Ukraine: Outsourcing Public Procurement | PharmaBoardroom

Ukraine: Outsourcing Public Procurement

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Ukraine’s bold decision to outsource public procurement of medicines to international agencies to combat rampant corruption has been well received by the pharma MNCs operational in the country, but faces criticism from domestic players.

“Healthcare procurement was widely considered as one of the areas most seriously altered by corruption”

Tetiana Korotchenko, Crown Agents

In the latest Corruption Perceptions Index released by Transparency International, Ukraine held a dramatic 136th position out of 176 countries, which further highlights – if needed – that the country is still plagued by untrustworthy and poorly functioning public institutions while collusion between businesses and politicians siphons off billions of public resources. “Healthcare procurement was widely considered as one of the areas most seriously altered by corruption,” explains Tetiana Korotchenko, the country representative in Ukraine of the UK-based Crown Agents, which proudly stands as the oldest procurement company operating in the world.

“Supported by the current government and Ukraine’s Parliament, a special law was passed in 2015 that allows the function of healthcare procurement to be temporarily [until 2019 – Ed.] taken away from the Ministry of Health and be managed by external organizations; giving the Ministry the time and resources needed to advance the development of its own, transparent, centralized procurement agency,” she continues. As a result, approximately half of the Ministry of Healthcare’s UAH 4 billion [around USD 151 million] drug procurement budget was transferred to the United Nations Children’s Fund (UNICEF), the United Nations Development Program (UNDP), and Crown Agents, in an attempt to tackle corruption and rationalize public procurements.

As part of this new system, tendering contracts are signed by the aforementioned agencies, which are held liable for the integrity of the entire process from the announcement of the tender results up to the delivery of the medicines. “In this context, Crown Agents is overseeing the management of crucial therapeutic areas such as cardiovascular, tuberculosis, dialysis, and hepatitis. We have already conducted all tenders for 2017 and are now conducting evaluations and proposing new solutions to the Ministry of Health.

We also commissioned an independent report from the University of Michigan to collate our 2016 results and we are very proud to announce that savings are a lot more positive than expected,” reveals Korotchenko. A large share of pharmaceutical companies operating in the country – and above all the multinational players – has actually confirmed this positive assessment. “The outsourcing of centralized public procurement of medicines to international agencies – among other reforms recently implemented in Ukraine – has indisputably improved our country’s healthcare processes,” highlights AstraZeneca’s country director, Evgeniy Gaydukov.

Nevertheless, one should not think that this bold decision – which marked a move probably unprecedented in recent global healthcare history – was uniformly praised by all stakeholders involved. “Although this new procurement scheme has undoubtedly reduced corruption, it still displays significant technical frailties, while its implementation has also increased public tenders’ red tape tremendously. Overall, we are still rather skeptical about the positive outcomes that this outsourced, fragmented procurement system can bring,” admits Dr. Volodymyr Redko, the executive director of the Association of Pharmaceutical Research and Development (APRaD), which gathers together 15 international R&D-driven companies operating in Ukraine.

The feedback from Ukraine’s thriving local pharmaceutical companies has been even more scathing. “Current VAT rulings have created an unfair playing field between domestic and international producers,” explains Petro Bagriy, president of the Association of Drug Manufacturers of Ukraine (AMMU), which gathers seven of the leading Ukrainian pharmaceutical companies. “The laws state that drugs delivered to Ukraine are VAT free, while drugs produced in Ukraine are imposed with a seven percent VAT rate; therefore, domestic companies are tendering with elevated prices and cannot compete fairly. We have been in open discussion between organizations and the government to resolve these issues, especially as domestic pharmaceutical companies are paying among the highest taxes and wages in Ukraine,” he continues.

As Ukraine already holds a mature domestic pharmaceutical industry, some voices among this industry – including Filya Zhebrovska, chairman of the Supervisory Board of Farmak, Ukraine’s largest pharmaceutical company and market leader – pointed out that it would be more cost-effective for the government to construct direct agreements with Ukrainian producers, which would drive down the on-shelf price of medicines for patients.

On the other hand, the organizations managing this new public procurement scheme consider this this new procurement scheme to stand as a formidable opportunity for local companies to prove their capacity to comply with the highest international standards. “Local companies were suddenly faced with new transparent and accountable conditions in the international organization tenders according to EU standards of public procurement. Our message is to not see us as an obstacle, but an opportunity to raise their standards, creating vast opportunities to work internationally,” highlights Crown Agents’ Korotchenko.

While the heart of the debate oscillates between the new scheme’s capacity to effectively tackle corruption and its cost-efficiency profile, a critical milestone still looms on the horizon: the long-awaited set-up of a centralized, government-backed procurement agency. “Our European partners in Brussels were particularly surprised to see that our government did not choose to immediately set up an independent national procurement agency, instead of transferring a large share of its procurement budget to these NGOs and further delaying the set-up of a highly-needed centralized procurement authority in Ukraine,” reveals APRaD’s Redko.

“The expectation to create this organization is not a one-day decision, as it is not just about writing documentation and implementing the process. It is about capacity, management and a targeted approach that will allow control, transparency and competition to flourish,” tempers Crown Agents’ Korotchenko. In the upcoming year, the most important will indisputably be to start working on an exit strategy, while these procurement agencies have already started advising the Ministry of Health in the design of this upcoming, centralized procurement agency. “Our shared objective is to have a fully functioning department inside the ministry that will function according to the Crown Agents standards, allowing more quality medicines for patients, and eventually full coverage in Ukraine,” concludes Korotchenko.

Writer: Laurent Pichotzki-Libano

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