A bitter pill to swallow

The Sun posts a news article alleging inflated costs of drugs procured by the Ministry of Health due to “middlemen”

Sources have told theSun that procurement of pharmaceuticals to the ministry is done through local tendering agents – at an average mark-up of 3% of the drug cost.
A reliable source familiar with the drugs procurement process in the ministry recently told theSun that hundreds of millions of ringgit have been given to local tendering agents, whose only role is to hand out government tenders for medication to manufacturers as “pass-through commissions”.
The source, who spoke on condition of anonymity, said the agents will procure the required drugs from various manufacturers and bill it back to the hospital or Health Ministry at a mark-up of between 2% and 5%.
“When a hospital requires a particular drug, it will issue a local purchasing order (LPO) to a tendering agent.
“The agent will then source the drug from various manufacturers, be it from a multi-national pharmaceutical company or a local manufacturer. The agent will then receive a 3% ‘pass-through commission’ from the government or the hospital,” the source explained.
Based on data provided by the ministry, a total of RM12.34 billion was spent on pharmaceuticals between 2001 and 2011. Roughly half this sum is spent via LPO.
The source said the 3% is also “clean profit” for the agent, since the cost of distributing the medicines to the respective hospitals is borne by the manufacturer or supplier.
“This practice has been going on for many years. All procurements are done this way,” the source claimed.
Another source within the pharmaceutical industry told theSun that the use of “agents” to procure medication for hospitals is not necessary.
“The agents are used mainly in LPOs because a majority of products bought under them are patented drugs which are by multinational companies,” explained the source.

In the same article, the Health Minister is denying that this situation occurs, saying they are “not middlemen” as they are providing a “service”

When approached, Health Minister Datuk Seri Liow Tiong Lai denied that there are middlemen in the ministry’s procurement process.
“It’s not true. Any company can supply to the government as long as they register with the Finance Ministry. It’s all tendering (process)… the best price will win,” he told theSun.
He stressed that the Health Ministry is transparent in its work and all procurements are done through open tenders. However, the ministry is not involved if the company has its own agents and distributors, Liow said.
“But they are not considered middlemen as they are providing a service to the company,” he added.

So, according to the Minister, it’s all a lie, and no there are no middlemen.
This is refuted by Lim Guan Eng who accuses Liow Tiong Lai of deceiving public on middleman role in a Malaysiakini article

DAP secretary-general Lim Guan Eng says Health Minister Liow Tiong Lai is confusing the people instead of clarifying whether pharmaceutical companies can sell their products directly to the public sector and to hospitals.
Lim, who is also Penang chief minister, said the issue was raised during his second debate with MCA president Dr Chua Soi Lek on July 8.
He said Liow should assist companies like B Braun, which manufacture 100 percent of their medical devices and pharmaceutical products in Malaysia, so that they need not go through “middlemen” to market their products.
“However, despite Liow’s assurance that it does not employ the ‘middleman concept’, pharmaceutical products manufacturers cannot sell directly to the Health Ministry, even if they manufacture in Malaysia,” Lim said in a statement today.
“Is this another of Liow’s empty promises, since middlemen control the purchase and supply of medicines to hospitals, resulting in higher prices and extra costs to the rakyat?” Lim queried.
He was responding to Liow’s comment that pharmaceutical manufacturers need to apply through the Ministry of Finance before they can sell direct, without going through middlemen, and that the products must be manufactured in Malaysia.
But Lim denied this was true, and accused Liow of engaging in “deception and deceit”.
Lim said Liow’s statement did not allay the fears of many pharmaceutical products manufacturers and it remained unclear as to how they would be able to compete transparently for the purchases of public hospitals.
He said B Braun’s case was a clear example of a medical devices and pharmaceutical products manufacturer operating in Malaysia that could not sell directly to public hospitals.
According to Lim, B Braun tried to sell direct to public hospitals but was informed that they had to rely on middlemen.
B Braun has invested almost RM1 billion since it started operations in Penang in 1972 and has provided 4,700 jobs. It recently expanded its RM300 million facility to cater for further expansion of business in Malaysia, Lim said.
Quoting a report in The Star of Jan 10, 2009, Lim said B Braun’s former board chairman Prof Dr LG Braun called for the federal government to reform its “outdated” policy prohibiting the sale of pharmaceutical and medical products by multinational corporations in Malaysia.
“I will continue to re-echo similar concerns raised by B Braun two years ago. The company has been a faithful employer and partner of the state so that it will continue to feel welcome in Malaysia,” Lim said.
“Without a transparent policy, companies such as B Braun will continue to face uphill challenges that can eventually discourage them from further investing in this country.”
Lim urged other affected pharmaceutical companies to continue to voice their concerns on such unethical, crony practices to the Ministry of Health so that costs could be cut.

So what’s the real story here?
Doctors may want to check out this interesting thread in the Dobbs forum (access only for registered users – but registration is free for Malaysian doctors) which gives insider views on the real picture.

The Malaysia Chronicle has another take: Guan Eng exposes Liow’s BITTER PILL for the people

In order to develop as a nation, there needs to be a stop to “rent seeking” activities which benefit only cronies. Such unnecessary practices drive up the cost of doing business in Malaysia adding little value, but instead pile on additional red tape and expenditure.


Malaysian physician, haematologist, blogger, web and tech enthusiast