Senior Procurement Consultant at Crown Agents: "If we had started a lawsuit we could have jeopardize the supply"

Exclusive Interview with the Senior Procurement Consultant at Crown Agents: "If we had started a lawsuit we could have jeopardize the supply".

Question1. How do you estimate the first experience of international purchase of medicines in Ukraine?

While we have not supplied 100% of medicines, we cannot talk about success.

However, it is very important to understand, that it is first experience in Ukraine for all participants of the process, in particular for Ministry of Health, Crown Agents, for “Ukrmedpostach” government enterprise, for Ukrainian distributors and manufacturers. Considering this, I believe, that so far the process is going on successfully.

In the course of purchasing, we had obstacles and problems, but there are people, who strive to support the reforms, they are proactive and find ways of solution.

When reforms are implemented we shall remember, what we are doing this for. For example, the reform of purchase system is implemented to assure the strongest competition possible and ensure the lowest price possible. Concerning many parameters – transparency factor, price, provision, we may say, that the process of purchase is successful.

Question2. Why do you think it is Crown Agents who came under so strong criticism?

It is the question to those who criticized us as well as to mass media that transmitted the critics missing the point.

But, I think, that we are an easier target than the agencies of UN – UNDP or UNICEF. I think it was easier to attack us, because oncology program has biggest list of positions (314 items) for procurement. But, we communicate with UN agencies frequently and know, that we had many shared problems and we find coordinated solutions thereof.

But we think in Crown Agents, that such severe criticism towards us was biased, that is why we try to contend demonstrating facts and figures to public, providing weekly report to MOH, publishing all reports on our web. We are ready for dialogue.

Question3 The fact, that a half of children's oncology drugs has not been supplied yet is one of the causes for criticism towards you. Why have these drugs not been supplied?

As of September 19, 2016 Crown Agents has supplied, in monetary terms, over 86.06% of contracted medicines for the child oncology program; 85.48% of contracted medicines within the centralized procurement program for adult oncology; and 64.54% of the contracted reagents.

Really, children's oncology program is 6-8 weeks late in comparison with the adult’s one. Mainly it happened because Ministry of Health had been approving this program two months longer than the adult’s one.

Moreover, technical committee of Ministry of Health is of the drugs - many of the children’s drugs had a shorter shelf life than those of the adult’s ones, that is why we paid great attention to the drugs to have maximum shelf life.

Here it is important to take into account our approach to purchasing. We divided all drugs into two categories – the drugs available “on shelves”, ready-made, that can be quickly delivered, and those, necessary to be manufactured. And such groups of drugs could be formed even for one nomenclature item – a part of the necessary amount was “on shelf”, and a part was necessary to be manufactured.

These drugs, already available “on shelf”, may have not maximum shelf life. It is a standard situation all over the world. That is why working groups of Ministry of Health made a decision on each item where the shelf life was less than maximum. I want to make it clear, that this is not about expired medicines, but about those, where the shelf life is not 100%, but, for example, 72%. This also extended the purchase period – it is children's oncology, and both we and Ukrainian side regard these issues highly delicate, we don’t want to supply something that cannot be used. These are oncology drugs, they cannot be kept for a long time, their shelf life may be 12-15 months, not more.

Nevertheless, today we have almost rectified the situation and the supplies are performed in time.

Question4 When can one say, that 100% of children's oncology drugs have been supplied?

Our strategy is not to deliver the medicines for a year at the beginning of the year, but to insure availability of required quantity of fresh drugs in due time. We mean that even by the end of the year the drugs must be available.

Reliability of supply is the main thing.

Question5 Does it appear that you have another concept – not one time purchase of 100% of the amount, but reliable supply during the year?

Yes, it does. If the shelf life of a drug is 12 months, there is no point in purchasing it for the whole year in January. That is why, probably, there is no reason to worry, that only 60% of the drugs are supplied in the middle of the year – the rest 40% are being manufactured and will be supplied when they are necessary.

To provide fresh drugs continuously, by agreement with working groups of Ministry of Health, we decided to purchase 50% of ready-made drugs that we can purchase promptly and 50% more are drugs that are being manufactured.

Why did not you announce such concept at the beginning of purchase? It would allow avoiding the critics.

When we just started, we did not know that working group of Ministry of Health would take exactly such decision. Initially we thought that the whole purchase amount was required immediately and started searching the ready-made drugs. By the way, this influenced the purchase price as well.

But simultaneously we estimated the process by ourselves, based on the main criteria of the agency, and submitted our calculations to Ministry of Health. It emerged that anyway price was the main criterion for Ministry of Health. And already at that stage we started changing the approach, not to sweep away everything from the shelf, but plan which drugs may wait to be purchased to get a fresher drug at a cheaper price. It is that time when we decided to take 50% “from shelf” and order 50% of fresh drugs. Unfortunately, the decision-taking process took quite a long time.

Question6 How can you comment the situation with distributor “Ludmila-Pharm” and a three months tie-up of oncology drugs in “Boryspil” Airport?

Three batches of medicines, supplied by “Ludmila-Pharm”, stayed in “Boryspil” Airport. “Ludmila-Pharm” is one of the 29 suppliers of Crown Agents, besides, one of our biggest suppliers in terms of list of positions. This company had long-term relations with a great number of big international manufacturers.

In the first batch, there were problems with, included many drugs of international manufacturers that could not be directly involved in purchases – they considered, that it was better for them to work through a distributor in Ukraine and had a distributor network here.

They wanted to see how the process would go on before dealing directly with government purchases. “Ludmila-Pharm” was their distributor.

One more thing: as there were no purchases in 2015, most of products, ready for purchase, were at stock in Ukraine. These drugs were produced by international manufacturers, who proceeded from the fact, that every year Ministry of Health purchases large amount exactly of these drugs.

These medicines were manufactured specially for Ukraine, in Ukrainian packages, and stayed in stock waiting somebody to supply them.

We found correct to purchase exactly these medicines, because they were in nomenclature and were ready for supply. Moreover, Ministry of Health would also prefer this variant. Moreover, these medicines have been already registered and well known to Ukrainian medical workers. It was a perfect situation. The medicines were at stock of Ukrainian distributor in Ukraine, that is why we selected this distributor for purchase of these medicines.

I would like to mention, that “Ludmila-Pharm” started working highly professionally, and the medicine were supplied from stock very quickly, where it was necessary they dealt with customs clearance, as required pursuant to the law.

Thus, the list of medicines we wanted to purchase from “Ludmila-Pharm” included also those that were not available at stock in Ukraine. In this case “Ludmila-Pharm” had to deliver them in Ukraine as a distributor.

In this case, we were following one pattern with all the distributors – distributor imports and conducts customs clearance of the medicine. But for some medicines “Ludmila-Pharm” refused to do it. The delay was due to differences in interpretation of the VAT exemption mechanism on medical import deliveries for Ukrainian pharm distributors. As the result, “Ludmila-Pharm” just two batches of drugs in the Boryspil airport. Crown Agents warned them about inappropriateness of such import and that they should not supply anymore, but in few days we learnt that one more large batch had arrived. Thus, distributor imported three batches of drugs to the Boryspil and the drugs are in suspension.

Thus, we’ve repeatedly suggested solutions to the matter, working closely with all law experts and government representatives but until the Prime Minister got involved the issue was not getting resolved.

Question7 And were the money for these medicines transferred to the distributor?

Until we received the medicines these supplies were not paid for. We never make a prepayment and never pay in advance. Only when the medicine was delivered in appropriate amount and has proper quality, and was accepted by the authorized state enterprise, only after that we are paying for it.

Question8. So this situation has emerged because “Ludmila-Pharm” refused conducting customs clearance?

“Ludmila-Pharm” refused conducting customs clearance and theauthorized state enterprise of the Ministry of Health stated they could not perform it legally on behalf of “Ludmila-Pharm” Company.

We tried to find a solution but the position of Crown Agents is that we strictly abide by the law and resolutions. The problem being caused by legislative interpretations which are significantly beyond our scope of responsibility. We proposed several alternate solutions to "Ludmila-Pharm", but they did not want to take advantage of any of them.

I want to point out that during those 90 days when the drugs were blocked in the Boryspil, we were in constant contact with Ukrainian authorities, trying to find a solution. The lawyers of "Ludmila-Pharm," the lawyers of Crawn Agents, specialists of the SE "Ukrmedpostach," were trying to resolve the problem, but it all took too much time.

I want to point out that we had no problem with "Ludmila-Pharm" as to delivery. This company

has been delivering and continues to deliver quite large volumes of medicines, successfully conducting custom clearance. Why they did not want to conduct custom clearance with this particular cargo is unclear.

The solution agreed upon during the multi-hour meeting on September 13 between MOH Ukraine, State Security Service of Ukraine, Ukrmedpostach, Ukrvaccine, Lyudmyla-Pharm, Ministry of Finance of Ukraine, Customs Service of Ukraine and several parliamentary deputies, is based on the Crown Agents’ and Ukrmedpostach solution offered when the problem first emerged, yet not accepted at the time, likely due to difficulties in implementing new non-standard procedures within the yet-to-be fully reformed Ukrainian legislative system.

It is important to understand that there is no global suspension in supply. The goods are being supplied, the problem emerged only with part of the cargo.

Question9. Did this situation make you refuse working with Ukrainian distributors?

This situation made us more cautious in our work with Ukrainian suppliers.

Question10. Ludmila-Pharm stated about its readiness to defend its position in the court. Were you ready to go to the court?

Currently "Ludmila-Pharm" continues supplying the medicines and if we had started a lawsuit we could have jeopardize the supply. Our task is to receive the medicines from "Ludmila-Pharm" as soon as possible.

We are working with other Ukrainian suppliers and distributors. As of today, we have 29 various suppliers, including foreign producers, foreign distributors, national producers and national distributors. We have maximum competition and have no problem with other Ukrainian suppliers.

Question11 Another aspect of international purchases, which used to be subject to criticism, is the nomenclature of purchases. How would you comment on the list of purchased drugs? We know that the doctors were not always in agreement with your choice.

True, doctors had many questions as to why one or another medicines are purchased, as the responsibility ultimately lies on final users, the doctors.

Nevertheless, it is important to understand that Ukrainian law on procurement does not envisage any subjective criteria for selecting supplier or the medicine. Good process of supply always provides for flexibility, therefore we must take into account both the objective parameters - price, delivery terms, and the subjective ones - opinion of expert community of doctors about the drug.

The law envisages the procurement not by the name of the trademark, but by the International Nonproprietary Name (INN) of the actual substance. Besides, the medicine should be registered in Ukraine. For instance, there were situations when we had global list of 314 medicines with one INN, but only one of them was registered in Ukraine - in that case it is possible to purchase only this one registered medicine.

But I would like to point out that this is not the problem of Ukraine only, it happens throughout the world - how does one find the balance between the preferences of the doctor, state budget and equal approach to all the trading participants.

Question12. How satisfied or unsatisfied are you with the first experience of drugs procurements in Ukraine?

We are satisfied because I am sure we can complete the procurement program within the schedule time. Thanks to an effective procedure and clear tender process, over 90% of line items were procured cheaper versus 2014, in some cases over 80%, thanks to an effective procedure and clear tender process, leading to over 45% (~UAH 500 million) of savings for the MOH within the adult and child oncology procurement programs.

I know that everything under the agreement will be supplied in time in accordance with the contract conditions. We believe that all the end users who received the medicines would be satisfied with them.

What is also important is that Crown Agents had not received written complaints about the medicines during all this time. There were gossips, talks, but no complaints had been documented.

Question13. How much did Crown Agents earn on procurement of drugs in Ukraine?

5.5%

Question14 Did you receive the money already?

We never take advance payments. We take our money only when the product is delivered to the end user, when the contract is closed.

We are working with the MOH to procure and supply USD32 million worth of child and adult cancer pharmaceuticals on the global supply market. It means that even including commission for services, due to introduction of transparent approach state budget of Ukraine saved crucial amount

We take no extra or administrative fee, the stated fee fully meet international standard and practice

As long as the contract is open the money transfered by the Ministry of Health is in the bank and is not used by us in commercial turnover.

We have vast experience of working for various governments, including government of the countries we call the classic ones - Great Britain, USA, Japan. We cannot use the money until the contract is closed. This money is protected money.

Question15 Did you decide what would be purchased with the saved funds?

We do not know yet what the Ministry of Health will decide on this matter. We are still working under the initial list. According to the valid law, the savings under one program can only be used for the same program, to increase the purchases, amendments should be made in the regulations of the Cabinet of Ministers.

All our efforts are directed towards improving life for the society. We fully believe in Ukraine’s potential and ultimate success in spite of the difficulties the reform processes are facing on a daily basis and we are proud to serve this success in every way we can.

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