| BackgroundSince the1970s, the essential medicine policy of World Health Organization provided the abundant practical experiences for supply security system of essential medicine in the world, but access, quality assurance and rational use of essential medicine have been the global problems. Although the pharmaceutical supply in rural China had been undergone the stage of tender for the county or municipal level and pharmaceutical supply and regulation network for the county level, above-mentioned problems existed for a long time. In2009, Chinese government started the construction of supply security system of essential medicine in the primary health care sector in order to solve these problems and ensure the availability, affordability, quality assurance and rational use of essential medicine. Anhui and Shandong province reformed their supply security system of essential medicine according to the relevant laws in the December2009and the March2010respectively. The main policies include zero-markup sales, bidding and procurment, government grants, pharmaceutical use and etc. These policies produced a certain effectiveness and much more unexpected results.At present, policy, organization and etc. has been studied on the institutional arrangement, coordination mechanism, incentive mechanism and implementation effectiveness based on the research framework of public policy, WHO survey methodology. The above-mentioned research is still lack of the basic theory and logical framework on the supply security system of essential medicine. Especially the study on transaction cost is not found in the area of pharmaceutical policy. Transaction cost theory of the institutional economics can integrate four kinds of studies into an analytical framework to study transaction relationship. This research path will improve the explanatory power of theoretical framework. Therefore this thesis will combine the transaction relationship into process, path and mechanism to construct new institutional analytical framework in order to explain the unexpected results of supply security system of essential medicine from the human assumptions and behavior logic based on the transaction cost theory. On this basis, transaction cost is measured to obtain empirical evidence to validate the internal logic of the analytical framework.So this study presented the following three research questions.(1) Which kind of policy objectives is expected to attain through what kind of institutional arrangements?(2) What are the practical results of supply security system of essential medicine? What are the gaps between expected objectives of institution design and practical results in real world?(3) How do transaction costs of supply security system of essential medicine lead to the emergence of unexpected results?ObjectivesThe general objective of this thesis is to explore how to generate the unexpected results through institutional arrangement, transaction cost to implementation effectiveness based on the institutional analytical framework and empirical evidence, in order to put forward theoretical basis and scientific evidence on optimizing institutional arrangements of supply security system of essential medicine. The specific aims include:to construct institutional analytical framework of supply security system of essential medicine in rural China; to reveal the characteristics of institutional design of this system; to analyze practical implementation effectiveness of this system; to measure the transaction cost of this system simulatly in order to explore the causes and logic path generated the gap between institutional design and practical implementation; to put forward optimization suggestions on this system.MethodsThis study used secondary data and field survey data to test hypotheses. The secondary data include:policy documents and research literatures on essential medicine policy; China Statistical Yearbook2011; Shandong Statistical Yearbook2011; China Medical Statistical Yearbook2009; centralized procurment data (2011.05.01-10.31) at primary health care sector in Shandong province; business operation data (2009-2010) at township hospitals in Shandong province and etc. The quantitative and qualitative data in the field survey were collected in Anhui and Shandong province. A total of6township hospitals in Anhui province and9township hospitals in Shandong province were selected as the study sites based on purpose sampling according to the economic level, geography distribution and institutional difference of supply security system of essential medicine. The quantitative data includes:financial and business report at the sampling township hospitals; pharmaceutical storage records; price survey of154and166samples before and after essential medicine reform respectively in Anhui province and in Shandong province based on random sampling; prescription survey of2098and1832samples before and after essential medicine reform respectively in Anhui province and in Shandong province based on mechanical sampling;72and117patients survey respectively in Anhui province and in Shandong province. The qualitative data were collected by focus group interview and key informant interview. The focus group interviews were organized for three pharmaceutical manufacturing companies and seven distribution enterprises. The key informant interviews were carried out with58persons, including department of health, provincial pharmaceutical centralized bidding center, and county health department, township hospital in Anhui and Shandong province.The analytical process of this thesis was consisted with three parts. The first part was to summarize the characteristics of institutional design and institutional arrangement in the sampling sites through the method of policy analysis, literature review and key informant interview. The second part was to analyze the expected effectiveness and unexpected results through the field survey data. The third part was to measure and analyze transaction cost of supply security system of essential medicine based on the quantitative and qualitative data in Shandong province. The measure steps were as follows:to indentify the transaction activity and function in the transaction process through the quantitative data; to construct the preliminary framework of measuring transaction cost of transaction activity according to the transaction cost theory; to consolidate China Statistical Yearbook2011, Shandong Statistical Yearbook2011, centralized procurment data (2011.05.01-10.31) and business operation data (2009-2010) at township hospitals into database for measuring transaction cost; to analyze the institutional effects between the stakeholder's behavior and implementation effectiveness arising from transaction cost; finally to deduce and summarize the logic path between institutional arrangement and implementation effectiveness.Main results1. Institutional arrangement and institution design for supply security system of essential medicine was as follows. This system was hierarchical organization led by government in order to solve the problems such as purchasing channel confusion and pharmaceutical shortage. The institutional design planed to decompose the existing problems into different function of different stakeholders. The specific institutional design was as follows:to reveal the demand of patients through the bidding and tender; to realize the supply by organizing the pharmaceutical manufacturing companies, distribution enterprises and township hospitals under the leadership of government; at the same time, to control the incentive mechanism in order to make supply-side and demand-side compatible between individual interests and overall interests; to improve the level of public health ultimately.2. The expected effectiveness of supply security system of essential medicine was as follow. Firstly, varieties availability of essential medicines had been basically solved mainly due to the policies of single goods source commitment and compulsory equipment and use of essential medicines. In the process of tender, the successful tender rates of national essential medicine list were89.25%,91.21%respectively in Anhui and Shandong province. The essential medicines at special procurement channel did not tender at the process of the current centralized bidding. In the process of distribution, cross-municipal or municipal distribution companies met the variety availability of tendered essential medicines. Secondly patient affordability reduced mainly due to the policy that lowest price would be successful tender and there was zero-markup price and drug use policy at the supply chain of essential medicine. In the process of tender, the price of chemicals and biological was concentrated betweenï¿¥0andï¿¥3, whose proportion was66.11%,65.22%respectively in Anhui and Shandong province. In the process of procurement, before reform the average markup was101.89%,50.72%respectively in Anhui and Shandong province. After reform of essential medicine policy the markup was reduced to0, the declining extent of procurement price was25.12%,28.85%respectively in Anhui and Shandong province. In the process of clinical use of essential medicine, average prescription costs decreased and larger portion of patients reflected the affordability to be mitigated. Thirdly, sampling records institution before the essential medicines were produced and sampling test institution after the ones were produced ensured quality and prevented the emergence of counterfeit drugs. Finally, the average utilization rate of essential medicine and generic name was rising and the other indicator of rational use was declining mainly due to use policy of essential medicine.3. The unexpected results of supply security system of essential medicine were as follow. Firstly, there were no better availability on the specification and timely delivery of essential medicine. In the process of tender, the successful tender specification every generic name was3.13,2.24, which was lower than6in essential medicine policy. This impacted the demand of patient. In the process of procurement, the specification equipment rate of successful tendered essential medicine was26.49%,39.35%respectively in Anhui and Shandong province. In Shandong province, the variety equipment rate of successful tender essential medicine was56.43%on average. In the process of distribution, the timely delivery of essential medicine was no better, especially cross-municipal distribution was the worst in all kinds of distribution models. Secondly, the affordability of part of proprietary Chinese medicines, chemical medicines and patients did not reduce. In the process of tender, no matter what absolute price, price range, or what the highest price before the ten drugs, the proportion of proprietary Chinese medicines prices were higher than the chemicals. In the process of procurement, through comparing the purchase price before and after the reform, this thesis found that the proportion of price rising of essential medicines was31.17%,26.51%respectively in Anhui and Shandong province. Furthermore, the extent of price rising was higher than that of price declining. Thirdly, there was adverse selection among the successful tender essential medicine. The proportion of successful tender essential medicine was71.09%,65.10%from manufacturing companies rank after400;60.45%,54.31%from specification respectively in Anhui and Shandong province. The highest price ten essential medicines were produced by the low quality level of the companies in two provinces. At the same time, the quality of the lowest price ten essential medicines were higher than that of the highest price ten essential medicines. Finally, the indicator of drug rational use was unstable and was room for improvement.4. The explanation for the gap between institution design and unexpected results based on transaction cost theory. Because multi-layer multi-task principal-agent relationship of supply security system of essential medicine had the complexity from institutional impact factor to technological one, only variety availability and affordability improved significantly.The institutional path was mainly including:Firstly, in the path of demand revealing, supply-side and demand-side mainly coordinated with price mechanism. But multi-layer principal-agent widened the distance from patients to supply-side which led patient demand to be unrevealed. Secondly, in the path of supply realizing, owing to zero-markup policy, the former price coordination mechanism was replaced with quantity coordination. The coordination means mainly included contract, negotiation, management within the enterprise and communication between the manufacturing companies, distribution enterprises and township hospitals. Especially, lack of inventory information had adverse impact on the medication needs of patients, backlog, wasting and improper occupancy of operational funds. Thirdly, in the path of supply-side incentive, the institutional design of tender distorted the competitive relationship between the different quality levels of companies to produce the adverse selection. In addition, the institutional design of tender made the distribution of benefit and risk-sharing between manufacturers and distributors unbeneficial to distribution enterprise. At the same time, the majority of successful tenders from the other provinces increased the difficulty of coordinating transactions and the occurrence probability of moral hazard, which increased transaction cost to make timely delivery of essential medicines to township hospitals difficultly. Finally, in the path of demand-side incentive, the shortage of government grants and the fuzzy of the new rural cooperative policies did not lead to attain the expected goals.The technological path was as follows. Firstly, the concentration of procurement scale and integration of market stakeholders affected the transaction frequency and asset specificity, thus affected transaction cost to result in unexpected consequence. Secondly, the construction degree of the inventory information, transaction information, information sharing and monitoring information affected the constraint of the bounded rationality and the occurrence probability of opportunism, thus affected transaction cost to result in the unexpected consequence.Conclusions and RecommendationsThe supply security system of essential medicine combined the different coordination and incentive means of government, market and enterprise in order to mitigate the bounded rationality and to control opportunistic behavior of the adverse selection and moral hazard so that the goals of this system would be achieved. But, the price coordination mechanism of demand-revealing path and the quantity coordination mechanism of supply-realizing path widened the layer of principal-agent relationship and led the first responsible person of supply for manufacturing companies to institutional failure. The above-mentioned institutional problems increased the probability of adverse selection, distorted the behavior of supply-side and demand-side, interfered with the normal order of market competition. Especially, the role of government increased the complexity of problem and the probability of moral hazard behavior of distribution enterprise and township hospitals in the process of establishing the contract relationship between the manufacturing companies, distribution enterprises and township hospitals, routine procurement and repayment. In terms of technology, lack of inventory information lessened mutual supervision and planted a hidden danger for the follow-up reform with inventory management more and more importantly.In order to take shape good institution arrangements for the supply security system of essential medicine, this thesis put forward some suggestions.1. The recommendations on the policy optimization of coordination mechanism were as follows.(1) To cancel the provision of the united nation market and to make production and quality assurance capabilities of manufacturing companies only as the criterion of successful tender.(2) To replace the criterion of lowest price successful tender in business standard of double envelopment with cost-effective price.(3) To cancel zero-markup sales of essential medinces whose price is lower thanï¿¥3.(4) To provide institutional innovation space for market stakeholders and to restrict the role of government only as regulator in the supply-realizing path.(5) To substitute the policy of single goods source commitment for that of supply contract in order to strengthen the responsibility of pharmaceutical manufacturing companies.(6) To extend appropriately the tender cycle in order to cultivate collaborative supply chain.(7) To set up the virtual inventory management to strengthen the responsibility and mutual supervision of the stakeholders in the information management system of essential medicine supply.(8) To optimize region and time to form scale procurement.2. The recommendations on the policy optimization of incentive mechanism were as follows.(1) To provide the better institutional environment for manufacturing companies and distribution enterprises by adjusting the relevant policy.(2) To increase the net benefit of manufacturing companies and distribution enterprises by tax relief.(3) To establish contact between government grants, pay for performance and health level of patients, complemented by the non-monetary incentives to achieve the purpose of rational use of essential drugs at the township hospitals.(4) To make the demand of patients be revealed much better by patient education and reimbursement incentive of new rural cooperative medical system.3. The application recommendations to policy optimization using institutional analysis framework and transaction cost measurement method were as follows.(1) To apply the institutional analysis framework for diagnosing the relevant problems of supply security system.(2) To identify the key variables affecting the operation of this system. Innovations and LimitationsThe innovations include:1. Currently there was no basic theory and logical framework to analyze the supply security system of essential medicine. Based on the theory of institutional economics, this thesis constructed the institutional analysis framework in order to explore the logical path from the institutional desingn to the goal of the system that coordinational and incentive mechanism constraints stakeholder behavior, constrols the transaction cost and balances the demand and supply.2. The current research of essential medicine policy did not carry out the study of transaction cost measurement. This thesis was the first attempt to develop the methodology system to measure the structure of transaction cost from the perspective of mechanism, path, transaction process, transaction relationship, institutional type and control function.3. This thesis analyzed systematically the institutional and technical problems from the new study perspective of transaction relationship based on the institutional analysis framework and measurement method of transaction cost to put forward scientific evidence for the supply security system of essential medicine.The limitations include:1. Some parameters of the transaction cost measurement are estimated based on the focus group and key informant interviews. This can affect accuracy to be deviated. But measurement results meet the implementation logic of supply security system of essential medicine. In the future, the further researches should obtain more accurate estimates on the parameters by tracking different types of pharmaceutical manufacturing companies and distribution enterprises for a long time.2. Because supply security system has been constructed for a short time, the analytical method of transaction cost data was not suitable to deal with statistical model technology. This thesis mainly deals the above-mentioned data with descriptive analysis. On one hand, the further researches should verify the casual relationship using the structural equation model. On the other hand, the further researches should use geographic information systems, regional economics and social network analysis techniques to help determine geographic location, space, social capital and other factors on the impact of transaction costs. |
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