Corruption in government purchase of medication through public procurement procedures is endemic, according to a parliamentary commission which found that the state often buys drugs at inflated prices.
The problems extend beyond the public sector, the commission found.
Taken together, the practices are contributing to an unknown number of deaths and costing the state and patients too much money, according to investigators.
The full report of the findings will be presented in early October, but a preview shows that — besides the needless patient suffering and costs – the corrupt practices have created shortages of quality medicine.
One of the biggest problems in the pharmacy sector is monopolization, says Pavlo Petrenko, the opposition Batkivshchyna faction’s representative on the inquiry commission. Last year, some 80 percent of 138 townships across Ukraine studied by the Antimonopoly Committee were controlled by only a few companies. The investigators made a similar discovery on the wholesale markets, finding that four companies controlled about 70 percent of drug sales in 2012.
“The State Inspection for Price Control has monitored about 70 drugs that were procured for budget funds, and compared them with prices in Belarus, Russia, Poland and Bulgaria. None of these items were found to have lower prices in Ukraine compared to reference countries,” Petrenko says.
In the retail market, for example, the price for the antibiotic Loraxone was 79 percent higher in Ukraine than in Russia or Belarus while the anti-fungal drug Orungal cost 56 percent more than in Russia, according to the report.
Importers of medicines are exempt from value-added tax, so the budget gets no taxes off the inflated price. Lawmakers estimated that the losses to the state budget are huge because of the VAT exemption. They put the cost to the state budget at Hr 3.4 billion in 2011 or Hr 3.1 billion in 2010.
One of the schemes commonly used for transferring money abroad is inflated customs value of the imported medicines, Petrenko says. As a part of the inquiry, Ukraine’s customs authorities sent requests to 46 exporting countries and cross-checked the prices. Eight out of 19 replies showed that the producers’ price is anywhere between 2 to 4 times lower than those declared by Ukrainian intermediaries in their customs declarations.
For instance, one Ukrainian company declared the value of medicine imported from India at nearly $1.2 million when the real value was only $583,000.
Each step in the transaction gives an opportunity to inflate the prices even more.
In one such scheme uncovered by the tax service, an Indian resident registered two companies in Ukraine, called Abryl and Abryl Formulations. According to their customs declarations, they purchased drugs from an overseas company owned by the same person. However, in reality medicines were transported directly from Indian factories to Ukraine without intermediaries, which were only needed to introduce an extra margin.
These imported medicines went on to be sold to Alba Ukraine, Optima Pharm and BADM – companies that are infamous now for their uncanny ability to win public procurement tenders.
Abryl Formulations could not be reached for comment because it has been liquidated. Abryl’s number listed in its registration documents no longer exists.
Health Ministry adviser Viktor Chumak says officials are addressing the problem. He cited a pilot project that reduced the price of anti-hypertension medicine by 15 percent.
Volodymyr Ignatov, executive director of the Association of International Pharmaceutical Manufacturers in Ukraine, says that state procurements only account for 13 percent of Ukraine’s pharmaceutical market and that only a third of those drugs are purchased by the Health Ministry. Ignatov says that most of the rest of the market lives by normal market rules.
He says that the ministry’s practice of holding a tender once a year makes no sense because it’s hard to predict the demand. “It’s like the Ministry of Health is trying to buy one-size boots for the entire country,” Ignatov says.
The violations and inefficiencies contribute to late deliveries of drugs to patients, among other problems. Patients often end up buying drugs at their own expense, if they can afford them, rather than having the state provide them as required by law.
In Donetsk Oblast, only 53 percent of adults with cancer and 66 percent of children with the same disease were provided with drugs by the state, and the figures are similar for the rest of the country. The problems with obtaining cancer drugs contribute to the nation’s higher cancer mortality rate, which grew by 4.5 percent in just one year, reaching 14 percent of the total mortality rate, according to Petrenko’s letter to the General Prosecutor’s Office.
To counter shortages, the Ministry of Health says it has increased the funding of drugs by 20 percent compared to last year. The budget for drugs to supply children with cancer increased from Hr 91 million last year to Hr 216 million in 2013. “The Ministry of Health for the first time plans to provide 100 percent of medicine to children with cancer,” the head of the ministry’s procurement department Galyna Dovganchyn said in a prepared statement.
Kyiv Post staff writer Kateryna Kapliuk can be reached at [email protected]
