The Presidential Control Directorate and the Federal Antimonopoly Service carried out an audit of the results and procedures for the procurement of medicines and medical equipment through inter-budget transfers made from the federal budget, as well as through allocations contemplated in the budgets of Russia’s regions and municipalities. The audit targeted tender documentation with the aim of identifying and eliminating any provisions that are discriminatory against domestic pharmaceutical and medical equipment manufacturers.
The audit revealed that executive bodies of the Russian Federation's regions are not making full use of domestic manufacturers' capacity for supplying medical products, despite the fact that prices of domestic products are on average 20–30% lower than those of the foreign-made ones.
According to data supplied by federal executive agencies, annual sales of medicines and medical equipment in Russia amount to approximately 600 billion rubles [about USD 20.6 billion]. Budget expenditures at all levels for this purpose are constantly growing and are now approximately 250 billion rubles. Over the past three years the share of public procurement of domestic medical products has decreased in value from 20 to 5 percent. At the same time, imported medicines can be replaced with domestic ones in more than 6,000 instances, and in the area of medical equipment by a third.
Violations of the Federal Law On Procurement of Goods, Fulfilling Contracts and Providing Services for Government and Municipal Needs in bidding for the purchase of medicines and medical equipment were revealed in all regions as the participation of domestic producers was unduly limited.
Tender documentation, documentation on auctions and quote request announcements often featured trade names of drugs without listing possible domestic equivalents.
There were many cases of setting additional requirements for order placement participants such as indicating a specific manufacturer, for example, or including requirements in the form of release, dosage, dimensions and weight. In the Smolensk and Tver regions, requirements for labelling and colour specified in the technical documentation could only be met by imported drugs produced by Yamanouchi (Netherlands), which prevented domestic companies from offering their equivalents and from participating in the auction. For similar reasons, the Ufa Metal and Plastic Products Plant was able to take part in only 2 out of 70 bids for supply of rehabilitation equipment for persons with disabilities, less than 5% of the funds set aside in the budget for this purpose.
In violation of antimonopoly legislation, many of Russia's regions combined medicine and medical product from different groups in a single, consolidated lot. In Moscow, Belgorod, Irkutsk, Kursk, Tyumen, and several other areas narcotic and psychotropic drugs were combined in one lot with drugs for other purposes.
This greatly reduces the possibility of direct participation of Russian manufacturers in public procurement orders, since more than 90% of them produce only a limited inventory of finished pharmaceutical products (FPP) and medical devices. For these reasons, in Belgorod Region none of the companies based there were ever allowed to participate in a tender or an auction. Government contracts with domestic medical equipment producers amount to only 2% of all procurements. At the same time, about 90% of their products are used in Russian health care facilities.
Various issues concerning the costs related to procurement of medicines and medical equipment for government and municipal needs remain unresolved. As a rule, those ordering the goods set the contract’s starting price without regard to the actual selling prices of domestic and foreign producers. So in Belgorod, Kursk and other regions this price is determined based on the final prices offered by intermediary companies, including a wholesale markup set by regional executive bodies. At the same time, markup application control is weakened.
The absence of national legislation regulating interaction between the medical community and pharmaceutical and medical equipment manufacturers, has a negative impact on the process of public procurement and results in a conflict of interest.
A special thing about a drug market is that the amounts of medicines sold do not depend on final customers but rather on doctors who prescribe their patients drugs from a given manufacturer. Foreign pharmaceutical companies often use deceptive marketing and different methods of unfair competition in order to promote their products in the Russian market.
The practice of donations by foreign firms to regional health authorities, medical institutions and patient organisations is widespread; this takes the form of donating medicines, targeted financial resources, property, paying for doctors' training as well as paying for goods and services. For example, the Danish company Novo Nordisk spent about 400 million rubles on charitable activities in 2007–2009. It signed contracts with leading pharmacies under which these institutions receive remuneration for every package of their drugs sold in virtually all regions of the Federation. For example, in the Republic of Tyva this payment amounts to 120 rubles.
It is common to pay medical personnel for advertising and promoting foreign drugs (often this takes the form of lectures, articles, speeches at seminars, participation in various events). Moreover, the amounts some companies pay to doctors significantly exceeds their official salaries – in some cases it amounts to 4 million rubles a year.
In international practice this collusion between the medical community and pharmaceutical companies is prohibited by law. For example, just this year in Korea and the United States a number of companies engaged in these practices were fined a total of about 20 billion USD, and some doctors were prosecuted.
In Russia legislative requirements applicable to domestic and foreign pharmaceutical and medical equipment manufacturers are still different, and the same is true for issuance of permits. There are cases when the time actually taken up to register a drug produced domestically ranges from 3 to 7 years. As a consequence, foreign pharmaceutical companies account for 75 percent of all original medicines registered in 2007–2009.
Due to the above reasons, protectionist measures taken by the government with regards to the public procurement of Russian goods do not significantly influence the range of medicines and medical equipment purchased with budgetary funds, nor does it allow us to realise the potential of domestic producers and reduce public spending. As a result, in 2008 about 60 billion rubles of budgetary funds were inefficiently spent on the public procurement of imported drugs that have domestic equivalents.