Editor, Human Resources for Health Development Journal, Thailand

^webpage: http://www.moph.gp.th/ops/hrdj/

^{e-mail address:} suwit@health.moph.go.th

This paper is aimed for use in the Amsterdam meeting on Globalization and Access to Essential Drug, 25-26 November 1999

Abstract :-

Thailand is a developing country which is moving very fast into globalisation and international trade. In 1998 its value of exports amounted to 54 per cent of its GDP. This highly export oriented economy makes Thailand very vulnerable to foreign pressures and external economic dynamicity. Pressures from the USTR since 1986 forced the country to open its Tobacco market and accept product patent in 1992. Pipeline pharmaceutical products were also protected under a technical safety Monitoring Program (SMP). The economic boom since late 80s and the pipeline products protection increase drug expenditure greatly as well as increase proportion of imported products. Economic crisis in 1997, although brought with it the financial stress on public health budget, but also allowed for major management reform including drug management. Several strategies include reduction of drug items, collective procurement, health care financing reform, and reformulation of public budget were developed and implemented under a comprehensive "good health at low cost" policy. More managerial reforms are needed to cope with the more intensive and longterm monopolistic effect of the product patent. It is suggested that a global public drug fund from certain percentage of global drug sales should be established to support RUD and R&D on public essential drugs.

Key words : Globalization, essential drugs, product patent, economic crisis, TRIPS.

1. Introduction

Thailand is a lower middle income country in Southeast Asia with a population of 61.5 million in 1999. It consists of 75 provinces, 795 districts, 81 subdistricts, 7,255 Tambons (communes), and 68,881 villages (Table 1). The health care delivery system is pluralistic and composed of both public and private facilities (Table 2). The public facilities have approximately 60%-75% share of resources while private facilities have a 25%-40% share⁽¹⁾. Approximately 80% of all public health resources belonged to the Ministry of Public Health (MoPH) with its extensive network of provincial general hospitals, district hospitals, and commune health centres. In 1998, there were 92 general hospitals, 712 district hospitals and 9,251 commune health centres⁽¹⁾. Administratively, all public hospitals and health centres, under the MoPH, in each province report to the Provincial Chief Medical Officer (PCMO) (Figure 1). The health status of the Thais improved greatly in the past three decades (Figure 2, 3). However, the health and drug expenditures are increasing at very fast pace, particularly in the last decade (Figure 3, 4) ⁽¹⁾.

Table 1 Basic information (1999)

• 75 provinces; 795 districts; 81 subdistricts; 7,255 Tambons; 68,881 villages
• Population 61.5 millions

• Life expectancy ♂= 69.4 yrs. ♀ = 74.1 yrs.

• IMR 26.05 per 1,000 LBs.
• MMR 16.4 per 100,000 LBs.

Table 2 Health care infrastructures : Pleuralistic

Source: Thailand Health Profile 1997-1998⁽¹⁾.

Figure 1 Organization of MoPH’s health facilities.

MoPH = Ministry of Public Health

MoI = Ministry of Interior

Figure 2 Trend of Infant Mortality rate

Source: Office of the National Economic and Social Development Board, 1992

Figure 3 Good Health at Low Cost" and "High Cost but Less Health"

Drug expenditure in 1993 was US$1,080 million (wholesale) or US$18 /capita (wholesale) or US$34 /capita ^c (retail value) and constituted roughly 35% of total health expenditure⁽²⁾. The 1998 estimate was US$1,200 million ^d, and constitute 29% of the health expense. Drug expense in the last 5 years is increasing at a rate higher than health expense and economic growth⁽¹⁾ (Figure 4). Drugs are distributed through all public/private facilities including more than 10,000 private pharmacies (Figure 5, 6) ^{(3, 4)}.

Figure 4 Growth of Real-Term Expenditures on Drugs and Health and Gross Domestic

Product, 1986-1998 (1986=100)

Note: values of the three expenditure were arbitrarily set at 100 in 1986 to slow their relative pace of increase

 Figure 5 1998 Drug consumptions/distribution

[figure not complete]

GPO = Government Pharmaceutical Organization

Source: Na Songkhla M, Wibulpolprasert S, Prakongsai P, 1999.

Figure 6 Flow of health expense

[ figure note complete]

N.B. Many of those who are insured still go to the private pharmacies, private clinics, hospitals, and pay out of pocket or by employers.

Source: Wibulpolprasert S, et. al., 1998.

Health insurance coverage among the Thais is increasing from 32.9 per cent in 1991 to 80.3 per cent in 1998 (Table 3).

The Thais use both public and private facilities in accordance with their income and health insurance (Figure 7)⁽⁴⁾.

Table 3 Percentage of Health Insurance Coverage by Scheme, 1991-1998.

Source: 1. For 1991, a survey conducted by the National Statistical Office, 1991.

2. For 1992, Viroj Tangcharoensathien and Annuwat Supachutikul, 1993.

3. For 1995, 1997 and 1998, Health Insurance Office, MoPH.

  Figure 7 Service utilization by Thais.

[figure not complete]

Source: Wibulpolprasert S, et. al., 1998.

Services in public facilities are not free of charge. Unless the patients are covered by some kind of insurance, they have to pay a subsidized level of user fees, according to their ability to pay. However, if they do not have insurance and have no (or not enough) money, they can also receive free medical care from public facilities. User fee system was started in Thailand for more than 40 years, since the early days of modern health care systems development. The money collected are retained by the hospitals and are used to maintain the facilities and purchasing drugs as well as medical supplies, under certain rules agreed upon between the MoPH and Ministry of Finance (MoF). The public hospitals thus receive financial support through government budget (tax revenues), insurance premiums, and user fees. Each hospital is authorized to use these funds to purchase drugs. According to government regulations, public hospitals have to purchase 60%-80% of their drugs budget based on items in the essential drug list⁽⁵⁾. However, in real practice, only small hospitals and health centres comply to this rule. Bigger hospitals, cited the problems of the outdated National Essential Drug List (NEDL), spend only 30%-40% of their drug budget on ED.

Drugs are produced locally by 176 private factories and a few public enterprises, the biggest one being the Government Pharmaceutical Organization (GPO). There are also 460 drug importers. Locally produced drugs have 50%-60% of the market share. During economic boom the proportion of imported drugs start to increase. This is due to both the increasing use of imported products and the pipeline protection of new drugs. After the economic crisis the proportion of imported products increase further due to devaluation of local currency, although their $US value decrease greatly (Figure 8).

Figure 8 Proportion of locally produced and imported drugs (for human use) 1983-1998.

Most public hospitals purchase drugs from both the GPO and private companies. Only those private drug factories with Good Manufacturing Practice (GMP) certificates from Thai FDA are allowed to sell drugs to public hospitals. Products from GMP factories are three times less substandard than those of the non-GMP factories.

The prices of drugs from GPO are fixed and quality control are carried out by the GPO itself. On the other hand, prices of drugs from private companies depends on direct bargaining without a good quality control system from the buyer’s side.

Thus drugs are purchased, based on different hospital drug lists, at varying prices and quality in different hospitals. Bigger provincial hospitals usually have more transparency, more bargaining power and more access to better quality drugs. Under this system, different drugs are thus used by different health facilities in the same provinces. A system of medium price⁽⁶⁾, developed and announced by the MoPH, control the upper limit of the drug price in the public sector.

This paper aims at analysing possible implications from international trade and economic crisis on the Thai drug systems focus at the access to essential drugs.

1. International trade and the Thai Economy

Since early 1960s, with the start of the first five year National Economic Development Plan (1961-1966), the Thai economy was transformed from agriculture led toward manufacturing industry led economy (Figure 9). The Thai economy is also moving from Import Substitution Industries (ISI) more toward Export Oriented Industries (EOI). The proportion of export in the GDP increase from 11.4 per cent in 1970 to 32.1 per cent in 1990 and finally to 54.5 per cent in 1998 (Figure 10).

 

Figure 9 Proportion of Economy in the Agriculture, Industrial and other Sectors in Relation to the Gross Domestic Product, 1960-1998



Source: Thailand Health Profile 1997-1998

 

Figure 10 % of Export and Tourism in the GDP, Thailand 1960-1998



ISI = Import Substitution Industry

EOI = Export Orient Industry

Of the total Thai export, about 25-30 per cent go to the US, 15-20 per cent to Europe and Japan, the rest to Asia (particularly ASEAN) and rest of the World. This means also that about 30-35 per cent of our GDP depends on export to the US, Europe and Japan.

This export oriented economic development policy not only resulted in rapid economic growth but also more dependent on the world market. The situation makes Thailand more vulnerable to external economic changes and pressures. The developed countries started to put pressures on Thailand to widen the opening of its market since late 1980s, during the start of economic boom.

2. Pressures form developed countries

The USTR (United State Trade Representative) started to investigate the Thai market and pressured the Thai government to open its market since 1986. The two main proposals which related to health care systems are the acceptance of product patent and the opening of the Tobacco market.

The Thai patent act 1979 accepted only process patent. Thus the local drug factories can produce generic products within 2-3 years that the new R&D drugs appear in the market. The Thai consumers thus enjoy very low price generics at the loss of the multinational drug companies. Piroxicam, for example, has a price difference of 28 times (17.5 cents US per tablet for original Feldineâ as compare to 0.625 cents US per tablet for the cheapest generics). Figures from Thai FDA in 1998 found that the Thai consumed 182 million capsules/tablets of Piroxicam, 97.5% of which were locally produced. For Zidovudine 32.0% of which were locally produced in 1998.

In 1986 the USTR started to negotiate with the Thai government to amend the Patent Act 1979, to accept product patent. The negotiation went on for 6 years until 1992 that Thailand had to give up and amend its patent act to include product patent. This was in exchange of the exemption from being sanctioned under the Super 301 US Trade Act. However, the civic organizations in Thailand put heavy campaigns against this negotiation and succeeded in excluding animal and plant in the product patent as well as installing the Drug Patent Committee, parallel import and compulsory licensing into the amended act. Thus although we can enjoy a grace period of 5 years from 1995 (according to TRIPS), Thailand had accepted product patent since 1992.

Apart from pressuring for amendment of patent act to cover product patent, the USTR also negotiated for the protection of their pipeline pharmaceutical products. It was estimated that there might be around 1,500 products in the pipeline which can not be patented according to the 1992 amended patent act. Finally in 1991, the Thai FDA established a system of Safety Monitoring Program (SMP) to all new drugs registered since 1992. Under this SMP system, all new drugs will have to be monitored for any adverse drug reactions for at least two years. After that the sponsoring drug companies would file the summary report of the SMP to the Thai FDA. If it is approved, the drug then will be released from SMP. During the period of SMP, the drug can be sold only in the hospitals. Meanwhile no generic products can be registered. After being released from SMP, generic products can be registered only after a bioequivalence study. The SMP system, although technically reasonable, essentially resulted in at least 3-4 years market exclusivity of the new drugs and higher cost of the generics.

From 1992 to November 1999, there were 397 new drugs registered and 152 were released from SMP. Out of these 152, only 3 generics were produced, i.e., Fluconazole, Olfloxacine, and Ondansetron. There are both delay in the release from SMP and delay production of generics. Many factors related to the delayed production of generics, i.e., development of appropriate formulation, bioequivalence study, availability of raw materials, and the size of the market. Previous figures showed that 7 years after the first appearance of new drugs, only 24 year cent were covered with generics (Figure 11). It was estimated in 1999 that, if generic version of the first 25 most popular pipeline products (which cover 75% of all expenses) are produced, and have a market share of 95 per cent, and price reduction of 95% per cent of the original products, 2.0 billion Baht or US$ 50 million can be saved (Figure 12).

Figure 11 Percent accumulation of generic products in Thailand since the first appearance of original product (1986-1990).



Number of years since the first appearance of original products

For HIV/AIDS drugs, only AZT and Fluconazole had generic products, however. The starting price of original Fluconazole was 240 Baht per tablet as compare to 6 Baht per tablet for the cheapest generic, a 40 times difference.

DDI is one of the pipeline product released from SMP in 1998. However although DDI and its buffer, dihydroxyaluminium sodium carbonate, are not patentable, their combination formula was patented in Australia, USA and Thailand. Thus although the Government Pharmaceutical Organization had finished its bioequivalence study, it can not produce DDI under this formulation. A negotiation for compulsory licensing is in process.

This pipeline protection couple with economic boom was responsible for a moderate increase in the proportion of imported products between 1992-1997 (Figure 8).

 

Figure 12 Saving from Generic drug substitution, of the top 25 original pipeline drugs, 30%-95% market share, and 30%-95% of price reduction range

Million Baht



% of market share

Source: Pittayarangsarit S, 1999.

3. Economic crisis

The 1997 economic crisis, with over 50 per cent devaluation of local currency, increase unemployment, reduced income, and real term reduction of public budget, affected greatly the availability of essential drugs. High inflation (8 per cent in 1997 and 11.0 per cent in 1998) and devaluation of Baht resulted in increase drug price of both generics and original. On the average the price of generic products increase 20.63 per cent while those of the imported original products increase 22.85 per cent (Table 4). At the same time the public budget was reduced due to reduce income and less tax revenue collected. Inspite of increasing foreign public loans to maintain public budget, the MoPH budget was reduced by 12.7 per cent in 1998, and 5.2 per cent in 1999, in real term (Table 5).

 Table 4 Changes in drug prices after economic crisis (July 1997)

Source: Ministry of Commerce

Table 5 MoPH budget in current prices and real terms

Source: Bureau of Health policy and plan, MoPH

Notes:

1. Since FY 1995, the MoPH has received a separate revolving fund for the Health Insurance Scheme; previously the budget for this purpose was included in the overall MoPH budget.

2. Figures in parentheses include loan funds from Sweden, Denmark, OECF, the World bank, ADB, and Japan (Miyazawa Plan), totalling Bt 1,360 million for 1997, Bt 1,360 million for 1998, Bt 3,560 million for 1999, and Bt 2,360 million for 2000.
3. Health card revolving funds for 1995-1999 were calculated from the number of health cards sold, except for 2000 the amount was computed from the overall fund.
4. "e" means estimates.

 The economic crisis also resulted in shift of health care utilization behaviour. The Thais go more to the self-medication and shift from private facilities to the public facilities (Figure 13). Private hospitals increase their use of generic products as well as moving into the social security health insurance program (Table 6).

Figure 13 Household Health Expenditure, 1981-1998.



Source: Report on Households' Economic and Social Conditions Survey,

National Statistical Office

Table 6 Number and proportion of hospitals having entered into a contract with the Social Security Office, 1991-1999.

	Principal contractor/hospitals					Subcontractor/hospitals
Year	Public		Private		Total	Public		Private		Total
	No.	Percent	No.	Percent		No.	Percent	No.	Percent
1991	119	86.9	18	13.1	137	-	-	-	-	-
1992	118	81.4	27	18.6	145	838	92.4	69	7.6	907
1993	119	76.3	37	23.7	156	748	89.2	91	10.8	839
1994	122	68.9	55	31.1	177	1,019	78.7	275	21.3	1,294
1995	126	66.7	63	33.3	189	1,206	69.2	537	30.8	1,743
1996	126	63.6	72	36.4	198	1,210	42.6	1,629	57.4	2,839
1997	127	64.8	69	35.2	196	1,340	46.9	1,517	53.1	2,857
1998	127	62.0	78	38.0	205	1,263	56.0	994	44.0	2,257
1999	128	55.2	107	44.8	232	1,511	39.7	2,294	60.3	3,805

Source: Social Security Office, Ministry of Labour and Social Welfare

The economic crisis also resulted in 5.02 per cent real term reduction of health expense in 1998 and the shift of health expense from public to private sector (Figure 14).

Figure 14 Proportion of public and private health expense, 1980-1998



Source: Thailand Health Profile 1997-1998.

5. Responses

1. Shift of public budget

In order to protect "safety net" for the poor and essential health programs, MoPH budget was reformulated. The capital cost was reduced greatly from 38.7 per cent of the total budget in 1997 down to 27.3 per cent in 1998, 15.5 per cent in 1999, and 11.5 per cent in 2000 (Figure 15). Budget for vaccines in the EPI program was saved as well as budget of the MCH and AIDs program.

 

Figure 15 Percentage of MoPH budget by major category of expenditure, 1959-2000

percentage

Year

Drug budget for the social welfare health program was not only saved but increased in real term (Figure16).

Figure 16 MoPH budget for free medical services for the poor and underprivileged, 1979-2000

percentage

year

This shift of budget although reduce the problem of insufficiency of the drug budget, also shifted the target of political corruptions from capital investment to the drug budget. In 1998, many PCMOs were secretly ordered to purchase drugs and medical supplies from a specific group of 13 companies at 2-3 times, of the usual price. The movement of Rural Doctor Society (RDS), Rural Pharmacy Group (RPG), and 30 NGOs using mass media, resulted in extensive countrywide investigations. Within 4 months, the Health Minister and Deputy Minister had to resigned. Later on the Permanent secretary was moved. Five high-level health administrators were fired (3 PCMOs, 2 at central levels). The investigation is still going on.

2. Reduced drug items at public hospitals

Under a "good health at low cost" policy, the MoPH set out schedules to reduce the drug items available at each level of its hospitals (Table 7, 8)⁽⁷⁾. This reduction not only reduce the use of unnecessary drugs but also facilitate better drug management.

Table 7 MoPH drug management reform: maximum item of drugs in hospital list.

ED = Essential Drugs; NED = Non Essential Drugs.

Table 8 MoPH drug management reform: enforcement of procurement of ED by the non-budgetary financial sources.

Note: * enforced by Procurement Regulation since 1986.

The reform of the Civil Servant Medical Benefit Scheme (CSMBS) to allow only use of ED also reduce the list of drugs available in its system (Previously any item of drug can be reimbursed in the CSMBS scheme). However, the National Essential Drug List (NEDL) was revised in 1999 from a minimal list of 346 to a maximum list 720 items (Table 9)⁽⁵⁾. This CSMBS drug reform as well as the prohibition of the use of private hospital service and copayment of long hospital stay, reduced the expense greatly (Table 10).

The health insurance under the social security scheme used NEDL on a capitation payment system since 1991.

Table 9 Summary of several versions of NEDL, 1981 to 1999

Source: National Essential Drug List 1981, 1987, 1992, 1996 and 1999^(9-13).

Table 10 Expenditure in the Civil Servant Medical Benefits Scheme, 1990-1999.

1. Collective procurement

Under the ‘good health at low cost’ policy, hospitals in each province (district and general hospitals) have to collectively purchase the first 100 items of most commonly used drugs or 50 per cent of their drug budget. This collective bargaining system was able to reduce drug price by 25.2 per cent and 630 million Baht was saved in 1999⁽⁸⁾. The quality of drugs was also improved. This system, developed since 1990, was not really extensively implemented until after the economic crisis⁽³⁾.

The price of ED that was purchased by each hospital also appeared in the internet. The web page address is http//:www.phd.moph.go.th/pharmacy/. These information increase the transparencies of drug procurement.

2. Accelerating the release of new drugs from SMP.

From 1992 to 1997, 325 new drugs under SMP was registered. However in November 1997 only 5 drugs were released from SMP. There was thus little chances for generic products. The then FDA Secretary General (who also developed the collective provincial procurement systems in 1989) developed an acceleration program to release SMP products. Within 4 months, 152 drugs were released including Fluconazole, Olfloxacine, Ondansetron, DDI, and Simvastetin.

This resulted in the availability of lower price generic of Fluconazole. The generic DDI was still not available due to controversial patent of the drug formulation by the Department of Intellectual Property, Ministry of Finance.

3. Improve quality of generics

This is achieved by the collective provincial procurement system as well as increase coverage of GMP factories. The coverage of GMP drug factories increase from 30.4% in 1989 to 73.8% in 1998 (Figure 17). An amendment to the current Drug Act to make GMP a compulsory requirement for all drug factories is being considered in the Parliament.

Figure 17 Percent of GMP-drug factories 1989-1998.

percentage



Source : Food and Drug Administration, MoPH.

 

4. Health Care Financing Reform

There were several progresses in the health care financing system. The movements were toward more collective tax base system and from fee-for-services to capitation and global budget system (Table 3).

Although international trade and economic crisis posed several threats to the availability of ED but also provide pressures to improve drug management system. Higher price antimicrobials will also limit their use and reduce chance, of multiple drug resistance.

Some future collective actions may be considered:-

1. Alleviation of negative effects from TRIPS

1.1 Extension of grace period

The proposal of another 5 years extension of the grace period under the TRIPs which was proposed by many developing countries are well supported by the Thai government.

1.2 Exemption of WHO list of ED from the TRIPs agreement.

This was proposed by many developing countries to the WTO ministerial meeting which is going to take place from 30 November-4 December 1999 in Seattle, USA. The Thai government strongly supports this proposal.

1.3 Support enforcement of compulsory licensing

For expensive patented new essential drugs compulsory licensing should be encouraged to be enforced. The case of DDI, in Thailand for example, can be used as a case study. Guidelines or handbook for enforcing compulsory licensing and/or parallel import should be published and disseminated. Training programs on using these handbooks for developing countries national drug authorities and NGOs should be developed and carried out. Information exchange of the situation in each country through electronic mail is essential to strengthen the move.

2. Guideline for developing countries to cope with international trade.

International civil society and health organization should develop guidelines to help developing countries to cope with the negative effects of international trade on the availability of essential drugs. Topics may include the mechanisms to make the generics available as soon as possible after patent expiration, and how to reform health care financing schemes to achieve better use of drugs.

3. Creation of a Global Public Drug Fund.

A global public fund can be created to support activities toward more rational use of drugs, compensation for those who develop adverse drug reactions, and support R&D on public drugs.

The main source of fund, apart from donation, can come from the sale of drugs. In Japan 1% of drug sales go to public drug fund ⁽¹⁴⁾.

The total global drug sale was around US$300,000 million in 1998. One per cent means USD 3,000 million, 7 times the amount of regular WHO budget, and 30 times the usual R&D budget for one new drugs.

International civil society may work closely with international health organization, e.g., WHO, UNICEF and UNAIDS, to initiate a global campaign to support this proposal. This proposal is more or less like the Health Promotion Fund from earmarked tobacco and alcohol excise tax.

4. More reform of the Health Care Financing (HCF) system.

HCF system should be shifted from out of pocket payment to more collective payment system. It should also be moved from fee for services payment system to capitation, case payment and global budget. However mechanisms to ensure quality of services have to be developed.

In regarding to prescription and dispensing, the current system in many developing countries that the doctors and hospitals prescribe and dispense drugs while the pharmacies also dispense and prescribe should be reformed. This current systems give financial incentive to prescribe and dispense more drugs. Separate payments on drugs by all third party payers should be a tool to separate these two functions.

5. Social empowerment.

The problem of availability of ED as affected by globalization is an example of social inequity. Social inequity and social unrest occur more in the society with weak civil society. The stronger the civil society the more equitable it is. Social empowerment will take balance with the political and financial power from the state and the private sector.

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