Management of health products and technologies for sustainability amidst rising inflation

EPN Executive Director’s address at MEDS Suppliers conference

MEDS is one of the leading supply chain organization within the EPN Network. Procurement best practices require that a DSO establish transparent tender processes, a comprehensive suppliers’ performance evaluation system, and a trusted relationship with prequalified suppliers through regular communication. It is in this perspective that MEDS hosts every year, the conference of its suppliers. EPN Executive Director Dr. Richard Neci was the guest of honour for this year’s conference held in February. In his address, Richard presented on Improving Management of Health Products and Technologies for Sustainability amidst rising Inflation.

He highlighted the following key considerations in the management of health products and technologies in limited-resource setting:

1. It is important to promote competition to improve availability and affordability of health products and technologies,
2. Pre-qualification of suppliers based on capability, sustainability, quality and affordability helps ensure steady supply of commodities.
3. Promoting Local production (by buying locally) can provide for greater sustainability of supply chains, especially in public health emergencies.
4. Suppliers payment mechanism can facilitate or interfere with continuous commodity availability at the facilities.
5. Biased interests in specific companies in distribution or supply of commodities can put a lot of pressure to those in selection and procurement, thus affecting their decision making.
6. Sustainability of our Pharmaceutical Industry is dependent on a functioning pharmaceutical value chain: from R&D, manufacturing and regulation, pricing and sustainable and affordable financing, supply chains, prescribing and dispensing by HCWs and stewardship to ensure appropriate use.

During inflationary period companies take significant steps to boost productivity: pushing through price increases and/or cutting costs. Among levers deployed to cut costs:

1. Reducing work and the labour required to perform it (labour cost saving),
2. Shifting production capacity in line with customer demand (digital transformation).
3. Centralizing information systems to support more efficient back-office processes (get spending visibility and drivers),
4. Creating a procurement mechanism to spend and buy better (reducing consumption)
5. Focusing capital spending on the most important strategic issues (Differentiate strategic and nonstrategic spending).

During inflation, the attention of managers is more focused on price change and how the customers will respond to it because, generally, customers are more sensitive to price and quality than to change in quantity.

In the pharmaceutical sector, you can’t reduce the size/strength of the product to maintain the price – downsizing is not an option. The same for quality or features that customers can live without or accept a lower level. When a product is authorized in the market, the label, features and package are all part of the approval process. Change in quality to lower price is not acceptable.

Among the strategic options to address inflation, the following can be applied in the management of Health Products and Technologies:

Reduce activities that affect the price

At any given time, most products in the market are either overpriced or under-priced. One of the activities that affect the price is the amounts invested in marketing (in our context, product promotion among practitioners) to maintain or increase the value proposition. Reducing the marketing expenditures and lowering the price at the same time can support a more realistic positioning in times of inflation.

Replace the Price Model

Experience has demonstrated that price and payment options can bring among advantages, the retention of customers. There is a need to explore an attractive strategic response to inflation rather than trying to choose among tactical price increases, margin hits, or reductions in quality.

1. Access/subscription price model for high-cost products,
2. Consumption based price model (Vendor Managed Inventory),
3. Volume-based price model,
4. A mortgage model as opposed to requiring the total payment upfront, etc.

References:
1. WHO (2021). Strengthening local production of medicines and other health technologies to improve access.  https://apps.who.int/gb/ebwha/pdf_files/WHA74/A74_ACONF1-en.pdf

2. Koenigsberg O. (2022). Three Strategic Options to Deal with Inflation. Harvard Business Review. https://hbr.org/2022/01/3-strategic-options-to-deal-with-inflation.
3. PWC (2019). Six drug pricing models have emerged to improve product access and affordability. https://www.pwc.com/us/en/industries/health-industries/library/6-drug-pricing-models.html