Pop quiz! How would you increase HIV/AIDS treatment from the current estimate of 6.6 million to 15 million patients by 2015? That’s the ambitious challenge established last year by leaders meeting at the United Nations.
How you answer depends on who you are, and many answers are equally correct, including increasing funding, providing more testing and treatment sites, and training more health care providers. This issue of Supply Lines examines this question from the perspective of the global supply chain. In particular, it looks at how we can continue to reduce the cost of procuring, warehousing and distributing life-saving commodities.
Most of our readers already know that the cost of most antiretroviral (ARV) regimens has dropped from $1,500 to between $70 and $200 per patient per year. Most of you also know that SCMS has generated freight savings (over $76 million to date) by shifting from costly air freight to sea and land shipments. In many other ways, SCMS is maximizing US taxpayer dollars to meet PEPFAR goals, support national strategies and build health platforms that will serve countries now and in the future.
Stories in this issue include:
PEPFAR’s ARV bridging fund initiative helps South Africa cut the price of ARVs by half
SCMS access to market intelligence helps us make smart decisions for clients in the evolving ARV market
Applying simple warehouse solutions in Honduras increases efficiency, saves money and keeps donors engaged
Laboratory procurement optimization strategies save programs money
Strengthening infant formula logistics management in Botswana maximizes budgets, saves time and reduces wastage
We hope you enjoy this issue of Supply Lines.
Quarterly Trends
The impact of rising fuel costs In November–December 2011, the level of airline fuel surcharges dropped five cents (US), giving hope that the dip in prices would continue to trend downwards. However, due to instability in key oil-producing nations, prices rose again in February. The price of jet fuel is now about 13 percent higher than a year ago. Although this price increase is not yet a cause for alarm, SCMS will continue to monitor the situation and help our clients plan for the potential impact on their treatment and testing budgets for the products that can only be transported by air. We’ve also seen an increase in fuel bunkerage charges for ocean freight shipments, although this has a much lower direct impact on our clients due to the cost efficiencies of ocean freight.
Orgenics recalls HIV Test Kits Orgenics has recalled specific lots of ImmunoComb® II HIV 1&2 Bispot test kits. SCMS has not delivered any of these kits in the last two years; nevertheless, we are spreading the word by posting the recall notice on our website and Facebook, as well as through our country teams. Access more information
New tool developed to improve quality testing of rapid test kits and male circumcision kits SCMS developed a new medical device inspection checklist in accordance with the US Food and Drug Administration (USFDA) quality system inspection technique (QSIT) document. The checklist will be used during inspections of rapid test kit and male circumcision kit manufacturer sites and will help promote consistent evaluations of these manufacturers. Such inspections are critical to improving quality of these supplies, especially in light of recent recalls.
Like us on Facebook
We recently launched a Facebook page where we share SCMS updates, market trends and intelligence, links to news on HIV/AIDS in developing countries, and other key information. If you or your organization has a Facebook page, we invite you to "like" our page.
Since its launch on January 3, our Facebook page already has more than 200 followers from 20 countries, with more joining every week.
New and improved E-catalog search tool goes live
To assist clients in identifying the specific commodities they need for their HIV/AIDS programs, we redesigned our e-catalog search tool to be easier and faster to use. SCMS clients can now search a core standard product list by expanded product group (blood supply, male circumcision, early infant diagnosis, etc.) and program area (PMTCT, biomedical prevention, counseling and testing, etc.).
Although SCMS’s e-catalog lists the most frequently procured standardized products, new products are added as clients need them. Decreasing the number and variety of commodities makes identifying product specifications easier, saving time and money. Check out this new tool
PEPFAR helps South Africa cut the price of ARVs by half
In December 2009, PEPFAR committed to investing $120 million over two years in South Africa, when the need for additional funding was identified by the Government of South Africa to assist the Ministry of Health (MOH) in scaling up the national antiretroviral therapy (ART) program. This bridging fund aimed to help the country implement updated treatment guidelines, fill a short-term gap in drug availability and lower the price paid for ARVs by the South African government.
Through this PEPFAR initiative, $110 million was used to procure nearly 22 million units of generic first-line ARVs and deliver them to public-sector depots throughout the country.
This strategic purchase allowed for a national scale-up of ARV treatment, reaching 1.4 million patients during the initiative.
The PEPFAR purchase of ARVs totaled $93 million and at 48 percent less than prices paid by the South African government’s previous tender.
Subsequently, by leveraging the US government (USG) strategy for accessing international pricing, South Africa’s Department of Health achieved a $630 million (53 percent) price reduction in the two-year national ARV tender, compared to its previous tender.
South Africa’s Minister of Health said of the government’s savings, “The percentage decrease in the cost of each item ranges from 4% to 81% imply[ing] that South Africa can now afford to treat twice as many people on ARVs compared to that which was previously budgeted.” Savings were generated by tendering ARV procurements internationally, pooling procurement orders across provinces to achieve economies of scale, and planning regular orders based on forecasted assessment of need.
While the initiative focused on driving cost efficiencies throughout the supply chain while meeting the immediate need for increased availability of ARVs, an underlying requirement was to ensure long-term sustainability. Over 200 provincial depot staff members were trained in best practices in handling ARVs and other commodities. The project leveraged a local private-sector warehousing and distribution partner (RTT) to enable regular supply to depots and to implement first-rate logistics practices including secure chain of custody and prevention of product damage. The project’s success drew on the strengths of multiple partners:
The project was guided by the regulatory frameworks and public health strategy of the Medicines Control Council and the Ministry of Health and used the 10 provincial depots to quantify, warehouse and distribute ARVs to treatment sites.
SCMS conducted international procurement, managed stock distribution from a central warehouse to the provincial depots and supported them in planning for and managing the large quantity of medicines moving through the public-sector supply chain.
The Clinton Health Access Initiative (CHAI) provided monitoring and evaluation experts to each province and contributed critical data for forecasting and supply planning.
USAID’s Strengthening Pharmaceutical Services (SPS) project, implemented by Management Sciences for Health, sponsored quarterly quantification meetings, sent ARV monitors to provincial depots to monitor stock levels, and supported treatment sites to improve stock management.
Over 200 provincial depot staff members were trained in best practices in handling ARVs and other commodities.
Saving on drug prices and logistic costs is critical for South Africa, as it is one of the leading countries in initiating patients on treatment with a CD4 count of 350, per the updated World Health Organization (WHO) guidelines. Evidence of the program’s success in increasing the number of patients on treatment and thereby reducing the number of HIV-related deaths is already being seen in recent UNAIDS data. Through strong country leadership and committed partnerships, this program has made a profound impact on the world’s largest HIV/AIDS program.
In the generic ARV market, mostly good news in supply and pricing
Led by UNAIDS and the International AIDS Society, the international community has agreed on an ambitious goal of universal access to HIV/AIDS treatment by 2015, also expressed as ‘15 million by 15.’ Achieving that goal will require that the global market for ARVs rapidly expand manufacturing capacity while keeping prices at or below current levels. That could be hard to achieve if demand rises drastically, assuming donors can commit significantly more funds even while the global economy remains shaky.
If past is prologue, what seemed an impossible task may, in fact, be achievable. After the establishment of the Global Fund, PEPFAR and UNITAID, manufacturers in India and elsewhere quickly scaled up production of life-saving ARVs. At the same time, prices came down from around $1,500 per patient to as low as $70 to $200 for most regimens due to economies of scale, competition in the market and the purchasing power leveraged by SCMS and other pooled procurement initiatives.
Manufacturers discuss ARV trends at the SCMS summit in Malaysia
As the major pooled procurement buyer of ARVs for PEPFAR and the Global Fund via their Voluntary Pooled Procurement mechanism, the Partnership for Supply Chain Management works with most of the generic ARV suppliers to developing countries.
As recently as last June, when SCMS held a summit in Kuala Lumpur, Malaysia, with many of the major manufacturers of generic and innovator ARVs, we noted several disturbing trends in the global ARV market:
A limited supply of active pharmaceutical ingredients (APIs)
Many ARV suppliers operating at 90 percent capacity
Longer lead times (up to nine months in some cases) for ordering and delivery
Much has changed since that meeting.
More supply, and more suppliers
After several years of little change in the number of generic ARV suppliers, we are seeing new entrants into the market, including three new suppliers in sub-Saharan Africa who have obtained WHO prequalification of ARV finished-dosage forms. We have also seen the arrival of two new international players. HEC Pharm CO., Ltd (China) received USFDA approval for Zidovudine 300 mg, and Lupin Pharmaceuticals (India) received USFDA approval for Lamivudine/Zidovudine. In another milestone, Aurobindo (India) became the first major generics manufacturer to join the Medicines Patent Pool. Launched by UNITAID, the pool is a system for patent holders to license technology to manufacturers of cheaper generics and to make the treatments more widely available. Aurobindo signed an agreement for manufacturing several ARVs (Tenofovir, Emtricitabine, Cobicistat, Elvitegravir and fixed-dose combinations).
In addition to new companies entering the market, existing ARV manufacturers, such as Aurobindo, Cipla (India), Emcure (India), Hetero Drugs (India), Macleods (India) and Mylan Pharmaceuticals (US, with production in India), are adding more ARVs to their product lists, pursuing and getting USDA and WHO approval for more and more products.
Some manufacturers are increasing production capacity as well. Last fall, for example, Aurobindo increased their manufacturing capacity of Nevirapine oral suspension by four-and-a-half times. This was good news for prevention of mother-to-child transmission (PMTCT) programs, for which this drug is primarily used. Other manufacturers who have increased production capacity of API and finished-dosage forms in the last year include Hetero and Mylan.
Increased supply means shorter lead times and lower prices
When production capacity was tight, the lead time between ordering and delivery for some ARVs was as much as nine months. SCMS was able to compensate for this and prevent stockouts and shortages using two strategies:
Storing strategic stock of frequently used ARVS at our regional distribution centers in Ghana, Kenya and South Africa
Balancing orders and deliveries among the many countries we supply, distributing stock in carefully planned quantities to avoid the risk of country-level stockout
Nevirapine stocks the shelves of a health facility in Tanzania
With increased manufacturing capacity, lead times have dropped to around three to six months for most manufacturers. Increased supply has also translated to lower ARV prices. The most significant price drops were for:
Perhaps most notably, the price for Tenofovir/Lamivudine has come down significantly from $9.50 per month in early 2010 to $5.20 currently. This is welcome news for treatment programs that were concerned about the impact of switching patients from Stavudine-based regimens to Tenofovir, per revised WHO guidelines.
Where do we go from here? With a few exceptions, India is the center for generic ARV manufacturing of finished dosage forms for developing countries. As noted above, some manufacturers in China are beginning to enter the market. But perhaps most interesting are developments in sub-Saharan Africa. WHO has prequalified Lamivudine/Zidovudine from Universal Pharmaceuticals Pvt. Ltd. in Kenya. WHO has also prequalified ARVs being manufactured by Varichem Pharmaceuticals in Zimbabwe and Quality Chemicals in Uganda. We also hear that other discussions for new capacity in Africa are underway.
Now that manufacturers seem prepared to try to meet the goal of 15 million by 2015, will governments and donors follow? PEPFAR has committed to increasing support for treatment from four million to six million, once again providing important leadership among international donors. More news may come at this summer’s International AIDS Society conference in Washington, DC.
In Honduras, increasing warehousing capacity on a budget
Achieving the global target of 15 million on treatment by 2015 will require bringing down the cost of treatment per patient. One way to do that is to find more ways to reduce costs in the supply chain. At SCMS, Honduras has identified cost-saving measures in warehousing that may provide a model for other countries.
In 2008, USAID asked SCMS to help address warehousing issues in Honduras, following a Global Fund (GF) assessment of the central medical stores (Almacen Central de Medicamentos - ACM). GF had requested warehousing renovations to improve Honduras’ national access to medical goods, including HIV/AIDS supplies. SCMS and the Cooperative Housing Foundation (CHF, a US-based non-profit and GF principal recipient) agreed to renovate ACM, which stores all medicines procured by the Honduran government and services 28 hospitals in 20 regions. SCMS has been working on renovating ACM with a budget of $1.9 million – by no means insignificant, but quite lean for expanding infrastructure. SCMS took the lead in ACM capacity building with a focus on finding value for money.
Though typical modern warehouses feature automated (as opposed to manual) materials handling equipment, SCMS advised against these purchases. Automated equipment is not always well-supported by manufacturers when used outside their main network. Lack of manufacturer support can add costs, extend equipment downtime and reduce efficiency. Manual equipment was the better choice for the Honduras; it is less expensive to procure and achieves cost savings over the life of the products by being easily maintained, repaired or replaced in the local market. One manual pallet stacker cost approximately $2,000, compared to a similar-sized automated stacker, which would cost over $20,000.
Staff at the ACM warehouse unload stock using a hydraulic pallet stacker.
ACM’s warehouse renovation was completed in July 2011. With new equipment in place, SCMS has been working with ACM staff to redesign management systems and standard operating procedures to make them more efficient.
In a recent public address, the Global Fund Portfolio Manager stated that GF will be replicating the Honduras warehousing model in other Central American countries, including Guatemala.
Maximizing health program budgets: How laboratory optimization saves money
For programs engaged in laboratory procurement and diagnostic services, optimization of laboratory procurement offers an opportunity to increase value for money. To date, SCMS has procured $290 million of laboratory commodities for PEPFAR-supported programs, accounting for around 30 percent of SCMS’s overall commodity procurement. This significant investment ensures patients can access the reliable laboratory diagnostic services that are critical to the success of comprehensive HIV/AIDS programs.
Laboratory procurement and maintenance is a complex business, due to the large number of products needed and the long-term cost of machine maintenance. These instruments must function optimally over a period of years.
Laboratory programs can save money in two key ways:
Reduce down-time of machinery through regular maintenance
Increase efficiency by ensuring that each machine is being used to run an optimal number of tests
In particular, programs may identify significant cost savings by focusing on CD4 machines. Used to determine the strength of the immune system, these machines tell doctors whether a patient should begin taking ARVs and also monitor their progress while on treatment. Currently, CD4 machines and related reagents represent 62 percent of SCMS’s laboratory procurement spend, but instrument utilization rates fall far below optimal ranges in many PEPFAR-supported countries. Also, in the absence of service maintenance agreements, repair and replacement can be costly. CD4 reagents often have short shelf-lives and must be used before they expire. If the machines are broken, they can’t be used, leading to further wastage.
Building greater responsiveness into the lab supply chain
Development of a laboratory optimization strategy is an essential step for programs hoping to achieve far-reaching cost efficiencies while increasing patient services in the laboratory supply chain. Together with USAID and the US Centers for Disease Control and Prevention (CDC), SCMS is promoting a holistic approach to laboratory equipment procurement and maintenance. The process looks like this. Through routine data collection:
1. Identify which machines are being used and where 2. Determine how many tests are being performed on each machine 3. Understand the level of demand in the geographic area served by each lab
This information provides visibility into the whole system and helps identify machines that are being underutilized based on their potential testing capacity. Armed with that information, those in charge of the laboratory system can take action. Machines can be moved to locations where they can be more effectively used. To gain further efficiency, instruments and reagents can be standardized for easier procurement and maintenance. Service maintenance agreements can be negotiated with suppliers and used to hold vendors to account. These efforts result in multiple benefits:
Efficiency in instrument rollout
Better instrument use
Higher consumption of product (improved cost per use)
Less equipment down time
Improved customer service for patients
Harmonization and laboratory network optimization decrease stockout risks, enhance collaboration between labs and improve quality assurance. This informed approach to laboratory procurement has the potential to save program budgets millions of dollars that can be used to continue treatment scale-up. In the end, the patient is the big winner. Making it real: A recent country example
To support the scale up of HIV treatment programs, the Maputo Declaration of 2008 called on countries to harmonize procurement of lab equipment by ensuring that appropriate products are purchased within a tiered laboratory system. In Ethiopia, SCMS, USAID and the CDC partnered with the government in a lab harmonization initiative to help make the most of funding for lab equipment procurement and distribution. SCMS analyzed CD4 testing needs by researching the number of patients served at each site, ART and pre-ART patient targets and testing trends. Originally, it had been proposed to buy high-volume FACSCalibur machines for lab ART monitoring sites, but based on the analysis, SCMS recommended the more expensive FACSCalibur machines for only a small number of high-volume sites, and the less expensive FACSCount machines for lower-volume sites. Using historical procurement data and understanding the existing laboratory network, SCMS helped Ethiopia save over $600,000 in the cost of equipment and reagents in the first year.
This approach is being rolled out to other PEPFAR-supported countries. Recently, SCMS facilitated a workshop in Côte d’Ivoire with the host government, donors, in-country stakeholders and implementing partners to adopt the Maputo declaration at a national level and execute a strategy for implementation. The proposed strategy will assist the MOH in developing new national guidelines to align with in-country procurement regulations and inform national processes and policies for future lab procurements. These changes have the potential to generate significant cost efficiencies, a benefit to country budgets and to the patients who rely on them.
In Botswana, from crisis to confidence in supplying PMTCT programs
PEPFAR, WHO, UNAIDS and others in the global community are calling for the elimination of mother-to-child transmission of AIDS by 2015. To achieve this goal, programs must ensure that pregnant women can get the prevention and treatment commodities they need.
In Botswana, where use of infant formula is a key part of the Government’s policy, SCMS has been collaborating with the Ministry of Health to strengthen the PMTCT supply chain. In 2007, Botswana clinics and hospitals faced shortages and an inconsistent supply of PMTCT products. The Government of Botswana requested USG assistance to mitigate the crisis, and SCMS responded with an emergency order for infant formula worth over $1 million.
While this procurement solved the immediate need, SCMS worked with the MOH and UNICEF to uncover the root causes of the disruption: the need to implement inventory control procedures, strong procurement systems and rigorous data gathering and reporting. SCMS designed an infant formula logistics system and trained district focal persons and MOH staff in its application. To streamline the MOH’s procurement process, we helped ensure that procurement forms were prepared correctly.
In 2009, UNICEF recruited a logistician who collaborated with SCMS and the Ministry of Health in implementing the logistics system. SCMS provided support to the Public Procurement and Asset Disposal Board (PPADB)—the entity responsible for coordinating and managing public procurement for the central government—in building a cadre of procurement specialists to provide ongoing training to staff. SCMS also provided logistics training to warehouse staff responsible for the infant formula logistics supply. The PMTCT nutritionist responsible for the program was trained in planning and monitoring supplies.
Due to these efforts, by 2011 the reporting rate for infant formula data had risen from 7 percent to 96 percent. The PMTCT program now uses actual consumption to resupply districts. Last year, forecasted consumption was close to 130,000 tins per month. This year, due to improved understanding of real consumption, figures were reduced to 90,000 tins/month, averting potential future wastage of 40,000 tins/month. By improving logistic management information system (LMIS) reporting, the PMTCT program is avoiding overstocking and ensuring continuous availability of infant formula.
To institutionalize these good logistics practices, SCMS is now working with the Institute of Health Sciences in incorporating logistics management training into the curricula for final-year students and for current MOH staff.
