Efficiency gains from anti-corruption in pharmaceuticals procurement: Analysis of 9 countries across 3 continents

Veljanov, Z. and Fazekas, M. (2023). Efficiency gains from anti-corruption in pharmaceuticals procurement: Analysis of 9 countries across 3 continents. GTI-WP/2023:04, Budapest: Government Transparency Institute.

Public procurement of pharmaceutical products represents a large share of countries’ health care spending. The crucial importance of pharmaceutical products has been further exposed by the COVID-19 pandemic. Inefficiencies and corruption risks in public spending on the procurement of pharmaceuticals increase medical costs and place a heavy burden on national budgets and patients.
To support policymakers in identifying strategies for improving value for money in the procurement of pharmaceutical products, this report assesses the impact of corruption risks on unit prices using pharmaceutical procurement data and identifies effective scenarios for cost savings. Specifically, the report aims to:

● Map the variation in unit prices of pharmaceutical procurement within and across countries.
● Explain the price differences for standardized pharmaceutical products with the help of corruption risk factors.
● Estimate potential savings due to lowering corruption risks.

The study has an exceptionally wide scope and range. It analyzes pharmaceutical procurement data from 9 countries (Armenia, Brazil, Chile, Dominican Republic, Kazakhstan, Mexico, Russia, Ukraine, and Uruguay) across 3 continents. Contract and purchase level public procurement data were directly collected from official government sources (e.g., public procurement advertisement websites). In order to allow for a cross-country analysis, national product codes and descriptions were matched to a widely-used global, standard product classification – Anatomical Therapeutic Chemical Classification System (ATC). The analysis investigates the unit price impacts of 7 corruption risk indicators (e.g., non-advertisement of tender opportunities) and their composite score, the Corruption Risk Indicator (CRI henceforth). Indicators take a value between 0 and 1, where 0 indicates the least risky behavior, while 1 indicates the riskiest behavior.

Drawing on regression models, the study finds that corruption risks – CRI – have a substantial and significant effect on the unit price of pharmaceutical products across the 9 countries studied. For instance, one red flag change or about 0.14-point CRI decrease is associated with 16% lower unit prices. Moreover, individual corruption risk indicators also substantially influence unit prices, for example, single bid tenders tend to be 59% more expensive than multiple-bids tenders. Based on these findings, the study also reviews the price impact of 3 alternative corruption risk reduction scenarios. For the more conservative scenario, a 1/3rd decrease in CRI across the board is estimated to lead to a 14% decrease in total prices paid for pharmaceuticals. For the more ambitious scenario, a 2/3rd decrease in CRI is estimated to decrease total spending by 25%. Lastly, a complete reduction of CRI, i.e., when CRI equals 0 (no corruption risk), is estimated to decrease total spending by 33.5%. Nevertheless, the price impacts of corruption risks and the corresponding efficiency gains vary considerably across countries. For example, in the 1/3rd CRI decrease scenario, we find potential efficiency gains vary from 6% in Armenia to 19% in Kazakhstan with the rest of the countries falling in between.

Read the full paper HERE