Pooled buying can reduce costs of life-saving drugs, but planning is key

Pooling orders for life-saving medicines can help drive down their cost and ensure a steady supply for low- and middle-income countries, though there are trade-offs, according to a new study led by a University of Massachusetts health economist and published in the May issue of the Journal of Health Economics.

Analyzing more than 39,000 transactions from 106 countries between 2007 and 2017, the research found that pooled procurement—especially when conducted internationally—substantially lowers drug prices and reduces delivery delays, although it may increase procurement lead times. The findings come at a critical time, as global health institutions reassess supply chain strategies following the challenges of COVID-19.

“We show that while international pooling can reduce costs and delays, it requires trade-offs in flexibility,” says Lucy Xiaolu Wang, assistant professor in the Department of Resource Economics at UMass Amherst. “Understanding these trade-offs can help countries better design their procurement strategies, from preparing for future health emergencies to sourcing drugs to treat chronic conditions.”

The study examined treatments for major infectious diseases, including HIV/AIDS, malaria, tuberculosis and bacterial infections. It evaluates how the main types of procurement institutions—international pooled procurement (e.g., Global Fund’s Pooled Procurement Mechanism, or PPM, and the United Nations), domestic central medical stores (CMS) and other procurement organizations (mainly NPO/NGOs)—affected drug prices, delivery times and lead times, relative to direct purchases from manufacturers.

Wang and co-author Nahim Bin Zahur, assistant professor at Queen’s University, Canada, found that international pooled procurement leads to price reductions of 13%–20% compared to direct manufacturer purchases. In contrast, pooling procurement within a country (via CMS) did not consistently reduce prices but did shorten lead times by over a month. The Global Fund’s PPM also cut delivery delays by 28%, though it required earlier ordering, extending the average procurement lead time by about 114 days compared to direct purchases.

The benefits of pooling were not uniform. Smaller buyers and drugs sourced from more concentrated supplier markets benefited the most from international pooling, while larger buyers saw greater advantages when pooling domestically. PPMs were especially effective in lowering the prices of older, off-patent drugs, while patent-pooling institutions were more effective for newer medicines.

The paper also analyzes the interaction of pooled procurement institutions with other prominent initiatives in global drug supply, including the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) and the Clinton Health Access Initiative (CHAI), as well as common management practices in global drug supply chains.

“Having different procurement institutions helps health authorities tackle different market failures in the global supply chain,” Wang explains. “As more countries adopt digital ordering systems used in pooling, we’re going to get a better picture of how to get medications to the people who need them the most, more efficiently.”

The study builds on her previous research, which found significant increases in generic drug supplies when manufacturers were allowed to license bundles of patented drugs from the Medicines Patent Pool for sales in developing countries.