International Procurement of Medicinal Products and Medical Devices: Failure or Success

One of the most high-profile events of healthcare area in Ukraine in 2015 was the introduction of the mechanism of international procurement of medicinal products and medical devices through international specialized organizations. Dmytro Aleshko, partner, and Alexander Bondar, senior associate of Legal Alliance Company, leading lawyers in the pharmaceutical regulation and public procurement areas, shared their expert opinion on the issue with Yurydychna Gazeta.

- End of 2015 and 2016 saw important healthcare reform - the introduction of centralized procurement of medicinal products through international specialized organizations. At that time, Alexander Kvitashvili, the Minister of Health of Ukraine, during his speech on the Ministry performance for 2015 noted that public procurement mechanism involving international specialized organizations is a major innovation of 2015 in the procurement scheme. How can you comment on the process of implementing the new procurement mechanism?

- Dmytro Aleshko: Procedure for implementing mechanism of international procurement of medicinal products and medical devices with involvement of international specialized organizations engaged in procurement was not easy. Lawyers of Legal Alliance Company were invited to take part in the process from the very beginning of the regulatory acts drafting work. Our team has made a significant intellectual contribution to the drafting of most regulatory acts adopted pursuant to Law of Ukraine “On Amendments to Some Laws of Ukraine on Provision of Timely Patient Access to Needed Medicinal Products and Medical Devices through Public Procurement Involving Specialized Organizations Engaged in Procurement” No. 269-VIII as of March 19^th, 2015 (hereinafter - Law No. 269-VIII).

Let me remind you that Law of Ukraine No. 269-VIII, which became a legal basis for the implementation of this mechanism, was adopted in early 2015, while the Ministry of Health of Ukraine managed to sign the corresponding contracts with international specialized organizations only at the end of 2015. However, even after signing contracts with specialized organizations, the work on the development and adoption of appropriate regulatory acts designed to enforce the Law continued. For example, Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for Importation, Supply and Targeted Use of Medicinal Products and Medical Devices Exempted from Value Added Tax" No. 1153 was adopted only on December 2^nd, 2015. The Resolution regulates, in particular, the procedure for obtaining statements from the Ministry of Health, which are the basis for exemption from VAT on import and supply of medicinal products and medical devices within international procurement. Thus, the Resolution was extremely important to implement the procurement mechanism and achieve the set goals.

- Why do you think the process of implementing the procurement mechanism through international specialized organizations delayed so much?

- Alexander Bondar: It is clear that any innovations usually are preceded by some negation. When it comes to public procurement mechanisms that have not been changed over the years, such a negation is only stronger. Of course, someone may be all right with the old methods. Therefore, in my opinion, it is not surprising that during the implementation of mechanism of centralized procurement of medicinal products and medical devices involving specialized international organizations, a number of challenges could be faced, namely a strong lobby from certain groups of the old procurement system, confrontation in the Verkhovna Rada of Ukraine in the process of the appropriate laws adoption, various problems during draft regulatory acts approval with executive authorities, lack of willingness of officials at various levels to take responsibility for making decisions on the implementation of the procurement mechanism and so on. It should be noted that all this was accompanied by a powerful opposition to the new procurement mechanism in mass media.

Despite all the difficulties and scepticism about the new procurement mechanism, it was successfully introduced back in 2015 with a lot of effort.

- What are results of the updated mechanism for medicines procurement? Can we already make any conclusion?

- A. B.: Only the Ministry of Health can be competent to comment on the procurement results. However, the public domain data indicate that the procurement of medicinal products and medical devices through specialized international organizations, as a temporary mechanism, demonstrated its effectiveness (despite some flaws), given the significant budget funds saved.

Thus, according to data available at the Patients of Ukraine Foundation website, after the procurement of necessary medicinal products and medical devices under the budget program for the previous year, about USD 8 million remained on accounts of international organizations.

It means that patients will receive additional necessary medicines and medical devices. By the way, it was the purpose for making changes to Resolution of the Cabinet of Ministers of Ukraine “On Approving the List of Medicinal Products and Medical Devices Procured under Procurement Agreements (Contracts) with Specialized Organizations Engaged in Procurement” No. 787 as of October 8^th, 2015 which stipulates that the Ministry of Health, provided that the required number of medicinal products and medical devices is procured based on the amount of unused funds available on the accounts of specialized organizations in the areas of budget funds use in 2015, may increase the number of product items within 100% demand. Thus, the Ministry of Health may authorize specialized international organizations to procure additional respective products for saved funds within 100% of the demand.

In addition, a similar provision is stipulated in Resolution of the Cabinet of Ministers of Ukraine No. 557 as of August 23rd, 2016, which approved a list of medicinal products and medical devices procured under procurement agreements (contracts) with specialized organizations in areas of budget funds use in 2016.

- D. A.: In spite of the above, unfortunately, we must recognize that not all the objectives of such procurement were achieved. Some of the mistakes and flaws could not be avoided. Therefore, we believe that in many cases criticism of international procurement mechanism is understandable and justified.

In particular, the fact that contracts with specialized international organizations to ensure the procurement of necessary medicines and medical devices in areas of budget funds use in 2016 were signed in the autumn speaks for itself. Of course, this situation is to be corrected within the forthcoming procurement.

It should be noted that the involvement of specialized international organizations in procurement is not some kind of "know-how" by the Ministry of Health of Ukraine. This practice is employed in countries that have not yet formed a clear and effective national model of procurement. Studies conducted by international NGOs indicate a low level of maturity of national programs and decentralized systems of medicine procurement in Ukraine both at the administrative level and at the level of service, immature anti-corruption measures, and low quality of the procured products .

WHO report “Challenges and opportunities in improving access to medicines through efficient public procurement in WHO European Region” also refers to the difficulty of ensuring transparency of procurement in Ukraine.

The above, combined with several other issues, led to the procurement of medicines and medical devices for years at much higher prices, and one of unusual, in my opinion, functions of the Ministry of Health was effecting such procurement.

Thus, procurement results for 2015 available in public domain indicate that in addition to significant budgetary savings and the possibility of procuring more products for allocated budget funds for Ukrainian patients corruption, risks were successfully eliminated through the use of rules, mechanisms and procedures of international specialized organizations during tenders. Transparency and openness of procurement were ensured as well.

Thus, we believe that analysing the mechanism of international procurement, one needs to find a balanced and practical approach and shift from euphoric emphasis of the success or ruthless criticism of flaws only.

- Could you as experienced lawyers in this area comment what legal aspects of the mechanism, in your opinion, first of all need improving?

- A. B. Despite the overwhelmingly positive results of international procurement in 2015, the practice of procurement in the areas of budget funds use in 2015 demonstrated a number of issues, some of which were accompanied by loud scandals in the mass media.

In particular, such a situation exists regarding tax benefits provided by the law in this area. Undoubtedly, VAT exemption of import and supply of medicinal products and medical devices within the international procurement is positive and reduces the cost of such goods. However, as procurement practice for the previous year shows, the provisions of the Tax Code of Ukraine and the relevant abovementioned Resolution of the Cabinet of Ministers of Ukraine No. 1153 as of December 2^nd, 2015 need updating to ensure their compatibility and settlement of issues which have developed during their practical application.

It is also necessary to establish mechanisms that would not allow for buying substandard products, create entirely new approaches to the formation of the nomenclature and establish mechanisms that would minimize the term for delivery of procured medicinal products and medical devices to health care institutions.

Today, a completely new approach to the formation of the nomenclature of the procured products cannot be formed within the procurement model implementation involving specialized international organizations. As a result, for example, the list of medicinal products procured under the budget program in 2015 included some medicines of dubious quality.

Long term of delivery is a negative point here. In this context it should be noted that Resolution of the Cabinet of Ministers of Ukraine "Some Issues of Public Procurement of Medicinal Products and Medical Devices Involving Specialized Organizations Engaged in Procurement" No. 622 as of July 22^nd, 2015 provides that the medicinal products and medical devices procured by specialized international organization are supported throughout the territory of Ukraine by state enterprises of the Ministry of Health under the relevant agreements. Given that private logistics organizations may have better logistical support and, therefore, the level and efficiency of services for the supply of such goods can be much higher, in our view, it is appropriate to consider the possibility of eliminating the monopoly of state enterprises.

Also there is a need for constructive cooperation between the specialized agencies and the Ministry of Health within the legal framework with a view to resolve the current issues expeditiously.

- D. A. It should be also noted that a lot of regulatory acts, which were adopted in order to implement the mechanism of international procurement of medicinal products and medical devices through specialized organizations, have links to the Law of Ukraine "On Public Procurement” No.1197-VII as of April 10^th, 2014 which expired on August 1^st, 2016. The same or similar provisions are contained in new Law of Ukraine "On Public Procurement” No. 922-VIII as of December 25^th, 2015. However, despite the Law of Ukraine "On Public Procurement" expired, the appropriate changes were made to these regulatory acts (which means that necessary references to the Law of Ukraine "On Public Procurement" were not made). Failure to make amendments to these acts is a significant risk for implementation of centralized procurement mechanism involving international specialized organizations.

Thus, given the fact that the practice of procurement of medicinal products and medical devices through international organizations in areas of budget funds use in 2015 as a whole demonstrated the effectiveness and viability of such a model, it is necessary to focus on the urgent settlement of the flaws and problematic issues that were faced during procurement, and to ensure effective cooperation within the legal framework of manufacturers, distributors, specialized organizations and the Ministry for the patients to timely receive necessary quality medicines and medical devices. Given the fact that January 2017 is coming to an end, it is reasonable to begin work on transparent selection of specialized organizations, sign contracts with such organizations and hold procurement tenders for budget funds in 2017 now.