Harishankar SahuSchool of Pharmaceutical Management,

The IIHMR University, Jaipur.

Quantification, Pricing and budgeting of Drug requirement

A process that involves estimating— Quantities of a specific item needed for a

procurement Financial requirements needed to purchase the

items Estimating needs within a given context— Finances Human resources capacity Storage capacity Capacity to deliver services

What Is Quantification?

Consistent availability Adequate supplies Minimal wastage No overstocking

Cost-effectiveness Easy management Meeting demand Satisfied clients

Objectives of Good Quantification

Calculate needs for— Procurement (for example, central bulk purchases) Forecasting (for example, for manufacturers)

Plan for new or expanding programsPrepare and justify a drug budgetEstimate storage needsCalculate emergency needs for disaster relief and epidemicsCompare current medicines consumption with public health priorities and usage in other health systems

Applications of Quantification Methods

A. The Preparatory Phase.B. The Quantification Phase:

Data collection, quantification, costing, reconciliation to budget, calculation of final quantities.

Feedback results to managers for placing orders & allocating drugs to individual facilities

Provide training in prescribing & stock management Evaluate the quantification process & make any necessary improvements

The Quantification Process

Consumption Method

Based on past consumption records to estimate future needs, adjusted for stock-outs, expiration of overstocked items and projected changes in utilization.

Advantages: Does not require detailed morbidity data or standard treatment schedules. Reliable if consumption is well-recorded & stable. Identifies stock management problems & encourages improvements.

Quantification Methods

1

Morbidity Method

2Based on the number of expected patients x the drugs and materials consumed according to the standard treatment protocol. Does NOT require drug consumption data; useable for new services

where such data are NOT available. Reliable.

Adjusted-Consumption Method

Relies on past consumption records from other facilities or even other countriesData is extrapolated and adjusted to local circumstances like population coverage or service level provided. Can be very accurate when based on accurate statistics and conformity to treatment

guidelines. Less complicated, easy to calculate.

Quantification Methods

3

Service-Level Projection

4Used for estimating budget needsDoes not estimate quantities of medicines neededUses the average medical supply procurement cost per attendance or bed-day in different types of health facilities in one system to project needs for similar types of facilities in another system

Step 1. Selection of Essential Medical Supplies.Step 2. Total Consumption in a period.

Step 3. Number of days out of stock.Step 4. Average monthly consumption.Step 5. Lead Time.Step 6. Safety Stock:

For calculation: SS = LT X CA

Where SS=Safety stock, LT=Lead Time, CA=Average Consumption.Step 7.Adjust for avoidable wastage and losses.

Step 8.Period of stock on hand.

Consumption Method

Opening Stock

Drugs Received

Closing stock

Consumption += -

Avoidable wastage-Recorded

consumption=Consumption adjusted for avoidable wastage

The price of an item in India is in Rupees ₹. Ideally the price list mentioned in District Guidelines should be used. If the price of an item is not on the list, then another reputable source of price

should be used. Examples are previous invoices, price lists and local price lists. Care should be taken to check that the price used corresponds to the pack size

used in quantification. If there is a discrepancy, an adjustment should be made.

Price

Retail Price = (M.C + C.C. + P.M. + P.C.) X (1+MAPE/100) + E.D.

MC - material cost including drug costCC - conversion costPM - packing material costPC - packing costMAPE - Maximum Allowable Post-Manufacturing Expenses which includes trade margin ED - excise duty.

DPCO 1995 CEILING PRICE FORMULA

To calculate the selling price or revenue R based on the cost C and the desired gross margin G, where G is in decimal form: R = C / ( 1 - G)

The gross margin is the Profit divided by the selling price or revenue R G = P / R

So, the gross profit P is the selling price or revenue R times the gross margin G, where G is in decimal form : P = R * G

The mark up percentage M, in decimal form, is gross profit P divided by cost C. M = P/ C M * 100 will change the decimal to a percentage.

Price Formulas/Calculations:

Proactive approach, rather than a reactive approach to manage money.

Basically, it's making sure that we spend less than we bring in.

Planning for both the short- and long-term.

Budgeting helps to make conscious decisions about how to allocate money.

Budgeting

Annual drug budgeting is a challenging. Unanticipated situations that result in extreme increases in drug expenditures may occur.

Pareto Principle, applies to drug budgeting . A relatively small number of drugs typically account for 80% of most hospital drug budgets.

Source: Company filings/GEN

Drug Budgeting

Better data and more experience will improve a department’s ability to forecast institutional drug expenditures.Data must underlie all types of planning to manage medication expenditures. Systems should be established to have ready access to the data and continually review and monitor these data

It is essential to interact and collaborate consistently with physician leaders from various specialties to successfully plan, prioritize, and implement medication-cost management efforts

Drug Budgeting

ABC/VEN-analysis used for the investigation represents the simple and effective method of analysis of medicine expenditures, identifying priority groups of medicines, the use of which, when improved, may provide the greatest clinical and economic impact. VEN/ABC-analysis helps to prioritize between various medicines in their selection

for procurement and use within a drug supply system. A-Items are responsible for most of the budget therefore validating a number of

these items will validate a large proportion of the budget eg. Validate the consumption method for quantifying drugs by making some estimates based on morbidity method.

Order quantity

Investment

Drug Budgeting

The drug is link between the patient and healthcare system, The Quantification of drug requirement is necessary estimating the requirement budget, fund, total cost, for effectively running of drug procurement, supply chain and logistics.

The success of quantification can be improved by— A team approach to making assumptions and decisions and share

information on— Potential changes in demand and prescribing practices Potential changes in rate of scale-up or roll-out Market intelligence—availability of product Epidemiological data sets and consumption data sets New science Successful problem-solving approaches (and failures)

Cross-checking data, information, and projected needs Using ongoing monitoring of projected vs. actual needs to adjust

assumptions

Conclusion

References

From Business dictionary, Excess 06-10-2016Address: http://www.businessdictionary.com/definition/price.html

From Calculatorsoup, Excess 06-10-2016Address: http://www.calculatorsoup.com/calculators/financial/price-calculator.php

http://www.businessdictionary.com/definition/pricing.html, Excess 06-10-2016