Ending Pharmaniaga contract could save millions of ringgit, says expert

The supplier’s monopoly is costing the govt over RM1.1b per year on average, says Minister Lim

by ALIFAH ZAINUDDIN/ pic by BLOOMBERG

THE prospects of ending Pharmaniaga Bhd’s decades-long concession over medicine supplies to public hospitals could help the government save millions of ringgit annually.

Galen Centre for Health and Social Policy CEO Azrul Mohd Khalib said the administration could save up to RM36 million per annum if it allows suppliers to negotiate and bid directly to the Ministry of Health (MoH).

He also said such a move would also permit newer drugs to be made available for patients.

“A fee of 2% to 3% commission is usually charged by tender agents for their services. Excluding the percentage involving logistics, applied conservatively to Pharmaniaga’s volume based on a back-of-the-envelope calculation, this could mean savings of between RM24 million and RM36 million a year.

“However, because there is no real competition out there for the business, the actual figure is not really known. That is a concern,” he told The Malaysian Reserve recently.

The government’s total healthcare expenditure has risen nearly sevenfold over the last two decades from RM8.19 billion in 1997 to RM54.6 billion in 2016, which represents 4.5% of Malaysia’s GDP.

Medicine costs accounted for 16% of the total spent in 2016 at RM8.74 billion.

Based on a report by the Malaysia Competition Commission, government hospitals and clinics provide medicines at highly subsidised rates.

The 10 most utilised medicines in the private sector are 1.4 times to 34 times higher than in the public sector, it said.

Under the Approved Product Purchase List (APPL) programme, Pharmaniaga, through its subsidiary Pharmaniaga Logistics Sdn Bhd, is the largest Bumiputera agent with exclusive concession to supply approximately 700 medical items to government hospitals, institutions and clinics.

Over the past 25 years, the company has been granted exclusive rights through a concession to supply pharmaceutical products to the ministry. The concession would end in November.

Prior to this, Finance Minister Lim Guan Eng said on average, Pharmaniaga’s monopoly is costing the government over RM1.1 billion per year — prompting a review of the contract.

He said Putrajaya had allocated RM193.6 billion between 2010 and 2018 for the provision of healthcare services alone.

“Should these proposed (administrative) reforms be too much, too soon, the government should grant a concession agreement of not more than five years and make preparations for transition to an open tender system for the APPL drugs,” Azrul said, alluding to the idea of a soft-landing approach.

Pharmaniaga, which has consistently denied having monopolistic position in the public sector pharmaceutical, is confident that the concession would be extended following its up-to-the-mark performance.

Deputy Health Minister Dr Lee Boon Chye also refuted the claim by Lim, saying that there are other established companies providing services similar to Pharmaniaga.

Dr Lee said Pharmaniaga only supplies APPL drugs, which comprise only one-third of the government’s RM1.1 billion drug supplies purchase.

The remaining two-thirds are non-APPL drugs, bought by central contracts or quotations, he was quoted as saying by media reports.

Azrul said the practice of exclusive concessions which grant individual companies a virtual monopoly and major influence over large portions of the nation’s healthcare system should be stopped.

“If it is true that Pharmaniaga is only a logistics provider, then they should be treated as such.

“Existing middlemen practices, such as the use of Bumiputera tender agents, have contributed to the increasing cost of public healthcare over the past decades and has made it costly for both the government and Malaysians. We need to cut out the middlemen,” he added.