82% cost reduction in cancer drugs via pooled procurement Premium

Tamil Nadu pioneered centralised drug procurement, leading to cheaper prices; a similar model reduced cancer drug costs by 82%.

In 1995, Tamil Nadu pioneered the centralised procurement and distribution of drugs and medicines to government hospitals across the State. This helped in buying drugs at a far cheaper rate due to sheer volume of drugs procured. Other States have replicated the model with varying levels of success. Like all vaccines supplied to the national immunisation programme at a very low cost, during the pandemic, the Central government was able to procure COVID-19 vaccines at about ₹150 per dose from Bharat Biotech and Serum Institute due to centralised procurement. The COVID-19 vaccines were priced many times more when State governments and private hospitals were asked to procure them directly from the companies.

For the first time, a private entity — the National Cancer Grid — has been able to replicate the model and hammer down the cost of high-value, high-volume cancer and supportive care medicines through a pilot pooled procurement programme. The pooled procurement of 40 drugs by 23 cancer centres resulted in savings of ₹13.2 billion (₹1,320 crores), according to a paper published in 2023 in the Bulletin of the World Health Organization. Savings on individual drugs ranged from 23% to 99% (median savings of 82%) from the maximum retail price. Besides anticancer drugs, the list of medicine included antibiotics, antifungals, antiemetics and growth factors. The drugs included both generic and patented medicines, and the participating cancer centres — small, mid-size and large-volume — included both private and public cancer hospitals from across the country. Cost savings were most for generic drugs and less for patented drugs.

“The concentration of demand significantly strengthened our negotiating power, while the centralised negotiation approach, combined with larger purchase quantities, allowed us to secure substantial price discounts,” the authors write.

Once the list of drugs to be purchased through pooled procurement was drawn up, the demand for each drug was determined from the participating centres. Prior to tendering, the reserve price of each drug was determined by requesting the participating centres to share the cost of procurement of each drug for the previous year. The lowest price for every listed drug was used as the reserve price for each drug. The reserve price list was shared with all participating centres and it served as the maximum price at or below which the centres agreed to buy the drugs. All participating centres also agreed to a minimum purchase commitment based on the reserve price. The minimum purchase commitment helped in communicating to the drug companies the likely annual volumes required for each drug. This was followed by online tendering. The technical evaluation of the drug companies prior to financial evaluation ensures that only quality drugs will be supplied.

Once the drug companies were selected, an agreement was signed between the companies and each cancer centre. The agreement ensured that “vendors did not breach the terms and conditions established with the network”. For instance, the companies were required to supply drugs to all cancer centres immaterial of their location. The negotiated price was valid for two years. With the success of the pilot programme, more centres have now evinced interest in participating in the pooled drug procurement.

The drastic reduction in drug cost can in turn greatly decrease the out-of-pocket adherence to treatment even in private hospitals, and increased access and affordability by patients at small cancer centres in smaller cities. “[This is] a model that can (and should) be replicated in other disease areas and geographies,” Dr. C. S. Pramesh, Director of the Tata Memorial Hospital who had driven this programme and the corresponding author of the paper tweeted. “This must rank as one of our most satisfying and fulfilling efforts at democratising access to cancer medicines.”