied further such as – pricing issues, payment conditions, quality control benchmarks, Essential Drug List (EDL) composition, and legal requirements. Conversely, the current model may result in instances of under- or over-filling of orders. Furthermore, penalties and blacklisting are not as common in a commodity-focussed supply chain.

Highlighting how such studies and partnerships with state governments can address medicine shortage in India, the statement also quoted Professor Vijaya C Subramanian, Department of Operations Management, IFMR-GSB, Krea University, as saying, “This work is an attempt to bridge the gap between research and policy. The current pandemic has brought into focus the urgent need to address the deficiencies in healthcare delivery. We strongly believe that collaborations such as these between policymakers and researchers can contribute to immense improvements in the current system.”

The entire research and modelling were done based on data available in the public domain, with advice from policymakers. The comparison of the drug procurement policies of four different states provided some practical recommendations for improving the process by ensuring increased capacity allocation for government orders, by staggering state-level purchases, stricter but gradual penalties for delayed supply and by purchasing from suppliers nearer to the state, added the statement.

It also suggested some of the additional aspects that can be added for future study, including the role of packaging and printing, which is one of the major causes for the delayed supply of drugs for the public system as well as how quality control is implemented in various states and its impact on fill rate and timely supply. For high-volume drugs, the licensed capacity of various suppliers and how they are determined may also need to be studied and recommendations made on how they can be optimised.

Moreover, as per the statement, the following are the key issues in state-level medicine procurement:

• Capacity issues at suppliers: Pharmaceutical companies have many operational and infrastructural issues such as shortage of power, logistical and raw material procurement challenges. In addition, they are unable to make a profit because of the stiff competition in the market.
• Batching of orders: Large bulk orders of essential medicines are done in states. The same supplier may supply for other states as well.
• Penalties and blacklisting by states: A percentage of the price of the orders is done if essential medicines are delivered on time. If there is repeated delay, the supplier is blacklisted by that state and can’t do business with the state again for a certain fixed time period. Firms are in agreement that this is a harsh move and they tend to lose business.
• Transportation and inventory costs: Transportation and inventory costs are important with regard to the supply chains.