Higher Drug Prices Due To Bidding Procedures

BMI View : The Vietnamese government's intention to create a simpler drug tendering system is a positive development for pharmaceutical companies. Nevertheless, we believe that its implementation will be challenging due to rampant corruption. We therefore continue to expect disparities in drug prices to affect patients in some provinces more than others, resulting in fluctuating sales for drugmakers.

Vietnam Health Minister Nguyen Thi Kim Tien has stated that, due to inadequate bidding management, there are many instances of the same drug being sold at different prices in different provinces. For example India-based Parex Pharmaceutical's Perabact (cefoperazone) is priced at VND18,000 (US$0.90) in Mekong Delta Dong Thap Province, but costs VND30,000 (US$1.50) in Can Tho. The Minister has also stated that some pharmaceutical firms work with hospitals to push up drug prices.

Local media, Vietnam News, reported that new regulations will be enforced to prevent such disparity in prices. Drug bidding will be conducted centrally by health departments in provinces and cities, while hospitals will negotiate contracts based on the bidding results. The winning price of each drug product is not allowed to exceed the ceiling price approved by the health department in their bidding plan.

While this regulation is a positive development for pharmaceutical companies, we believe that the actual implementation of the policy will be challenging. Rampant corruption will continue to hinder the country's progress in the pharmaceutical and healthcare sector, bringing downside risks to its business environment.

Recent Healthcare Discrepancies in Vietnam

In August 2012 it was revealed that Vietnam's social health insurance funds are running a deficit, in part due to mismanagement of funds as well as corruption. In March 2012, Doan Van Cuong, an ex-employee of the Can Tho social insurance department, made fraudulent claims. He used the names of pregnant women and asked for postnatal assistance worth VND119.5bn (US$5,730), even though these women were not his employees. In the same month, Vietnam's social health insurance funds were running a deficit. According to local media Thanhnien News, statistics show that Ho Chi Minh City had the largest shortfall in 2011. Last year, the city's insurance premiums reached VND3trn (US$144mn) but it overspent by more than VND300bn (US$14.5mn). In first three months of 2012, the deficit in Ho Chi Minh City grew by more than VND10bn (US$480,302). Officials have blamed the excessive spending on inappropriate prescribing by doctors. As seen in many other countries in Asia, overuse of antibiotics in common in Vietnam.

In July 2012, it was revealed that GlaxoSmithKline (GSK)'s Singapore division worked with a local pharmaceutical manufacturer to manipulate drug prices in Vietnam. The firm sold the drugs at prices four to five times higher than their original rates. The Drug Administration of Vietnam granted licenses to Vietnam-based Savi Pharmaceutical for the circulation of 15 types of medicine in 2008-2011. From October 18 2011 to May 17 2012, Savipharm produced six of the drugs and sold them to GSK under an in-country export transaction, with the help of importer Phytopharma, at very low prices. Such practices can occur between pharmaceutical firms and various health departments.

A survey by the World Bank, 'Corruption from the Perspectives of Citizens, Enterprises and Public Officials', showed that corruption remains an issue in Vietnam's healthcare system. Healthcare is ranked seventh out of 22 sectors. Approximately 60-70% of the people surveyed (5,400 in total, comprising public officials, enterprises and citizens) perceived high levels of corruption; more so than other sectors such as transport, customs and construction. There is a 25% chance of paying a bribe when using healthcare services or dealing with these healthcare agencies. This figure is lower than the 49% for traffic police and school education (32%) but higher than that for business registration (12%) and taxation services (3%).

Inability To Afford Healthcare Remains An Issue

The Consumer Price Index for medicine and healthcare has remained relatively low in comparison to the overall CPI since January 2006. However, in February 2012 a joint circular 04/2012/TTLT-BYT-BTC released by the Ministry of Finance and Health sought to increase the price of health provision. Consequently the cost of 400 health services increased fivefold. For example, the cost of a hospital bed rose from US$0.95 to US$7.60. The CPI for healthcare shot up to 7% year-on-year in July 2012, in contrast to 3.95% in June 2012 and reached a high of 45.38% in November 2012. The reason for the sharp increase was that many of these prices had not increased since 1995. However, even at 1995 prices, healthcare remains unaffordable for many. The higher healthcare costs, coupled with the current drug price disparity has meant that proper healthcare is still unaffordable.

Vietnam Overall CPI And CPI For Medicine And Healthcare
2006-2012 (Base Year = 2009)
This article is tagged to:
Sector: Pharmaceuticals & Healthcare
Geography: Vietnam, Vietnam, Vietnam, Vietnam

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