Modern concept for the sector and historical overview: June 2010

The stability of supply and distribution channels for medications is critical to ensuring accessibility, safety and therapeutic results, especially in times of a deep financial crisis.

А large and modern distribution company such as Commercial League National Pharma Center makes deliveries of pharmaceuticals and medical supplies to all licensed hospitals and pharmacies in Bulgaria. At a fist glance, this managerial and organizational activity may seem straightforward, but in fact it requires complex capabilities to foresee and plan consumption, advanced knowledge and experience in the pharmaceutical industry and world trade, synchronized management of a huge specialized transportation and logistics, automation of inventory handling, around the clock delivery commissioning and maintaining powerful computing capacity, recruitment and retainment of talented specialists from all areas of the relevant field.

Financial risk management and the ability to successfully resolve various conflicts are critical to the business, especially in a country like Bulgaria, plagued by a chronic financial and structural crisis in healthcare, widespread corruption and shortsighted policies.

A very sensitive balance has to be struck for distribution in the current conditions of financial and regulatory insecurity, low profit margins and low profit rates, as well as public pressures in times of crisis. The most common dilemma in operational management is maintaining the constant supply of life-saving and life-sustaining medication while still allowing the company to survive when facing a deepening, unpredictable and under-financed demand.

In this environment, most Bulgarian distributors reported a loss for 2009. Commercial League, however, has reported a profit of € 5,368,000 before taxes. In the vaccines field, for example, Commercial League is the unrivaled leader, with a revenue of over € 5.5 million from a total market value of € 13 million.

The healthcare subsector of pharmaceutical wholesale and distribution has been historically misperceived in Bulgarian public discourse. The tone for this undeserved downgrading of trade in medicines came from a number of local politicians grown during the times of socialist central command economy who, for these 20 years of off-road national transition, demonstrated mainly their greed and blatant ignorance.

***

The capital-intensive and investment-dependant industry of pharmaceutical distribution has taken very large hits from objective crises or subjectively wrong decisions. The non-cyclical business in the sector is stable in the long term, provided the players balance their desire for growth with a restraint against taking unfounded risks.

Almost since the Bulgarian reimbursement system was introduced in 2000 until June 2009, it was the distribution companies which ensured and guaranteed the entire pharmaceutical supply for the reimbursement system. Until then, this organisation of drug supply ensured universal access to medication through distributor’s negotiations with the National Health Fund on the one hand and the manufacturers and pharmacies on the other.

Every year there was a procedure whereby framework agreements were made between the fund and the manufacturers, which in turn contracted the distributors. The last steps in the negotiation process were the contractual agreements between the regional fund and the pharmacies which would be dispensing the approved reimbursed medications.

Fully reimbursed medications amount to over 65% of the National Health Insurance Fund’s spending for outpatient treatments. These payments are made directly to the distributors authorized by the manufacturers, while supply of the pharmacies is done on the principle of consignment stock agreements.

This scheme worked relatively well for over seven years, because it was mainly the distributors, and to a lesser extent the manufacturers, who carried the financial burden from the differed payments of the fund and ensured that all medicines were continuously in stock at the pharmacies. Distributors managed to maintain a good balance in money collection from retail pharmacies and from the health fund through a flexible system of bank credits, using the company’s own reserve capital and commercial discounts from the manufacturers.

During the period from 1994 to 2007 Commercial League operated 23 regional warehouses throughout Bulgaria as well as over 50 consignment stocks in Sofia of leading world manufacturers. The accomplished record of 3500 deliveries in a 24-hour period still remains out of reach for the competitors.

***

Bulgaria’s accession to the European Union on January 1st, 2007, and the tax system reform led most manufacturers to create their own distribution subsidiaries in Bulgaria. The wholesale market fell into a depression and was widely dispersed. Pharmaceutical import was divorced from the logistical function of local distribution.

After years as a zero-interest creditor of Bulgarian healthcare, and especially of the state hospitals, Commercial League reassessed the risks in the new environment, consolidated its capital positions and re-directed the focus of its distribution organization towards providing effective communication and market research services in healthcare. The attacks coming from a corrupt group, now convicted, within the Ministry of Health and the National Healthcare Fund in the period between 2006 and 2009 also played a role in this re-direction.

Commercial League maintained its vast organizational expert and logistic capacity to become the partner of choice for market penetration.

In the second quarter of 2009, the Fund changed the way of payment for out-patient medications and passed a new regulation. This change was a political move in an attempt by the powers that be to create problems for the new government.

Such regulation introduced and motivated by narrow political interest of the losing party in power was a giant leap backward from the well-functioning medication distribution. It led to chaos dominating the sector from the last quarter of 2009 through to the first quarter of 2010. With under 4% of real GDP spending on healthcare, Bulgaria is in the last – 27th – place in the European Union and remains the country with the poorest and most unhealthy population in Europe.

In the second half of 2009, this trend was exacerbated by the positive medicine list which was turned into a reimbursement list. This change destroyed the contractual relationship between the National Health Insurance Fund and the manufacturers and distributors, practically taking away the ability of the fund to administer its own budget for reimbursed medicines.

The commission responsible for the positive list determines both which products are to be included in the list and what their level of reimbursement will be as well as which among referential prices are relevant. The only contractual agreements left unchanged were between the regional funds and the retail pharmacies.

The method of supply, release and payment for the products that are entirely free for patients were changed significantly. The consignment stock system at work with the pharmacies was abolished. The pharmacies were once again forbidden from adding the percentage mark-up to the products they dispense, though entitled to them by law, while being now wholly responsible for the full financing of their stock and the deferred payments by the fund. Now pharmacies have to pay the full price of the supply up-front before they start dispensing some of the medications. Then they have to report sales (dispenses) to the Regional Health Insurance Fund and to invoice the fund granting two-month period of delayed payment at minimum.

At the same time, distributors stopped providing pharmacies with the unlimited credit they had been granting before, because they no longer have any guarantees of payment for the delivered medicines. The primary negative consequences from the destruction of the distribution structure are: the heavy deficit of life-saving and life-sustaining medical products in 2010; the closure of over 1,000 retail pharmacies; and the limited access to medications and increased transportation costs for the patients, who risk suffering all the possible consequences from prescription non-compliance.

The chief reason behind the creation of this pharmaceutical crisis was the harmful decisions of the the Ministry of Health and NHIF during that period. These decisions created the liquidity crisis in the distribution market, which then directly caused the shortage of medicines in pharmacies and hospitals. Under the circumstance, one of the distributors, Higia, left the market and now has only limited operations.

***

Ordinance No 39 of 13 September 2007 is currently in force to regulate the principles and requirements of Good Distributor Practices, issued on the basis of Article 198 of the Medications in Human Medicine Act. Its regime establishes the terms and conditions and the procedure followed by medication distributors in Bulgaria.

Commercial League was the first Bulgarian distributor to introduce Good Distribution Practices in the country – in 1996, before the first Ordinance was passed – and this is why the company became the first Eastern European member of GIRP. We built the vital link between the manufacturers, pharmacies and patients following the principles of shared responsibility for the quality and safety of medical products and the widespread accessibility of these products.

The requirements for pharmaceutical distribution according to this standard include: registration and the tracking of each parcel and batch per individual pack; 24/7 regimen of distribution of medicines to pharmacies; ability to store and transport medicines which require special storage and handling; maintenance of thorough information about the quality and storage requirements of the medicines; informing the Bulgarian Drug Agency about all sales and clients; implementation of standard operating procedures; providing a system of safety to enable the recall of medicines when needed; ability to mark the medicine packages with distinguishing notes as required by the NHIF; and many others.

The speed and quality of distribution is always directly related to the accessibility and safety of the medicines, which guarantees the therapeutic results. This is why in 1998 Commercial League introduced the first fully automated commissioning of orders and organised a vast (by Bulgarian standards) fleet of over 700 delivery cars and trucks.

Young specialists from almost all areas, everywhere in the country, received training in a big and progressive organization. The resulting phrase “Commercial League university” reflect this large-scale training. At present, people recruited and trained in the company can be found in every single company in the industry of pharmaceutical distribution, marketing and promotion.

With a flawless track record of solid success, Commercial League is a major partner of Big Pharma in advanced market research and the Bulgarian distributor of choice for the execution of market-entry campaigns for patented products. Awareness campaigns targeting Bulgarian medical doctors and public funds are another indicator of recognized expertise.