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Corruption within the pharmaceutical supply chain to the developing world

by Scott Hickie

Photo of pills
Pharmaceutical and health sector corruption is financially costly and poses a significant threat to public safety. An average of 5.59% of annual global health spending is lost to fraud and error. Based on World Health Organisation estimates of global healthcare expenditure totalling US$4.7 trillion, a 5.59% loss rate equates to approximately $260 billion lost annually to fraud and error (2009 figures).

The global provision of medicines involves a diverse set of international transactions, legitimate markets and underground economies, and public or private sector stakeholders. Companies domiciled in developed countries have historically dominated pharmaceutical production and export, though the last decade has seen growing emerging economy pharmaceutical manufacture and utilisation.

The global picture is no longer one of export from the developed world to the developing world. Multinational companies appear to be establishing offshore operations in emerging economies to serve regional supply chains and market demand. Countries such as India and China are expanding pharmaceutical production for both domestic use and export. The increasing market share for pharmaceutical generics, which are exported to a diverse range of international importers, is another important trend – with India home to some of the largest generics companies. Considerable underground economies for counterfeit, stolen and illegally-diverted products are also operating in a number of countries, and represent a major threat to public safety.

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Pharmaceuticals, health services and medical devices constitute a substantial component of official development aid transfers to developing countries. Bilateral financial aid transfers can also be used to procure such services and supplies. In this context, anti-corruption is part of an ongoing dialogue about aid effectiveness. With health a core component of three of the eight Millennium Development Goals, multilateral aid agencies are well aware that health sector corruption can have significant adverse effects on poverty reduction objectives and wider human security.

Large scale, multilateral global health programmes also present corruption risks. Revelations of limited corruption within Global Fund to Fight Aids, Tuberculosis and Malaria programmes in 2011 showed that even the most high-profile organisations can be vulnerable to corruption risk. A number of World Bank health programmes have also been shown to involve corruption.

Recognising the importance of these issues, in May 2013 Savannah Wisdom tasked Open Briefing with meeting four related intelligence requirements:

  1. A list of non-governmental organisations currently engaged in work on pharmaceutical and health service industry corruption, transparency or governance issues relevant to developing countries.
  2. A list of regulations, legislation, codes and standards relating to anti-corruption, anti-bribery, transparency and good governance relevant to the pharmaceutical sector.
  3. An all-source list of English-language publications on pharmaceutical industry transparency and corruption issues related to developing countries and emerging economies.
  4. A high-level comparative assessment of pharmaceutical supply chain corruption risks.

The results of this scoping exercise are presented in the Open Briefing report Corruption within the pharmaceutical supply chain to the developing world.