Corruption in public procurement

Health sector

CONTENT ON THIS PAGE:

•  The problem
•  What can be done
•  Links to further information

The problem

Health related projects can involve a number of procurement-related activities, such as construction of infrastructure; management and operation of service providers; contracting services (consultants, research institutes, universities, medical and paramedical personnel, and insurance); purchase of goods; and the delivery of some of these goods. Experts often quote drug selection and use, procurement of drugs and medical equipment and distribution and storage of drugs as the most problematic areas. But careful attention should be given to all types of contracting processes to prevent the harmful effects of corruption.

Risks of corruption in contracting within the health sector are similar to those that appear in contracting processes in other sectors. There are, however, some particular characteristics that heighten those risks:

• The complexity of processes to procure drugs and equipment: highly technical processes; product specifications often determine the provider; the methods to quantify the volume of drugs needed is often based on subjective assumptions and estimates.
  
  
• A number of intervening actors: contractors, suppliers, medical institutions, administrators, regulators, medical staff and patients - often give rise to situations of conflict of interest.
  
  
• Marketing practices by pharmaceutical companies: sometimes induce demand for products.
  
  
• Suppliers use different prices for the same pharmaceutical products: can lead to artificially inflated prices.
  
  
• Difficulties in monitoring quality standards: in drug provision and when following up the distribution chain.
  
  
• Health related projects may require international contracting for local delivery: (e.g. vaccines or HIV tests). Some projects may also have very localised implementation, such as community hospitals, that face different risks and challenges at all contracting phases.
  
  
• Emergency situations: additional challenges which call for speedy and adequate intervention. (See also U4 theme pages on corruption in emegency situations - currently under development in 2006)

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What can be done?

In addition to considering the factors that generally minimise the risk of corruption for all contracting processes, there are several approaches that could be particularly helpful in preventing corruption in the health sector. Examples include:

• Information: Establishing and maintaining information systems on prices, quality, volumes, performance of suppliers, etc, that are simple and easy to use. For example, establishing lists of reliable and well performing suppliers, such as the list of pre-qualified products and manufacturers meeting WHO norms and standards, as well as making price information widely available and the use of existing tools such as the WHO International price guide can help reduce prices and opportunities for corruption. Establishing price reporting systems can allow comparisons for basic medical goods and services and result in a decrease in input prices as demonstrated in an anti-corruption crackdown in Argentina.
  
  
• Professionalism: Developing and enforcing codes of conduct for the industry and for administrators, medical staff, health care facility staff and management and regulators play an important role. Training staff in managing conflicts of interest is essential. Technical assistance and training for procurement officers can also improve the capacity of government to manage competitive biddings.
  
  
• Management structures and tools: Governance structure and management tools can also help reduce opportunities for corrupt practices, for example, establishing committees for matters related to registration, selection, procurement and quality assurance of medicines. Rotating procurement officers, enforcing ethical standards within procurement committees, monitoring lifestyles, reinforcing procurement officers’ accountability and rewarding good performances are other important tools. Having separate entities responsible for the various procurement functions is also mentioned in the operational principles for good pharmaceutical procurement (see references).
  
  
• Monitoring systems: Developing monitoring systems that are transparent, accountable, independent, allow for civil society participation and operate at all stages, from contracting decisions and drug selection, to contract implementation (including distribution when applicable). A reliable information-management system is one of the most important elements in planning and managing procurement. The procurement office should report regularly on key procurement performance indicators selected by senior managers. Monitoring systems should also include an annual external audit to verify the procurement office's accounting records. While the monitoring of quantities of drugs received or health services utilized is relatively straightforward, monitoring of quality and efficiency pose greater challenges, including for example, quality and value for money in high-tech medical equipment procurements and in the delivery of contracted health services. An evaluation of public contracting for health services in Cambodia noted that monitoring was essential to assure quality when contractual payments are linked to performance, and that auditing skills are very important to detect such problems as "ghost patients", excessive charges, and reporting fraud [1].

Not all procurement problems arise from corruption, just as not all solutions will address both efficiency and corruption-related causes. It is important to address change and improvement. It is also important to keep in mind that all actors involved have a role to play in combating corruption in this field and including them in the implementation of solutions will make results more sustainable and effective.

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Further information

The World Bank and the WHO offer a wide range of information on procurement guidelines, lists of drugs, and cases of best practice. There are also an increasing number of materials in this field, including:

• Transparency International's Corruption Online Research and Information System (CORIS)
  
  
• Transparency International's Public Contracting Programme
  
  
• Operational Principles for Good Pharmaceutical Procurement: Essential Drugs and Medicine Policy, World Health Organization, 1999
  
  
• Practical Guidelines on Pharmaceutical Procurement for Countries with Small Procurement Agencies, World Health Organization Regional Office for the Western Pacific Manila, Philippines, 2002
  
  
• Technical note: The procurement of Health Sector Goods, Washington DC, World Bank, 2002
  
  
• International drug Price Indicator Guide, Management Sciences for health and WHO, 2001
  
  
• Guidelines on working with private sector to achieve health outcomes, World Health Organisation, 2000
  
  
• Political and economic Incentives during an anti-corruption crackdown, Di Tella, Rafael and Ernesto Schargrodsky, in Della Porta, Donatella and Susan Rose-Ackerman (eds) Corrupt exchanges: empirical themes in the politics and political economy of corruption, Baden Baden: Nomos Verlaggesellschaft, 2002
  
  
• Using technology to fight corruption in pharmaceutical purchasing: lessons learned from the Chilean experience, Cohen, Jillian Clare and Jorge Carikeo Montoya, WBI, 2001
  
  
• A multisectoral approach to improve ethical business practices: a contribution to improving access to medicine in Latin America and the Caribbean, Jaramillo, Liliana, Speech, Sept 2000
  
  
• Two case studies of corruption in Medicine and medical supplies procurement in the Ministry of Public health (Thailand) I. Civil Society and Movement against corruption, rural doctors fight against corruption in Thailand, Trirat, Dr, N/ Civil Society and Governance Programme, IDS, 2000
  
  
• Procurement-related guidelines produced by the Global Fund including the Guide to the Global Fund's Policies on Procurement and Supply Management, and the Guidelines for Performance Based Funding which gives operational details of this type of contracting arrangement.
  
  
• Cohen, J. C., Cercone, J. A., and Macaya, R. Improving Transparency in Pharmaceutical Systems: Strengthening Critical Decision Points Against Corruption. Latin American and Caribbean Region: Human Development Network. World Bank, Washington, DC, 2002

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References