SAMINT-MILI 20008
Master’s Thesis 15 credits July 2020
Exploring the reasons to shortage of antibiotics in pharmacies
A case study on Sweden
Gabriel Chivi
Abstract
Exploring the reasons to shortage of antibiotics in pharmacies Gabriel Chivi
The increased use of antibiotics is considered to be correlated to the increased resistance against antibiotics, hence responsible use is necessary for it to remain efficient and sustainable. To mitigate the resistance, a wide variety of antibiotics should be made available with different Active Pharmaceutical Ingredients (API), providing patients with more aimed cures rather than just few general antibiotics applied for several diseases. A wider range of products requires more effort in maintaining the availability and assuring that antibiotics are always available to be prescribed to patients to buy at their local pharmacies.
Facilitating a general availability and minimizing shortages traces back to the procurement process in the supply chain and the relations between involved stakeholders. Pharmaceutical supply chains are highly regulated and monitored by governmental agencies. This thesis aims to explore the procurement process, specifically from the perspective of the pharmacies in Sweden and identify reasons that may cause availability issues and shortage of antibiotics. The research is based on literature review and empirical data collection through interviews with stakeholders in the supply chain. Through cause-and-effect analysis, the reasons behind shortages have been identified, and the pricing model Product of the Period, PoP, has theoretically shown to be the major contributor to the issues. Further research needs to be conducted with a quantitative approach to assess how big of an impact PoP has on the supply chain and antibiotics shortages. The proposed solution is that stakeholders in the supply chain have to start measuring the shortages, specifically for antibiotics.
Key words: Antibiotics, resistance, sustainability, supply chain management, pharmaceutical supply chains, pharmacies, Product of the Period.
Supervisor: Simone Callegari Subject reader: Enrico Baraldi Examiner: Sofia Wagrell SAMINT-MILI 20008
Faculty of Science and Technology Visiting address:
Ångströmlaboratoriet Lägerhyddsvägen 1 House 4, Level 0 Postal address:
Box 536 751 21 Uppsala Telephone:
+46 (0)18 – 471 30 03 Telefax:
+46 (0)18 – 471 30 00 Web page:
http://www.teknik.uu.se/student-en/
Popular Science Summary
Antibiotics can be found in different varieties, each prescribed to patients either as general antibiotic or as one designed for specific infections. With the increased usage of antibiotics for a broader range of diseases, antimicrobial resistance has also increased in parallel; the correlation is that the more an antibiotic is used the more the risk for increased resistance occurs.
One approach of managing this risk is to maintain a range of antibiotics that can be used for specific diseases, so that no single antibiotic is used excessively. Patients can instead be prescribed targeted cures.
Maintaining an extensive range of antibiotics puts pressure on having them all available when necessary. Availability is crucial to provide the right cure at the right time for a patient in need.
Hence, shortages should not occur as the consequences may be fatal. Although they should not occur, shortages can be caused by different reasons. This thesis aims to explore several causes and pinpoint the main reason behind why shortages occur, specifically at pharmacies where patients go to purchase their prescribed medication.
To explore the causes, the supply chain is mapped to understand how antibiotics flow from a manufacturer to a pharmacy. Multiple stakeholders are identified and it is analyzed how they affect the availability, including private companies and governmental agencies. The angle from which this thesis approaches the problem is if pricing of a generic can be linked to shortages.
This is addressed for pharmacies in the Swedish market. The finding is that the model used by the Dental and Pharmaceutical Benefits Agency of Sweden to set prices for generics drugs, which means all antibiotics that can be substituted with each other as they include the same active pharmaceutical ingredient, may actually impact the availability. To further understand the severity, further data collection is necessary on the scale of the issue; how often shortages occur and the quantity. Involved stakeholders have to start measuring to make this feasible.
Then we can get a better understanding of the problem and its effect on the market.
Acknowledgements
First and foremost, this Master Thesis has been written in collaboration with PLATINEA, a project led by Uppsala University. Hence, I would like to thank Dr. Enrico Baraldi, Professor of Industrial Management and Innovation and project leader of PLATINEA, for this opportunity and support in writing the thesis. It has broadened my understanding about the pharmaceutical industry and triggered an interest in exploring further in this field.
Second, I also would like to thank all the interviewees who took the time to contribute to my work. Your input and point of view of the industry has been most valuable.
Finally, the greatest thanks and love to my family who have always supported me in all I do, pushing me forward when times have been tough and challenging. This would not have been possible without them.
Thank you.
Stockholm, 5th July 2020.
Gabriel Chivi
Table of Contents
1. Background and Scope ... 1
2. Theory ... 2
2.1. Literature review ... 2
2.1.1. Supply chain management ... 2
2.1.2. Supply chain strategies ... 2
2.1.3. Reverse auction ... 3
2.1.4. Generics ... 4
2.1.5. Product of the Period ... 4
2.2 Theoretical framework ... 5
2.2.1 Cause and effect analysis ... 5
3. Methodology ... 6
3.1. Research methodology ... 6
3.2. Ethical Considerations ... 8
4. Empirics ... 9
4.1. Market structure ... 9
4.2. Pricing ... 9
4.3. Side effects of PoP ... 10
5. Analysis & Discussion ... 13
5.1. Research question one ... 13
5.2. Research question two ... 14
5.3. Research question three ... 15
5.3.1. Logistics ... 15
5.3.2. Pricing ... 16
6. Conclusion ... 18
7. Solution Proposal and future research ... 18
7.1. Future research ... 18
Appendices ... 21
Appendix 1: Interview guide ... 21
List of Figures Figure 1 Two types of sourcing for one part from one or many suppliers. ... 3
Figure 2 Cause and effect diagram. ... 6
Figure 3 Root cause analysis with 7M as categories. ... 6
Figure 4 Each phase with corresponding actions. ... 8
Figure 5 General supply chain for pharmaceuticals in Sweden. ... 13
Figure 6 Adapted supply chain for Apotek Hjärtat. ... 14
Figure 7 TLV regulates the pricing of generics. ... 14
Figure 8 Cause-effect analysis for potential reasons to why shortages occur. ... 17
Abbreviations and Acronyms
API Active Pharmaceutical Ingredient FHS The Public Health Agency of Sweden MAH Market Authorization Holder
MPA Swedish Medical Products Agency NoMA The Norwegian Medicines Agency PoP Product of the Period
PPP Pharmacy Purchasing Price PSP Pharmacy Selling Price
TLV Dental and Pharmaceutical Benefits Agency of Sweden
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1. Background and Scope
Resistance and use of antibiotics are assumed to be correlated, and resistance to antibiotics is a growing problem (Folkhälsomyndigheten, 2017, p. 9). Responsible use is required for it to be sustainable, while also maintaining general availability of several types of antibiotics to reduce misuse and treat patients properly. The Public Health Agency of Sweden (FHS) (2017, p. 3) reports that funding and logistical prerequisites are necessary for maintaining a proper management of antibiotics’ availability in Sweden, which unfortunately is not a simple task.
Together with the Dental and Pharmaceutical Benefits Agency of Sweden (TLV), Vinnova, the innovation agency of Sweden, and other parties, FHS was assigned by the Swedish government to investigate the issues and find solutions.
PLATINEA is a project with the purpose of finding solutions to improve availability and usage of antibiotics in Sweden (PLATINEA, 2018). PLATINEA is a collaboration platform between several actors, amongst them FHS, including academia, industry and health care, with Uppsala University in charge of managing the entire operation. The project is divided into five work packages; 1) Patient populations, 2) Pathogen, 3) Physician, 4) Availability through Supply Chains, and 5) Project management. This research will only focus on work package number 4) Availability through Supply Chains.
The idea is that the supply chain affects the availability of antibiotics in certain ways, and study in this thesis will focus on just that. The aim of the thesis is to understand the effects and implications are of existing structure and processes in the supply chain for antibiotics on their availability in Sweden. The research includes the following areas and processes:
1) Pricing of antibiotics;
2) Impacts of existing purchasing models on the supply chain;
3) The structure of the existing supply chain.
The models and processes used by the various parties in the antibiotics field are identified, analyzed and assessed to get a better understanding of the status quo. Once the current structures and processes are defined, potential improvements can be developed and proposed. These issues are approached in this thesis from the perspective of the pharmacies and how they purchase antibiotics to sell to the end-customer. The following questions are addressed in this thesis:
• How do pharmacies in Sweden procure antibiotics?
• How is pricing determined, under the product of the period model, from supplier to pharmacy?
• How does the pricing model product of the period affect the market?
The research is limited to antibiotics that are procured on the Swedish market. The focus is on the supply chain with respect to pharmacies with physical stores, government agencies and wholesalers. Antibiotics being procured by hospitals and other actors on the market are excluded from the thesis.
In the following chapters, the thesis will evolve to answer the aforementioned questions, starting with creating a general understanding of relevant theories in chapter 2. Theory, followed by chapter 3. Methodology where the approach of the thesis and the applied tools to gather information and data are explained. The methodology is then applied and the results are showcased in chapter 4. Empirics where the gathered data is presented, which is then analyzed in chapter 5. Analysis and Discussion. Finally, a conclusion based on the analysis is provided in chapter 6. Conclusion.
2. Theory
In this section, the theoretical framework and literature review are established to make answering the research questions possible. The areas covered include Supply Chain Management and strategies, auction theory, Cause-and-effect analysis theory. Such key concepts as generics are also defined. In addition, the current framework for pricing and purchasing of generic antibiotics used by TLV is also explained. This chapter lays the foundation for the analysis of the empirical data in later parts of the thesis.
2.1. Literature review
This part covers the foundation of supply chain management and auction models, along with a short explanation of what generics are and how they are related to the Product of the Period process.
2.1.1. Supply chain management
A supply chain can be explained as the flow of materials between the customer and the source of the materials (Stanton, 2018). Materials flow downstream through value added steps that create the final product which the customer buys. The money from the customer flows upstream through the supply chain and each involved partner in developing the final product.
When a supply chain is scaled to involving multiple partners, it can become complex and difficult to comprehend. This is where supply chain management comes in which can be defined as the coordination of people, processes and systems that are involved in creating value for a company and customer (Stanton, 2018). The Council of Supply Chain Management Professionals (2019) defines it “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.” In other words, it can be described as the internal work being properly coordinated to work seamlessly with the outside world, by managing this complex link to deliver demanded value.
2.1.2. Supply chain strategies
The choice of strategy is important to shape the supply chain, that is how many suppliers will be used to support the processes and systems defined for any company (Jonsson & Mattsson,
2016, p. 190). There are two concepts of sourcing; single and multiple sourcing, where the choice is having only one or several suppliers respectively for one component or final product.
The purpose of single sourcing is to leverage partnership with a sole supplier and reduce the administrative costs that a multiple supplier strategy may incur (Jonsson & Mattsson, 2016, p.
190). Single sourcing is a requirement for combined product development efforts. It brings some positive and negative attributes. By leveraging close partnership, processes can be synchronized between both parties and improve the fulfillment of supply and demand. The supplier will more likely become devoted in delivering the components without being affected by pressure from other players in the market. However, high reliance on one single supplier comes at the cost of potential disruption in the supply chain. In the situation where the supplier has manufacturing problems, it may affect the output causing the customer, or the demanding company, to have internal delays due to component shortages. This, in turn, may affect the company’s stakeholders and external customers in additional delays.
The other approach is having multiple sources for supplying a component, which has the advantage of minimizing the risk of potential disruptions due to supplier manufacturing problems and shortages (Jonsson & Mattsson, 2016, pp. 190-191). The aim is to take control of overall costs and reduce prices when dealing with several suppliers. However, instead of establishing strong relationship with suppliers, as cost become the more important factor, relationships are often short lived. Multiple sourcing makes it difficult having a closer collaboration between a purchaser and a supplier. Hence, trading information and having shared processes becomes less common if multiple sourcing is applied. Figure 1 below illustrates the two aforementioned sourcing types.
Figure 1 Two types of sourcing for one part from one or many suppliers.
2.1.3. Reverse auction
An auction is a market mechanism that is used to set the highest possible price on an item and to define to whom it shall be awarded (Mochón & Sáez, 2015, pp. 1, 3). In an auction, the value of an item, vi, is determined by the bids, bi, placed by bidders, i who are each one indicating the maximum price they are willing to offer. The bidder with the highest offer is awarded the item.
This is also known as a forward auction.
Auctions can be deployed in a reversed approach where instead of aiming for the highest price, bidders place offers on the lowest price they are willing to sell their product for. To clarify, Mochón and Sáez (2015, p. 142) define reverse auction as “An auction conducted by the buyer with the goal of buying one or multiple items from the seller who makes the lowest offer”.
Governments use this type of procurement auction to award public items to different suppliers (Mochón & Sáez, 2015, p. 125). In a study conducted by Smart and Harrison (2003), another explanation is provided for auctions conducted in a reversed approach. Instead of having the seller offer the product to the highest bidder, the reversed approach is that the buyer opens a tender for requested goods that the suppliers compete for by bidding on reducing prices.
In the same study by Smart and Harrison (2003), the authors explored the impacts of online reverse auctions involving four companies, as buyers, and their suppliers. The study addressed two questions; in what ways reverse auctions impact on price levels, and how they impact the buyer-supplier relationships. In their findings, some of the disadvantages for the suppliers include that reverse auctions impact the suppliers in economic terms such as having reduced profit margins and that some businesses may become unprofitable. Other findings also indicate that the suppliers experience time pressure and uncertainty when it comes to planning for the demand. In terms of the buyer-supplier relationship, price becomes the key differentiator and the determinant of a potential relationship.
2.1.4. Generics
New medicine goes through a series of tests before being released in the market, and they have to be able to demonstrate suitable treatment effect or prevention of diseases in clinical trials (Yu & Maliepaard, 2019). In such trials, established efficacy and acceptable safety data is provided to support the medicine when registering it with a given brand-name and exclusivity to sell. Market exclusivity may vary widely around 10-15 years as showcased in a study by Grabowskia and Kyleb (2007). The efficacy and safety data are based on the active substances in the medicine. After market exclusivity, suppose another manufacturer decides to enter the market with a different brand-name but with the same active substances, both quantitatively and qualitatively. At this point, the medicine becomes a possible substitute to the original medicine, and is defined in the pharmaceutical industry as “generic”. The generic should also have the same effect and safety considerations.
2.1.5. Product of the Period
In the Swedish pharmaceutical market, Products of the Period (PoP) are generics that may be exchanged for cheaper alternatives (TLV, 2019). This system is applicable to Sweden where the Swedish Medical Products Agency (MPA) decides which generics are exchangeable, and the Dental and Pharmaceutical Benefits Agency (TLV) assigns these generics into groups of package sizing. New exchange groups are selected on a monthly basis, where the Market Authorization Holder (MAH) of the chosen product is required to fulfill a contract regarding capability and sustainability in order to be able to participate in this pricing and purchasing mechanism. In particular, the MAH must be able to deliver the forecasted market needs for the exchange group over a period of one month, and that its generic has a shelf life enough to cover
a patient’s dosage with an addition of two months. The selection mechanism uses a reversed auction approach where the MAH with the lowest bid is chosen in the exchangeable program.
This is further explored in chapter 4. Empirics.
TLV supervises pharmacies and MAHs to adhere to rules, such as aforementioned promise of availability. When a generic is assigned PoP status, the MAH must confirm the availability with TLV (TLV, 2019). In the case of supply issues during the specified period, e.g. if there are inventory shortages, the MAH must report this to TLV. Such circumstances may lead to sanctions against the MAH by TLV.
2.2 Theoretical framework
This section addresses the theoretical model of root cause analysis that is applied to analyze the empirical data in this thesis.
2.2.1 Cause and effect analysis
When addressing problems such as antibiotics shortages, one should find the root cause to a given problem. One suggested systematic approach is the root-cause analysis which implies using a fishbone diagram, also known as Ishikawa diagram, to break down the problem into potential causes (Bergman & Klefsjö, 2012, pp. 242-243). The diagram is drawn as suggested in Figure 2 and starts with listing all possible causes to a given problem. Then, focus is set on one cause and it is further broken down to its details and eventually you find the root cause to the problem. Each detailed step is identified by applying the five why’s method, which basically means asking the question why five times. Bergman and Klefsjö (2012, p. 243-244) provide an example from Toyota where oil spill was found on the floor in the factory:
• There is oil on the floor. Why?
• Because a machine is leaking oil. Why?
• Because the gasket is faulty. Why?
• We purchased deficient gaskets. Why?
• We were looking for a better price. Why?
• The purchasers are rewarded for short term saving.
This example shows that a simple action like cleaning up the oil spill and changing the gasket would not have been sufficient as the problem would still remain. Hence, a thorough analysis using five why’s has the potential to shed light to more underlying information about a problem and to help eliminate the root issue.
Figure 2 Cause and effect diagram.
To help get started with the analysis, one can categorize the causes based on the 7M’s and as illustrated in Figure 3 (Bergman & Klefsjö, 2012, pp. 244-245):
1. Management – any managerial decisions causing the problem?
2. Man – are workers provided with proper training?
3. Method – are we using the right tools?
4. Measure – are we measuring properly and are tools calibrated?
5. Machine – are machines maintained and capable to produce according to specification?
6. Material – are there any issues with sourcing of materials?
7. Milieu – are there any environmental impacts?
Figure 3 Root cause analysis with 7M as categories.
3. Methodology
In this chapter, the chosen research approach is explained, along with ethical considerations.
This approach is described together with how the data was collected and analyzed.
3.1. Research methodology
Data and information can be collected in several ways, both qualitatively and quantitively, where each approach has its advantages and disadvantages. In a qualitative research, words and visualizations are used as units of analysis, whereas in with quantitative research numbers are used as units of analysis (Denscombe, 2016, p. 344). To help achieve the results, the empirical data was collected through documentation, interviews and the literature reviews which included
applied throughout the research in a planned manner, as shown in Figure 4 below. Each phase consisted of different approaches; however, these were iterated through whenever deemed necessary.
Phase 1 was the first assessment of the existing situation where the plan was to start with a literature review to get a better understanding and insight of the topic. Then, when common ground was set, interviews were conducted, along with discussions where needed. Interviews can be conducted in three different ways: structured, semi-structured, and unstructured (Denscombe, 2016, p. 266). In this case, a semi-structured approach was used, which inherently meant that interviews were planned prior to the actual event. All interviews were conducted via telephone and additional information was discussed via e-mail. An interview guide was prepared and sent to each participant, see Appendix 1. A set of questions were prepared and included in the interview guide, with the premise of allowing for an open discussion around the topic. Using this method, the interviewees were allowed to explain further and to some extent drive the discussions themselves. The involved parties where representatives from two pharmacies, Apoteket Hjärtat and a secondary pharmacy, henceforth Pharmacy B who wish to remain anonymous, one wholesaler, the government agency Dental and Pharmaceutical Benefits Agency, and the industry association for pharmacies. Five interviews were conducted between April 26, 2019 and June 7, 2019. The output from the interviews are presented in summarized versions as some interviewees requested to remain anonymous; explained further in section 3.2 Ethical Considerations.
Phase 2, called Second Assessment, covered visualizing all the collected empirical data. This included analyzing the interview material, creating flow-charts to visualize the processes and get a better understanding of the situation. Additional data collection was necessary through further literature reviews. The output of the second assessment was used as input for Phase 3 Final Analysis and Conclusions. By applying quality management tools, in this case cause-and- effect diagrams, several root cause analyses were conducted to find the source to the given problem of why shortages of antibiotics are occurring (Bergman & Klefsjö, 2012, p. 242). This final phase inherently was about connecting the dots and analyzing the data, which also included comparing theory and other articles to the outcome and drawing the conclusions.
Figure 4 Each phase with corresponding actions.
3.2. Ethical Considerations
This research is aimed at clarifying the situation around shortages of antibiotics, which of course includes several stakeholders in the supply chain. As described earlier, the input data is acquired through interviews with representatives from the different stakeholders in the chain.
Hence, ethical considerations are necessary and the respect of individuals and businesses contributing to the research. With the interview guide sent to the representatives prior to each session, they had the chance to review the questions and decide if they could participate or not.
Due to privacy reasons, some opted out which is completely understandable. Prior to starting each session, the interviewees were asked if the interview could be voice recorded for future reference when transcribing, and either agree or disagree. In addition, some requested to be partially anonymous in the sense that the person’s name could not be disclosed but the company name was fine. Others requested complete anonymity for both their personal name and company name. Therefore, in this research some of the company names are used and others in general terms. The interviews have been summarized instead of fully disclosed to retain anonymity.
Phase 1:
First Assessment
• Literature review
• Interviews
Phase 2:
Second Assessment
• Visualization
• Additional data collection
Phase 3:
Solution Proposal
• Comparison
• Conclusion
4. Empirics
Empirics are mainly based on several interviews conducted with different stakeholders acting in the Swedish pharmaceutical market. The main participants were pharmacies, a government agency, the industry association, and distributors. Below are the findings of the interviews combined and summarized with the key points. Due to ethical considerations, see previous chapter, the interviews are not fully disclosed. The following sub-chapters are written in order to help answer the aforementioned research questions. To understand how pharmacies procure antibiotics we need to understand the existing market structure which is explored in 4.1 Market structure. This is followed by understanding the pricing model of generics that governs the market in 4.2 Pricing, and what impacts the model has on the market in 4.3 Side effects of PoP, from the interviewees’ perspective.
4.1. Market structure
A patient or customer may only acquire prescribed medicine through pharmacies. The Swedish pharmaceutical market used to be a state-controlled monopoly, but got reregulated when private pharmacies were allowed to enter the market and are now able to sell under the same circumstances as the government owned pharmacy Apoteket AB. Other market players include Apoteket Hjärtat, Kronans Apotek, Apotea and many more; both physical and online stores.
When it comes to the pharmacies acquiring stocks of medicines, at least in the case of physical stores, they all follow the same basic supply chain structure. Pharmacies are supplied by wholesalers, who in turn act as middlemen and get their stock from the pharmaceutical companies. This is the common approach for all pharmacies as the market in Sweden follows the process of having a one-channel distribution, meaning that a pharmaceutical company, the MAH, decides which wholesaler is allowed to supply the market with the product. In Sweden, there are two major wholesalers, Tamro and Oriola, who have inherited their role from the time when the market was based on monopoly. They mainly supply to all pharmacies, with a few exceptions as there are also other smaller distributors. Apoteket Hjärtat, henceforth referred to as Hjärtat, also has its own distribution company called Apoteket Hjärtat Logistik, and in their case they use three wholesalers to supply medicine such as antibiotics.
According to an interviewee from Pharmacy B, there are certain situations where the common chain of acquiring from Tamro and Oriola is avoided, especially when there is a need for non- approved medicine e.g. products that have previously been sold on the market but are no longer because of small demand. These scenarios occur when e.g. hospitals require a certain medicine, which then the pharmacy orders from a different country and has to get approved by the Swedish Medical Products Agency, a government agency, before it can be bought and used in Sweden. These are very critical cases where available antibiotics are not sufficient to treat patients and special ones need to be procured from abroad.
4.2. Pricing
The pharmaceutical market in Sweden is regulated by The Dental and Pharmaceutical Benefits Agency, TLV, a central government agency. TLV determines the retail margins for every newly
the market, pharmaceutical companies will negotiate with TLV, especially in the case of if the medicine will be subsidized by the government. TLV introduced a or model called the Product of the period, PoP, Periodens vara in Swedish, in order to regulate the market, specifically which product brand TLV selects as the cheapest alternative every month. The products competing for the “Product of the period” selection are medicines that can be exchanged with each other, i.e. are substitutes that are made available by all Swedish pharmacies to end customers wanting to buy a medicine for a lowest price on the market. The medicine has the same active pharmaceutical ingredient, API, but is produced by different companies and hence has different brand names. Tax-subsidized products are categorized under the high-cost threshold system managed by TLV. An MAH may apply for reimbursement for which their product can be, if approved by TLV, included in the high-cost threshold system, and therefore be offered as the Product of the period at a lower price. Being selected as Product of the period gives the MAH over a short period of time, usually one month, the exclusive rights to be included in the high-cost threshold system. Each month the list of products selected as Product of the period may vary, depending on the prices offered by the various competing MAHs.
Prices are set based on reversed auction. Each MAH seeking to be included and have their product reimbursed makes a price bid to TLV. The bid is on offering the product, with the same API, for the lowest price during the given period. As exemplified by TLV, consider three pharmaceutical companies A, B and C. The first month Company A bids on selling their product for 10 SEK, Company B for 9 SEK, and Company C for 8 SEK. TLV considers all three bids and chooses the cheapest offer as the PoP. The second month Company A decides to lower their price and bids on 7 SEK, Company B remains on 9 SEK, and Company C on 8 SEK;
Company A wins the bid and their product gets subsidized and replaces the previous product as PoP. For the third month the bids remain the same, hence Company A’s 7 SEK is still the cheapest and remains PoP. Being assigned PoP-status gives that company the explicit opportunity to sell its product. However, this means they also have to be able to deliver the promised supply of medicine. As explained by the interviewed wholesaler, if they cannot supply the forecasted demand it may result in the pharmaceutical company being fined by TLV. In addition, the subsidized medicine will lose its PoP-status. This could be the case when e.g.
pharmacies report availability issues to TLV when the MAH does not supply the promised quantity of medicine. When pharmacies are out of stock of a generic they will not be able to supply the patient with the necessary treatment.
4.3. Side effects of PoP
The PoP-system has its advantages and disadvantages according to the interviewees. From the perspective of the end-customer, the system provides lower prices and more affordable medication. However, this comes at a cost up-stream in the supply chain as the interviewee from Hjärtat explained that there is a lot of logistical and administrative work behind the system.
Each month, forecasts have to be made and stocks filled with the new medicines that have been assigned PoP status. Managing all this is considered time consuming, inefficient and negative for the environment because more transports are necessary to cover several deliveries of potentially new products each month. There is also a perception that some pharmacy chains are
more prioritized than others by the wholesalers, resulting in backorders in some specific pharmacies.
When it comes to backorders, unfortunately no data could be provided whether antibiotics are more affected than other medicine. A general picture was described. However, none of the interviewees could confirm or deny if any specific antibiotic is hard to acquire as no records are being maintained explicitly for antibiotics at the pharmacies and wholesaler level. Upon answering the question if there are any challenges with acquiring antibiotics, the interviewees from Pharmacy B only noted that MAHs are withdrawing from the Swedish market some antibiotics that used to be available. Their understanding is that the withdrawal of antibiotics is due to low sales figures and that manufacturing is difficult to maintain for older types of antibiotics. The representative from Hjärtat mentioned that shortages occur for all types of medicine, not just antibiotics in particular, and that MAHs are prioritizing other larger markets such as England or Germany. Rather than having shortages in larger markets, Sweden gets de- prioritized. It was also suggested that authorities should put more pressure on the MAHs to eliminate this type of situation.
The interviewee from Hjärtat mentioned that Rifampicin and Penicillin could be more challenging to acquire, but otherwise when it comes to antibiotics being available in the pharmacies to patients, the cases of backorders are few. Two interviewees mentioned a 24-hour rule set by the Swedish government. In case of shortage at a pharmacy for a specific generic, according to Swedish law, a patient has the right to receive their medicine within 24 hours from requesting it the pharmacy (Government Offices of Sweden, 2018). When a pharmacy finds a shortage, they have to place an order before 16:00 the same day and flag towards the distributor, who in turn must deliver the requested generic within 24 hours the next business day.
One interviewee compared the Swedish system to the Norwegian approach. In Norway, single pharmacies are allowed to negotiate with the MAH the pharmacy purchasing prices, PPP, or in Swedish apotekens inköpspris AIP, depending also on the amount of product included in the contract. This results in supposedly increased efficiency for transports and easier logistics to plan ahead for up to a whole year. With this also comes reduced backorders, which is one of the issues proposed by several interviewees. However, the Norwegian model can instead affect the end-customer as prices may vary at different pharmacies and be relatively high compared to Sweden. The Norwegian model allows pharmacies to decide on the price towards the customer known as Pharmacy Selling Price, PSP, or in Swedish apotekens utköpspris AUP. In contrast, the Swedish PoP-system shifts the focus towards the end-customer and TLV sets the common ground of PPP and PSP for all pharmacies in Sweden.
Further investigation into the Norwegian model shows that, although negotiations are permitted, prices for prescription-only medicines indeed have limits. The Norwegian Medicines Agency (NoMA) sets the maximum allowed price for PPP (Norwegian Medicines Agency, 2018). Max PPP is determined using a mean model of the three lowest market prices of a certain product in several European countries; Sweden is included in this list.
A challenge for the Swedish wholesalers is to deliver what the MAH has agreed with TLV upon acquiring the PoP status for their generic. A wholesaler described the process where they have plan and be ready to send the products to all pharmacies. Around the 15th every month, TLV releases the list of forthcoming PoP products, whereby the MAH has the prime task of guaranteeing the agreed stock by the 10th the same month. Then, the wholesaler has about five to ten days to plan where to deliver the coming month. This is not a simple task; there are about 150 product groups as suggested by the interviewee from one wholesaler. Hence, proper planning is required and additional resources, e.g. extra trucks, are necessary. Although they do not keep records for antibiotics, wholesalers do have an overall delivery precision, or punctuality, of 99%. If the MAH has forecasted 1000 units for the coming period, then the wholesaler is prepared with additional stock to meet the potential demand.
5. Analysis & Discussion
In the analysis, the research questions will be answered based on the findings in the empirical part.
5.1. Research question one
How do pharmacies in Sweden procure antibiotics?
It becomes evident by the empirical research that the procurement structure is, in general, comparable for all pharmacies, with a few exceptions. As described in 4.1 Market Structure, the data suggest a similar market structure of the supply chain, which can be visualized as shown in Figure 5 below. Starting from the back, we have a pharmaceutical company, the MAH that produces e.g. a generic. The MAH decides on what distributor they want to collaborate with to make their product available to the market. In the Swedish market, wholesalers are used instead of distributors. Even if there are many small wholesalers, two major companies are dominant in the market, namely Tamro and Oriola. It is important to understand that the wholesalers don not own the products, but rather they are responsible for stockage and distribution. The wholesalers are in turn the link between the MAH and pharmacies. As wholesalers manage the supply of e.g. antibiotics, pharmacies have to communicate with e.g.
either Tamro or Oriola to acquire stocks of certain medicine. Once the pharmacies have the product in stock, patients or end customers can purchase their medicine.
Figure 5 General supply chain for pharmaceuticals in Sweden.
As mentioned earlier, this is the general approach. There are some deviations to the common supply chain, and that is the case for Hjärtat who have their own wholesale subsidiary; Apotek Hjärtat Logistik. In their case, they are trying to manage direct relations with MAHs, to eliminate overhead transactions and source directly instead of being completely dependent on the other wholesalers. Hence, Apoteket Hjärtat’s supply chain is slightly different as illustrated in Figure 6. This approach could be considered as the multi sourcing strategy instead of completely relying on one supplier as in single sourcing (Jonsson & Mattsson, 2016). With this strategy they are able to reduce the risk of not being de-prioritized in the supply of generics.
Going forward, perhaps this is the approach all involved stakeholders need to adapt to manage shortages. Single sourcing has its benefit as an enabler of enhanced supplier relationship (Jonsson & Mattsson, 2016). Considering the study on reverse auction, one disadvantage for the suppliers was the difficulty of maintaining partnership commitment considering that there were multiple suppliers conducting business with one company (Smart & Harrison, 2003). By narrowing down the quantity of suppliers, a better relationship could be established, closing in
managing both the risk of supply shortage and relationship with other wholesalers.
Figure 6 Adapted supply chain for Apotek Hjärtat.
5.2. Research question two
How is pricing determined under the product of the period model, from supplier to pharmacy determined?
In general terms, pricing on medicine that are available on the shelves are set by the pharmacies and the MAH. However, here we focus on how pricing is set for products subsidized by the Swedish state via TLV. As can be derived from the empirical data, section 4. Empirics, subsidized generics have a specific negotiated price. An MAH must go through the process of reverse auction where the price is determined. As previously explained, this approach of reverse auction is common in government contracts (Mochón & Sáez, 2015). If an MAH wants their generic subsidized and be part of the substitutes list, they have to submit their offering to TLV.
An offering is a price bid of what the MAH is prepared to sell the generic for to the pharmacies;
the so called PPP. TLV then takes into consideration the margin for pharmacies and the price is set for the generic substitute. This is the selling price, also referred to as PSP, that the patient, or end customer, will pay when buying their medicine from the pharmacy, if it is a generic on the substitutes list. Hence, TLV has a part in the process as illustrated in Figure 7. Further analysis of the PoP model is conducted in the next section in order to see if it has an effect on the market and if so how.
Figure 7 TLV regulates the pricing of generics.
5.3. Research question three
Does the sales model product of the-period affect the market and how?
To understand if and how that PoP affects the market, we must first analyze how PoP relates to various supplying and purchasing processes. Using a cause-and-effect diagram, we can get a better understanding of underlying possible contributing factors to what may cause shortages of generics. In the diagram, see Figure 8, we can see the breakdown of these contributing factors. Note that these are the potential causes found from the interviews and that there may be other unidentified reasons to shortages.
5.3.1. Logistics
One aspect that may cause shortages is the logistics of generics. As there are multiple stakeholders in the supply chain leading towards a patient buying their medicine from the pharmacy, each step in the chain may cause a disruption. Note that in this research, the supply chain is viewed starting from the MAH; there are stakeholders prior e.g. component manufacturers, and especially API suppliers. However, these are not included in this research.
The focus is set on the supply chain as described in previous sections, see figure 7.
In the general supply chain, generics are provided by the MAH. Hence, if the MAH (or its own suppliers) has manufacturing problems, they disrupt the chain from upstream. Using the method Five Why’s (Bergman & Klefsjö, 2012) we may find the potential root cause for shortages from a supply chain point of view, as illustrated in Figure 8. Two viewpoints from a logistical perspective are identified; the first being from the Wholesaler and the second from the Pharmacy. Let us start from the wholesaler’s perspective:
Assume shortages are caused because of logistical issues, why?
• The shortage is caused by that the wholesaler cannot deliver the agreed supply of stock of a generic to the pharmacies, why? Two paths can be considered here as reasons to why the wholesaler cannot deliver: (1) Low or no stock and (2) not enough delivery trucks.
1. The first path suggests that this is caused by the wholesaler having low or no stock of the asked for product, why?
§ This may be caused by that the MAH has not produced enough product, why?
§ Because the wrong forecasts were made, why?
§ The production and execution were poorly planned, why?
2. The cause of bad planning continues to the second path which proceeds from the original reason of why the wholesaler cannot deliver, which in turn is caused by that the wholesaler does not have enough trucks to manage the delivery and supply all pharmacies, why?
§ Again, because of bad planning, why?
§ Due to timely constraints between TLV releasing the substitutes list and the wholesaler planning the required logistical approach, why?
§ Finally, this roots down to the that timely constraints may be caused by the way the process for product of the period is designed.
Let us consider the second point; the pharmacies as the cause to shortages from the logistical perspective, why?
• Shortages are caused because a pharmacy has low or no stock of the generic in the inventory, why?
• The reason behind this is perhaps that the pharmacy did not forecast properly and order enough generics, why?
• Because of bad planning towards the wholesaler. This then connects to the previous scenario that the wholesaler cannot deliver the asked for amount, which leads to the aforementioned breakdown of causality leading to the design of the process.
In both scenarios, pharmacy and wholesaler, the logistical issues find their roots in the design of the process for PoP. As described in the empirical section 4.3. Side effects of PoP, both representatives from Hjärtat and the wholesaler expressed pressure timewise to manage their corresponding tasks in the system, which supports the cause-effect breakdown that the process of PoP is the culprit and considered inefficient. This is further supported by findings in the study by Smart and Harrison (2003) in which suppliers experienced time pressure in reverse auctions. Although pharmacies and wholesalers are not suppliers in the PoP process, they are part of the system of PoP in which reverse auctions are performed between TLV and MAHs.
In this context, the MAH is the supplier who use the wholesaler to supply the pharmacies.
Hence, the experienced time pressure may be shared and spreads upstream in the supple chain.
What is also evident when comparing to the study by Smart and Harrison (2003) is that suppliers experienced uncertainty when planning how to meet demand. This is somewhat experienced by the pharmacies in this research as explained by the representative from Hjärtat, where forecasting is time consuming and the process considered inefficient.
5.3.2. Pricing
Pricing is a potential factor why shortages may occur. Based on section 4.2. Pricing we now understand that the only way for a MAH to get their generic subsidized is to go through the governmental authority TLV. Assume shortages occur because an MAH de-prioritizes the Swedish market, and instead prioritized other markets, and hence does not maintain a proper supply of generics. Why de-prioritize?
- This is caused by low margins on their products, why?
- To remain competitive, the MAH must offer the lowest price, why?
- To acquire the status of PoP, why?
- To have their generic subsidized by TLV, why?
- To be sold in the pharmacies as a primary generic on the substitute list, why?
- To sell their product and earn profits.
Using the reverse bidding process described earlier, different MAHs, or suppliers, are put against each other in getting the right to deliver the product for the most competitive price (Smart & Harrison, 2003; Mochón & Sáez, 2015). With reversed auction, instead of the bids
being increased, each supplier proposes the lowest possible price for their product in the hope of being chosen as the PoP. Although not forced to join the bidding process, MAHs have to compete to be showcased as PoP, which entails large national volumes over a month, and get reimbursed. As prices are driven down, the margins for the MAH become lesser. This is considered as a negative aspect experienced by suppliers where profit margins are reduced to the point where businesses become nonprofitable (Smart & Harrison, 2003). Lower prices, smaller margins and larger sales volumes due to the PoP designation are not a profitable formula for an MAH. The assumed potential cause to shortages is then that the market has become far too competitive, MAHs gain smaller profits by selling their products in Sweden, which was also explained by our interviewees. Consequently, this would lead to that MAHs make the decision that the small margins are not worth the effort, hence de-prioritizing the Swedish market, and therefore shortages may occur.
Figure 8 Cause-effect analysis for potential reasons to why shortages occur.
6. Conclusion
Based on the analysis of the empirical data collection and related literature, we now understand the causes to the shortages. The process, in Sweden, of how pharmacies procure generics is clearly defined, starting from an MAH that collaborates with a wholesaler that acts as the supplier towards the pharmacies.
An MAH can request for their generic to be subsidized under the PoP model managed by TLV.
The price for the generic is determined using the reverse auction approach, whereby the lowest bidding MAH wins the contract to supply said generic in terms of both price and volume. The analysis also shows that the PoP model affects the market in different ways, and the most conceivable effect is that shortages can occur because of the way the process is designed.
Several actions from the involved stakeholders, e.g. pharmacies and wholesalers, are necessary for the generic to become subsidized and available to the end customer, or patient.
In conclusion, PoP can affect the market negatively in terms of pressuring MAHs to lower the prices through bidding to the point where businesses earn so small of a profit that the Swedish market gets de-prioritized. Also, the PoP system creates a situation where pharmacies and wholesalers are under time pressure to manage, among many things, the forecasts and supply.
7. Solution Proposal and future research
A useful solution to implement is to start monitoring constantly and measuring when shortages of antibiotics occur and their costs to patients and society, so to quantify how big of a problem this really is. While the conclusion states that PoP affects the market, we need additional quantitative data of how many shortages can specifically be attributed to the PoP system. The proposed solution is directed towards all stakeholders, and perhaps even more importantly for the pharmacies, to start measuring specifically for antibiotics how often to shortages occur and the quantity.
7.1. Future research
Apart from assessing new data when and if it is made available, a suggested topic for future research is addressing the manufacturing side of the process. As showcased in Figure 8, there may be potential causes in manufacturing for shortages occurring later in the supply chain. This could be an area for further exploration. The question is then: Suppose generics are not available because of the MAH having manufacturing problems, why?
• These problems may be caused by insufficient materials and components to produce the generic, why?
• The lack of materials in manufacturing is perhaps caused by bad resource planning towards the supplier of certain components, why?
• Because the supplier has not delivered necessary forecasted components, why?
• The supplier may have internal problems such as production breakdown in the factory.
o We may also take this through a secondary path from the supplier not delivering the forecasted material. Consider the scenario of the supplier has multiple
contracts and collaborates with another MAH. Components then need to be evenly distributed between MAH A and MAH B, or in a different priority order.
Again, this is not part of the PoP model, but there could indeed be shortages in antibiotics due to lack of materials back in the supply chain in the manufacturing phase. As explained by one interviewee, older types of antibiotics are harder to maintain on the manufacturing side. This could be further researched separately.
Bibliography
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Appendices
Appendix 1: Interview guide
As several interviews were conducted with different stakeholders in Swedish, the following interview guide is a consolidated version translated to English.
Introduction
The Public Health Agency of Sweden reported in 2017 that there is a potential problem regarding availability of antibiotics in Sweden. We have got a broad range of different antibiotics to minimize the risk of resistance and treating patients efficiently with several active ingredients rather than having few ingredients for multiple types of bacteria. This requires a system that can manage antibiotics and make availability possible.
PLATINEA is a collaborative platform with the purpose of improving availability and use of antibiotics. PLATINEA consists of 15 actors from academia, governmental agencies, industry and health care. The platform is divided into four work packages that address different questions within the field. The common goal is to make sure that antibiotics that are available today are to be used in a better manner and assure that availability of important antibiotics that are in risk of being removed from the Swedish market. My part focuses on the fourth work package which is about the supply chain and to understand what factors that may affect the availability and to identify possible actions that in the long run can remove shortages. The supply chain has to be mapped and then address what affect the current structure and pricing model have on the availability of antibiotics through pharmacies.
Interview
The following are the main questions and topics that will be covered in the interview:
• How do you procure antibiotics?
o Who are you main suppliers?
o Can you decide which suppliers to collaborate with?
• What challenges are there in procuring antibiotics?
o Are there any specific antibiotics that are more difficult to acquire?
o Can the situation be improved?
• What are the problems with availability, e.g. for Rifampicin and Pencillin G but also generics?
o How are shortages managed?
o How can availability be improved?
• How are prices set for antibiotics?
• How profitable are sales of antibiotics for you?
• Please describe the process from a pharmacy’s perspective; how do you procure antibiotics and deliver it to the end-customer?
o What problems can you see in the existing supply chain?
• How are you affected by the pricing model Product of the Period by TLV?
o What positive/negative effects are there with this model?
Anonymity and privacy will be taken into consideration if requested. Before the start of the interview, you will be asked if the session can be voice recorded for future reference when transcribing the interview.
