CASE STUDY: USING MARKET FORCE TEMPLATE TO UNDERSTAND PHARMA RETAIL MARKETS IN FRANCE By April Harding BACKGROUND This case study presents examples of retail pharmacy markets to illustrate how to use the Market Force Template (MFT) to better understand market dynamics in two countries France and Nigeria. The first case Nigeria demonstrates how to use the MFT. The Group Work will use the France example as an exercise to learn how to use the MFT. NIGERIA RETAIL PHARMACY MARKET Private retail pharmacy market Many reports suggest that the private part of Nigeria s drug retail dispensing market approximates a full-on market. For the most part, the only forces governing actors behavior are market forces sellers are selling, buyers are buying and the interactions one observes are the result of buyers and sellers spontaneous choices (see Figure 1). There are rules on the books restricting the behavior of private drug sellers, but, by and large, their day-to-day behavior is not much influenced by those rules. France and Nigeria Retail Pharmacy Markets Page 1
Customer competition: Private dispensers and retailers rely completely on customers to choose their services and to secure their income. This places customer competition domain to the far right (=> full on market forces). Market price: Prices are set by market interactions sellers deciding what prices make sense, buyers deciding what they can afford. This places market prices domain to the far right (=> full on market forces). France and Nigeria Retail Pharmacy Markets Page 2
Market entry/exit: Certainly, there are formal entry barriers, but those rules are not much observed. This gap between formal rules and day-to-day practice underscores an important feature of the framework: it aims to reflect the actual market and structuring forces (and by inference the actual governance regime) in action. It does not portray the formal rules and mechanisms in place. So, if there are strict rules and requirements about opening a pharmacy, but they are generally not observed or followed, then we characterize the domain as having low barriers to entry, and therefore, being subjected strongly to market forces. This places market entry/exit domain to the far right (=> full on market forces). Financial autonomy: There is no social funding, that is, people pay private pharmacies privately. This places financial autonomy domain to the far right (=> full on market forces). Contract conditionality: Virtually no private pharmacies are included in networks with social/ public reimbursement. Hence, they need not meet performance criteria for network inclusion. Pharmacies feel very little performance pressure related to obtaining or being reimbursed under contracts. This places contract conditionality domain to the far right (=> full on market forces). Public retail pharmacy market However, the public sector also dispenses drugs (see Figure 2). Operational autonomy: Publicly-covered drugs are dispensed in public clinics. Therefore, drug-dispensing activities of public clinics are not run as France and Nigeria Retail Pharmacy Markets Page 3
businesses. Rather, public policies determine what drugs they stock, set opening hours, and specify staffing requirements, etc. They have little day-to-day operational autonomy. This places operational autonomy domain to the far left (<=full on stewardship forces). Customer competition: As there is little concern that patients may go elsewhere, staff are not driven by the pressure to compete for customers; this is low customer competition since customer choices don t influence clinic/pharmacy income, by and large. This places customer competition domain to the far left (<=full on stewardship forces). Market prices: Prices are set administratively which places public pharmacy services all the way to the left (no market forces) in the market prices domain. This places market prices domain to the far left (<=full on stewardship forces). Market entry/exit: An individual cannot open a public pharmacy and dispense subsidized drugs; so, entry barriers are high (no market forces). This places market entry/barrier domain to the far left (<=full on stewardship forces). Financial autonomy: Drugs dispensed in public clinics are heavily or completely subsidized, so this places financial autonomy to the far left (<=full on stewardship forces). Contract conditionality: There are no contracts there is no need for clinics to compete for eligibility to participate in a network, nor is there pressure to perform well to receive performance linked reimbursement under a contract. Placing these activities, again, all the way to the left (no market forces) on the under contracts domain. This places contract conditionality to the far left (<=full on stewardship forces). Total market system Figure 3 portray both parts of the market together within a single graphic. This illustrates a valuable feature of the framework - the ability to characterize both parts of a whole market, giving due attention to their interconnectedness, yet also, to their distinct governance regimes. France and Nigeria Retail Pharmacy Markets Page 4
For privately dispensed drugs, stewardship forces are all the way to the right in each domain, exhibiting very strong market forces, and very few structuring forces. The governance regime that is operating is very close to what is considered full-on or a completely unstructured, market. This full-on market governance regime generates drug dispensing services with certain qualities: services are widely available, exhibit uncertain quality, are costly, involve excessively-prescribed drugs, and are delivered with considerable responsiveness to customers with pleasant and respectful treatment. In the public part of the market, the no market forces or traditional public administration generates drug dispensing services with a slightly different set of qualities: services where drugs are often unavailable, are of more certain quality, are less financially costly to patients. In addition, these services typically exhibit less excessive prescribing, but dispensing drugs may be costly in terms of the time and the hassle involved. Further, patients are typically treated less pleasantly. In the operation of the retail pharmacy services market in Nigeria, there are signs that the government has chosen to supplant markets by deploying direct delivery as their main policy tool for pursuing their objectives France and Nigeria Retail Pharmacy Markets Page 5
to make essential medicines available and affordable. The government aims to deliver needed drugs to people through public clinics and public supply chains. Mechanisms to structure the interaction in the private marketized side of the sub-sector are functioning poorly, if at all. Perhaps, the government expects that peoples most important drug needs will soon be met on the public side, with the private and highly marketized part operating as a relatively minor residual element of the retail pharmacy market. Regardless, the outcome is that the majority of drug dispensing activity is taking place in an almost entirely pure market. France and Nigeria Retail Pharmacy Markets Page 6
GROUP WORK ACTIVITY Read the France Retail Pharmacy Market case study. Thinking about what you have read, please answer the following questions. Be prepared to share your analysis with the larger group. Use the Market Force Template to guide your analysis. 1. Please use the Market Forces Framework below to analyze what market forces are at play in the primary health care in France? 2. In what sense are market forces operating in French Retail Pharmacy Market? 3. Given the significant role of market forces, how does France achieve their policy and social goals in this market? What Tools of Governance(s) do they apply? Market Forces Template France and Nigeria Retail Pharmacy Markets Page 7
FRANCE RETAIL PHARMACY MARKET Subsidy domain: Like much of the French health system, market forces operate in the drug retail services market. Patients obtain prescribed drugs at pharmacies and pay for them out-of-pocket. Then, they are reimbursed for their payments. A commission (with representation from the Ministries of Health, Finance, and, Industry) regulates prices for covered, prescriptions medicines. Most are reimbursed at 65%, while some with a low medical benefit are reimbursed at much lower rates (e.g. 15%). All people receive these partial reimbursements for covered drugs, but some people are covered fully (e.g. poor people; people with high medical costs). In total, drug expenditures are approximately 60% public, 40% public. This produces moderately high structuring forces relative to market forces on the subsidy domain (approximately 1/3 of the way from no market forces / left side). Operational autonomy: Most pharmacies are private businesses (except for pharmacies within public hospitals). These pharmacies must follow rules on dispensing, hours, etc. but are relatively autonomous. Customer competition: Since customers are reimbursed for their out-of-pocket costs related to drugs, pharmacies compete for customers based on services. Market prices: Prices for covered drugs are set by negotiation. Market entry/exit: Pharmacists must belong to the professional body. And there are other entry barriers, such as retail pharmacy chains are prohibited. Contract conditionality: A pharmacy business cannot survive unless it meets and maintains the standards for operation required for social insurance reimbursement. When starting a business, an applicant makes considerable effort to demonstrate that s/he can meet these standards. The entry barrier for the contract agreement secures his/her eligibility and provides for reimbursements for the customers s/he serves. France and Nigeria Retail Pharmacy Markets Page 8
ANSWER France and Nigeria Retail Pharmacy Markets Page 9