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How The Pharmaceutical Industry Is Financed?

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Pharmaceutical financing is considered under the overall health financing of a country. The funding of pharmaceutical and biopharmaceutical companies like Yourway is done by the same methods as healthcare financing.

  • Government Revenue
  • Service fee
  • Health Insurance
  • Voluntary and local financing
  • Donor and development financing.

Private Financing – Sales and Service Fee

The most common source of pharmaceutical funding in developing and low-income countries is the money paid by the consumer when he buys the medicine from a local pharmacy or retailer. The user fee for medicines in NGOs or government hospitals is a part of RDF or a healthcare program in which the fee is used to replenish the pharmaceutical supplies.

The public sector RDFs are different from private sector outlets. In public RDFS the major focus is on providing people with affordable medicines. The user fee is a controversial topic; some believe that all user-fee of medicines should be abolished because;

  • The revenue collection by user fee is very low.
  • Poor people can not get proper medical attention.
  • User fee only replaces government funds; not add to them.

The proponents of user-fee have the following arguments;

  • Revenue is increased by a user fee, however meagre.
  • Decentralisation is strengthened.
  • Equity is installed.

Public Financing – Government Allotment

The public funding of the pharmaceutical industry is done via national and local public allotments. Several factors play a role in the allocation of the pharmaceutical budget; some of the factors are

  • GDP of the country.
  • The economic stability of the region.
  • Share of public spending allocated for the health sector altogether.
  • Budget for recurrent operating expenses
  • The budget allocated for health sector jobs salaries, utilities, medicines, and supplies.
  • Unexpected oscillations in the national economy.
  • The level of corruption in the health sector and pharmaceutical sector.

Securing a proper budget for pharmaceutical financing is important but managing those finances according to the need is more important. The managerial problems arise in delaying procuring the government money, the shortfall in revenue generated by the government, corrupt people handling the money, and the inability to get foreign exchange even if a proper financial budget is present. Autonomous central supply agencies can solve some of the problems with the government disbursement of funds.

Health Insurance

According to WHO recommendations, the countries should include a prepayment as a method for financing the healthcare industry to achieve universal health coverage. Hence, health insurance plays a great role in the health financing of medium and high-income countries.

The major goal of health insurance is sharing the risk. For example, if someone is suffering from a chronic illness and he has health insurance, he can pay in insurance instalments instead of covering a huge cost if the need arises. Insurance spreads the burden over all members of an ongoing scheme – hence, thinning the overall distribution. The most beneficial coverage of insurance is for unpredictable and expensive health problems. Health insurance has four categories:

  • Social health insurance
  • Private health insurance
  • Community prepaid schemes
  • Health or medical savings account

Pharmaceutical Benefits of Health Insurance

Private, social, and community prepaid insurance covers medicinal and pharmaceutical needs as well. Medicines are the core of modern healthcare. Early treatment of illnesses can be conducted via health insurance which prevents the chronic phase of the disease. Medicines make up the biggest share of household healthcare and can not be excluded from insurance programs.

Local Funding

Healthcare is expensive; health expenses in the USA reached 3.8 trillion in 2020 and the figure is expected to rise to 6.2 trillion dollars in 2028 – 18,000 dollars per person. In this economy, any local or voluntary help goes a long way.

NGOs play an important role in local funding by attracting local and international donations to buy medicines, equipment, and healthcare utilities. The NGOs that provide healthcare donations and stay afloat also help in maintaining the national sustainability equation. Apart from the big organisations, small funds also exist that help a small local community.

In many countries, companies provide healthcare insurance and programs to their employees by reimbursing local healthcare providers or by dealing with private insurance companies. These arrangements also help national sustainability.

Donor Financing

In recent years, the donor financing landscape has changed dramatically. Donor assistance used to come from organisations like WHO, UNICEF, development banks, and charitable organisations. In the last few years, the commitment of the international community toward global health has revolutionised dramatically. So, in addition to traditional sources, new global health initiatives, public-private partnerships, and multilateral institutions are playing a much larger role in financing the healthcare and pharmaceutical industry.

Written by Marcus Richards


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