Medicinal products and medicinal devices procurement through international organizations. Advantages and disadvantages

23/ 02/ 2017

Dmytro Aleshko, Partner, Legal Alliance Company Alexander Bondar, Senior Lawyer, Legal Alliance Company Since the beginning of 2017, there have been discussions, including at the level of the Committee of the Verkhovna Rada of Ukraine on Healthcare, on the feasibility of procurement of medicinal products and medical devices through international specialized organizations. Mass media almost weekly (and sometimes several times a week) publish articles on the issue which are different in content and subject. Readers are offered new data from unknown or different sources, which often do not coincide with the official position of the Ministry of Health of Ukraine and international organizations. Introduction of a new procurement mechanism took place in conditions of powerful information criticism and negation. Law of Ukraine No. 269-VIII “On Amendments to Some Laws of Ukraine on Provision of Timely Patient Access to Needed Medicinal Products and Medical Devices through Public Procurement Involving Specialized Organizations Engaged in Procurement was adopted back in March 2015. Though, the Ministry of Health of Ukraine managed to sign first corresponding contracts with international specialized organizations at the end of 2015. Thus, in fact, procurement under the program of 2015 was carried out only in 2016. Unfortunately, in 2016 contracts with international specialized organizations to ensure the procurement of necessary medicinal products and medical devices were signed only in autumn. Of course, this situation cannot be considered acceptable and must be changed for the future procurement. Therefore, in many cases, international procurement mechanism criticism is not unreasonable and can be understood. However, it is important that such criticism be of a constructive nature and not politically or business biased, since we are talking about peoples health. The data that are available in open sources indicate that despite the current drawbacks, procurement of medicinal products and medical devices through international specialized organizations, as a temporary mechanism, has demonstrated its efficiency, given the significant savings in the budget. In particular, according to Patients of Ukraine Charity Foundation website, after the procurement of necessary medicinal products and medical devices under the budget program for the previous year, about USD 8 million remained on account of international organizations. Of course, we do not intend to assert the authenticity of the data in this article. In our opinion, only the Ministry of Health and relevant international organizations can comment on such data competitively. Admit, however, that the figures are impressive. Pursuant to Resolutions of the Cabinet of Ministers of Ukraine No. 787 as of October 8th, 2015 and No. 557 as of August 23rd, 2016, which approved lists of medicinal products and medical devices purchased under procurement agreements (contracts) with specialized organizations in areas of budget funds use in a respective year, the Ministry of Health, provided that the needed volume of medicinal products and medical devices were procured, given the amount of unused funds on account of specialized organizations, can increase the number of items within 100% of the needs. Thus, such savings actually mean that patients in Ukraine will receive additional medicinal products and medical devices. Moreover, in addition to such budgetary savings and the possibility of procuring more products for Ukrainian patients for allocated budget funds, international procurement, due to application of rules, mechanisms and procedures of international specialized organizations while carrying out tenders, eliminated a number of corruption risks, which were repeatedly pointed out by international NGOs and even government officials at various levels. It is also one of the main goals of this mechanism. Such international procurement mechanisms are typically used in countries that have not yet formed a transparent and efficient national procurement model and a sufficient level of maturity of anti-corruption measures, and so on. Ukraine is one of them nowadays, which is very sad. Despite some successful outcome, unfortunately, we must admit that not all the objectives of such procurement have been achieved without error and drawback. In particular, a number of problems accompanied the situation regarding VAT exemption of import and supply of medicinal products and medical devices within the framework of international procurement. The practice of procurements for the previous year, the provisions of the Tax Code of Ukraine and the relevant Resolution of the Cabinet of Ministers of Ukraine No. 1153 as of December 2nd, 2015 On Approval of the Procedure for Importation, Supply and Intended Use of Medicinal Products and Medical Devices Exempted from Value Added Tax need improving in order to ensure their compatibility with each other and resolving difficulties prevailing in their practical application. Such imperfections can also be caused by the big number of normative acts and haste at their adoption. The aforementioned Resolution of the Cabinet of Ministers of Ukraine, which is one of the key documents that can reduce the price of medicinal products and medical devices, was adopted on December 2nd, 2015., which means after the relevant contracts with international organizations were signed. We also need to establish the mechanisms that would not allow for buying substandard products, create entirely new approaches to the formation of the nomenclature and set mechanisms that would minimize the term of delivery of procured medicinal products and medical devices to health care institutions. Term of delivery of goods in Ukraine can, in our view, be reduced, in particular, by removing the monopoly of the state enterprises of the Ministry of Health on such activities, as private companies may have better technical capacity for efficient and timely delivery of goods. It should also be noted that a number of normative acts, that were adopted to implement the mechanism of international procurement of medicinal products and medical devices through specialized organizations, have links to Law of Ukraine On Public Procurement» No. 1197-VII as of April 10th, 2014, which expired on August 1st, 2016. The same or similar provisions are contained in new Law of Ukraine On Public Procurement» No. 922-VIII as of December 25th, 2015. However, despite the expiry of the Law of Ukraine On Public Procurement, appropriate amendments were not made to the mentioned normative acts. Failure to amend the acts is a significant risk for implementation of the centralized procurement mechanism involving international specialized organizations. Of course, there are some other issues to be addressed. Therefore, in our opinion, the situation should be approached in objective and practical way and there should be no room for extreme steps. If such a temporary mechanism of international procurement eliminates the risks of corruption, saves budget and, therefore, provides patients with more medicinal products and medical devices, it seems appropriate to focus on urgent addressing the flaws that were identified during its practical use. Statements of the Acting Minister of Health in the media that the preparation for procurement in areas of budget funds use in 2017 is being done now indicates that the Ministry is treating the situation seriously. We hope that the issues will be resolved in the shortest time possible.

Dmytro Aleshko, Partner, Legal Alliance Company
Alexander Bondar, Senior Lawyer, Legal Alliance Company

Since the beginning of 2017, there have been discussions, including at the level of the Committee of the Verkhovna Rada of Ukraine on Healthcare, on the feasibility of procurement of medicinal products and medical devices through international specialized organizations. Mass media almost weekly (and sometimes several times a week) publish articles on the issue which are different in content and subject. Readers are offered new data from unknown or different sources, which often do not coincide with the official position of the Ministry of Health of Ukraine and international organizations.

Introduction of a new procurement mechanism took place in conditions of powerful information criticism and negation. Law of Ukraine No. 269-VIII “On Amendments to Some Laws of Ukraine on Provision of Timely Patient Access to Needed Medicinal Products and Medical Devices through Public Procurement Involving Specialized Organizations Engaged in Procurement” was adopted back in March 2015. Though, the Ministry of Health of Ukraine managed to sign first corresponding contracts with international specialized organizations at the end of 2015. Thus, in fact, procurement under the program of 2015 was carried out only in 2016.

Unfortunately, in 2016 contracts with international specialized organizations to ensure the procurement of necessary medicinal products and medical devices were signed only in autumn. Of course, this situation cannot be considered acceptable and must be changed for the future procurement.

Therefore, in many cases, international procurement mechanism criticism is not unreasonable and can be understood. However, it is important that such criticism be of a constructive nature and not politically or business biased, since we are talking about people’s health.

The data that are available in open sources indicate that despite the current drawbacks, procurement of medicinal products and medical devices through international specialized organizations, as a temporary mechanism, has demonstrated its efficiency, given the significant savings in the budget. In particular, according to Patients of Ukraine Charity Foundation website, after the procurement of necessary medicinal products and medical devices under the budget program for the previous year, about USD 8 million remained on account of international organizations.

Of course, we do not intend to assert the authenticity of the data in this article. In our opinion, only the Ministry of Health and relevant international organizations can comment on such data competitively. Admit, however, that the figures are impressive.

Pursuant to Resolutions of the Cabinet of Ministers of Ukraine No. 787 as of October 8th, 2015 and No. 557 as of August 23rd, 2016, which approved lists of medicinal products and medical devices purchased under procurement agreements (contracts) with specialized organizations in areas of budget funds use in a respective year, the Ministry of Health, provided that the needed volume of medicinal products and medical devices were procured, given the amount of unused funds on account of specialized organizations, can increase the number of items within 100% of the needs.

Thus, such savings actually mean that patients in Ukraine will receive additional medicinal products and medical devices.

Moreover, in addition to such budgetary savings and the possibility of procuring more products for Ukrainian patients for allocated budget funds, international procurement, due to application of rules, mechanisms and procedures of international specialized organizations while carrying out tenders, eliminated a number of corruption risks, which were repeatedly pointed out by international NGOs and even government officials at various levels. It is also one of the main goals of this mechanism. Such international procurement mechanisms are typically used in countries that have not yet formed a transparent and efficient national procurement model and a sufficient level of maturity of anti-corruption measures, and so on. Ukraine is one of them nowadays, which is very sad.

Despite some successful outcome, unfortunately, we must admit that not all the objectives of such procurement have been achieved without error and drawback.

In particular, a number of problems accompanied the situation regarding VAT exemption of import and supply of medicinal products and medical devices within the framework of international procurement. The practice of procurements for the previous year, the provisions of the Tax Code of Ukraine and the relevant Resolution of the Cabinet of Ministers of Ukraine No. 1153 as of December 2nd, 2015 “On Approval of the Procedure for Importation, Supply and Intended Use of Medicinal Products and Medical Devices Exempted from Value Added Tax” need improving in order to ensure their compatibility with each other and resolving difficulties prevailing in their practical application.

Such imperfections can also be caused by the big number of normative acts and haste at their adoption. The aforementioned Resolution of the Cabinet of Ministers of Ukraine, which is one of the key documents that can reduce the price of medicinal products and medical devices, was adopted on December 2nd, 2015., which means after the relevant contracts with international organizations were signed.

We also need to establish the mechanisms that would not allow for buying substandard products, create entirely new approaches to the formation of the nomenclature and set mechanisms that would minimize the term of delivery of procured medicinal products and medical devices to health care institutions.

Term of delivery of goods in Ukraine can, in our view, be reduced, in particular, by removing the monopoly of the state enterprises of the Ministry of Health on such activities, as private companies may have better technical capacity for efficient and timely delivery of goods.

It should also be noted that a number of normative acts, that were adopted to implement the mechanism of international procurement of medicinal products and medical devices through specialized organizations, have links to Law of Ukraine “On Public Procurement» No. 1197-VII as of April 10th, 2014, which expired on August 1st, 2016. The same or similar provisions are contained in new Law of Ukraine “On Public Procurement» No. 922-VIII as of December 25th, 2015.

However, despite the expiry of the Law of Ukraine “On Public Procurement”, appropriate amendments were not made to the mentioned normative acts.

Failure to amend the acts is a significant risk for implementation of the centralized procurement mechanism involving international specialized organizations.

Of course, there are some other issues to be addressed.

Therefore, in our opinion, the situation should be approached in objective and practical way and there should be no room for extreme steps.

If such a temporary mechanism of international procurement eliminates the risks of corruption, saves budget and, therefore, provides patients with more medicinal products and medical devices, it seems appropriate to focus on urgent addressing the flaws that were identified during its practical use. Statements of the Acting Minister of Health in the media that the preparation for procurement in areas of budget funds use in 2017 is being done now indicates that the Ministry is treating the situation seriously. We hope that the issues will be resolved in the shortest time possible.