Claims data by Jubilee Insurance, the leading medical insurance in East Africa, have consistently shown that up to 40 per cent of all health expenditure goes to pharmaceuticals. This is an unusually high proportion even in international standards considering that most developed countries utilise an average of 10 –20 per cent of their health budgets on pharmaceuticals. This means that Kenya is spending almost double what developed countries are spending on pharmaceuticals.
What are some of the reasons for this disproportionately high pharmaceutical expenditure?
The supply chain of medicines is cited as one of the key area where prices are built up in the medicines. As a drug makes its way from the manufacturer, to the distributor, to the wholeseller, to the retailer, and eventually to the patient, there are mark-ups that are included at each stage. The more parties involved in the supply chain, the higher the eventual cost to the patient.
Typically, the mark-up\ between the manufacturers to the patient is expected to be 80 per cent. The retailers, typically a hospital or a pharmacy, are allowed to charge a mark-up of 33 per cent on the wholesale price, a price referred to as the Recommended Retail Price (RRP).
However, a survey of private hospitals and pharmacies will usually reveal that the RRP is hardly ever adhered to and the mark-ups may go as high as 1, 000 per cent in some instances.
Needless to say this increases the cost to the patient because they may not be in a position to shop around for the ‘best deal’. While we have adopted a free market approach in healthcare, members of the public are unknowingly subjected to exorbitant prices that risk putting them into financial harm.
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 and in fact some pharmacies will charge lower to attract more customers.
Another reason for the high pharmaceutical expenditure is the low utilization of generic medicines in the private healthcare. Most private hospitals will prescribe more than 70 per cent of branded medicines and this leads to a higher spending on these medicines since generic drugs can be up to 80 per cent cheaper than their branded counterparts.
A quick look at OECD health statistics for 2017, shows that developed countries are using a significantly high proportion of generic medicines. The United States is at 86 per cent, Germany at 81 per cent, United Kingdom 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.
Introduction of a mandatory generic prescribing will ensure that we do not overburden our health system with unnecessary costs and the savings achieved would be channelled to more deserving areas. The Pharmacy and Poisons Board should lead this discussion by carrying out public education on generics and highlighting the measures put in place to guarantee the quality and safety of all drugs registered in the market. Kenya has about 33 local pharmaceutical manufacturing companies and yet we import almost 70 per cent of the drugs that are used locally.
Locally manufactured drugs can be up to 40 per cent cheaper than those that are imported since they do not incur import duties and other associated levies.
The quality of the locally manufactured drugs is also better guaranteed since the regulators are able to adequately monitor and supervise manufacturing locally as opposed to supervising manufacturing in other 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.
Lastly, we need to adopt standardized treatment guidelines to guide management of diseases. What determines the drugs that a doctor prescribes when you present with a certain illness? The fact is when such choices are left to the discretion of the individual practitioner there tends to be huge variability of the treatment chosen. Yet if carefully evaluated, one treatment could be established to be more effective than the other. To eliminate practice variability, the National Institute for Health and Clinical Excellence in the United Kingdom have NICE guidelines which they use to guide clinical practice based primarily on efficacy and cost-effectiveness.
In Kenya, treatment guidelines do exist but mostly for common ailments and they are almost entirely used in public hospitals. Some private hospitals develop their own hospital-specific guidelines but most will let their doctors exercise their own clinical judgement.
It is imperative that we develop standardized treatment guidelines that shall form the basis of clinical practice in both private and public settings. These guidelines would also come in handy for NHIF as they would be guaranteed similar costs and outcomes for the same conditions managed in different facilities.
While there are many other reasons for high cost of healthcare, dealing with the pharmaceutical component may be straightforward and easier to achieve immediate savings. As we continue our journey towards UHC, we have to save every shilling, because every shilling saved goes a long way in guaranteeing Kenyan’s access to much needed health services.
Dr Elijah Matolo is the Head of Provider Partnerships at Jubilee Insurance