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“When free medicine is not free- a failure of socialist planning” (corrected version of article in FT 6 February 2016)

07/02/2016

When free medicine is not free- a failure of socialist planning (FT 6 Feb. 2016)
Professor Wadan Narsey
 

When the “free medicine” scheme for the poor was announced by the Fiji First Party as part of its 2014 Elections manifesto, most poor people were naturally pleased, and many voted accordingly.

Of course, making essential medicine freely available to poor people who cannot afford to pay the market prices, is generally a good thing,, if society can afford it.

Except that the Bainimarama Government did not know how to deliver the free medicine in a cost efficient way, without wastage.

I doubt if they consulted the health professionals in the Government Pharmacy or the Minister of Health (an economist) or even the health economists in the Central Planning Office.

Instead, incompetent even if well-meaning, officials made ad hoc decisions which have so far resulted in:

* wastage of some drugs;

* mismatches of supply and demand resulting in shortages of some, and surpluses of others, passing their “use by dates”;

* importation of some drugs of unknown quality;

* shortages of many price controlled essential medicines,

* some desperate consumers, poor and rich alike, being forced to buy quality brand name medicines at far higher prices than the controlled prices.

These negative effects could also have been predicted by any economic historian who understands why the socialist planned economies of the former Soviet Union and China fundamentally failed their people.

Even socialist leaders had to reject “official planning of resource allocation”  and allow free capitalist markets to ensure a more efficient allocation of resources driven by the private sector.

This was Adam Smith’s great idea (broken into its essential components for economics students to understand):

* by allowing people to freely buy from and sell to each other,

* the “Invisible Hand” of pure selfish self-interest,

* in a competitive capitalist market economy,

* reduced economic wastage and

* resulted in the “greatest good” for the individuals and society

* with society only having to just look after a few exceptions such as “externalities”, monopolies and unfair distribution of income and wealth.

Adam Smith’s free market in medicine

Fiji’s free market in medicines once upon a time allowed;

* pharmacies to freely import the full range of medicines;

* that doctors themselves were prescribing;

* in the quantities that they estimated would be needed;

* while not ordering to much so that medicines lay around and exceeded the “use by” date;

* the pharmacist to set the price ranges that Fiji’s consumers could afford, while simultaneously satisfying their profitability targets, under competition;

* legally stipulated international standards, such as the British Pharmacopeia Standard (BPS) and India Pharmacopeia Standard.

The “checks and balances”.

It was entirely the responsibility of the owners of the pharmacies (wholesale or retail) to ensure that the system worked reasonably well.

If it did not, then they themselves suffered financially.

If they ordered any medicine, they of course paid for it ahead of delivery.

If they ordered too much, it lay around until it passed by the “use by date” after which the medicine had to be dumped, at the pharmacist’s expense (of course a few unethical ones would try and sell it anyway to ignorant consumers).

If they ordered too little compared to the demand, they failed to satisfy prescriptions, and so did not make a profit.

If consumers really needed a medicine and were willing to pay for it, it was there to be bought, from one chemist or another or by special order.

Of course, here and there some powerful importer would unethically set a monopoly price on some drug, but this was a minor problem which any government with the will, could ruthlessly punish.

And  of course, there were poor people who just could not afford even the common medicines, and this is the great challenge that the “free medicine scheme” was supposed to answer.

But the Bainimarama Government’s “answer” has far too many undesirables.

“Dead Hand of Government Control”

The Bainimarama Government decided that civil servants would plan the provision of free medicines to all poor people who needed them, to bought by the Government Pharmacy, but forcibly distributed by the private pharmacies at their own expense.

The Government Pharmacist was just given enough money to buy the medicines, but not the extra funding to efficiently manage the distribution of the medicines, in the right quantities, to the right pharmacies, with the right timing.

Cartons and cartons of medicines were dumped with private pharmacies, without any resources to manage the “free medicine” while accounting for every single pill they receive and given out, or PAY THE FINE.

One pharmacist desperate to get rid of excess unused medicines, offered free diabetes medication to a well known and bemused orthopaedic surgeon (a national treasure who spurns massive salaries overseas in order to serve in Fiji) who ethically refused to accept them.

With these dumped medicines approaching their “use by dates” some concerned pharmacists then had to plead with the Government Pharmacist to take away their medicines and use them in the Health Centres which were strangely in short supply.

There were 36 drugs on the government list, with fully controlled wholesale and retail prices, and about 30 pharmacies initially taking part in the scheme, the scheme could hardly be called a success.

How many poor people were actually registered and given ID cards to make them eligible for the free medicine, especially when we know that the travel costs involved and paper work probably was most costly than the medicines to be received.

With drug importing companies being forced to tender to import the drugs on the official list, only those with the lowest tender prices were selected to import, and they were also given the responsibility for supplying all other pharmacies.

The wholesale and retail prices (and profit margins) were then tightly controlled by the all powerful Commerce Commission of Fiji, with draconian powers to fine “misbehaving” pharmacies who charge even a cent more than the control price.

Yet any decent accountant will tell you that the same medicine item (or hardware item for that matter) can be imported by two different companies from the same overseas supplier, and still end up with different cost structures and prices, given the timing of purchases and  sales, and leftover stock.

Higher prices for the same medicine can be due entirely to justifiable commercial reasons, not because of “exploitation” deserving a massive fine.

Some reputable pharmacists have not been able to import some essential drugs, simply because their tender prices may have been legitimately higher.

There have been serious shortages of some essential drugs and some desperate consumers,  rich and poor alike, have forced to buy brand name medicines at much higher prices.

Taxpayers funds have been wasted.

No one knows exactly how many poor people have been helped, and how many have been actually harmed because of shortages and poor quality of medicines.

To make it worse

Government has now gone even further and widened the controlled price list to over 70 items, AND made it compulsory that all private pharmacies MUST take part in the “free medicine scheme”.

Sensible and responsible private pharmacists fear that there will be more shortages of some critical drugs, more excess supplies of drugs running past their use-by date, more consumers forced to buy the more expensive brand name drugs, at the same time there will be more drugs imported of dubious quality.

It is a tragedy that the poor people of Fiji do not understand that the “free medicine scheme” and all its wastages, will ultimately be paid for by tax-payers.

A more active Fiji Pharmacists Society?

The tax payers agree that poor people who fall sick should not be deprived of the basic medicine that they need.

[We won’t discuss here whether the poor are entitled to ALL essential medicine and medical procedures (such as heart transplants) they need, regardless of the cost.  This is a tough nut to crack for all countries, developing and developed.]

Most of the members of the Fiji Pharmacists Society are indeed aware that the “free medicine scheme” of the Bainimarama Government is not delivering as it should.

But they have not issued any statement to guide either the public or the government.

When professional bodies like the Fiji Institute of Accountants and Fiji Law Society choose to ignore pervasive ethical failures of governments, economists can only guess at the cost to tax payers and society.

But if the Fiji Pharmacists Society (or the Fiji Medical Society) ignore their ethical responsibilities, then the poor feel the costs through ill health and even death.

The Fiji Pharmacists Society need to be more proactive and offer solutions to Government so that they can deliver efficiently on the “free medicine scheme”.

For instance, why does Government not allocate more funds to the Ministry of Health and Government Pharmacy to buy the more popular medicines which government doctors prescribe and Health Centres can distribute on the basis of need?

Why was procurement of medicines taken out of the control of the Ministry of Health, which could always have been held accountable by the Auditor General’s Office for any major inefficiencies either in purchase or supply to the distributing government departments.

Why make the distribution of free medicine the responsibility of private pharmacies, who are not paid to perform this service at all?

Fiji would benefit enormously if the Fiji Pharmacists’ Society were to provide guidance to the government and the public on such as sensitive issue.

Nothing that government provides is ever free;

taxpayers pay for it all;

and they pay more if government is inefficient.

[I apologize for any errors in my earlier Fiji Times article of the 6th February 2016, relating to the FPS committee membership.]

 

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