across the supply chain and if incentives, oversight, and accountability mechanisms either do not exist or are dysfunctional, mismanagement and theft can become rampant.

A recent in-depth qualitative and quantitative assessment of the Costa Rican drug system’s registration, selection, procurement, distribution, and service delivery revealed both strengths and weaknesses.<sup>12</sup> Clear publicly available procedures, essential drugs lists and drug criteria; reliance on defined, generic drugs; and distribution audits were deemed excellent. The greatest weaknesses were in procurement, specifically in the lack of performance monitoring, quality control, audits and uncontrolled political interference. In distribution, inventory management, security and information systems were found particularly deficient. Half of exit survey respondents had not received a prescribed drug due to non-availability, an important indicator of ineffectiveness (Cohen 2002). Costa Rica’s strong record in health care delivery and its relatively higher income, greater health spending and education levels among developing countries suggests the difficulty and challenges inherent in managing public health systems and drugs in particular.

# _Procurement of drugs and medical supplies_

Countries with weak institutions face serious challenges when it comes to procurement of medical supplies, drugs, and equipment. The public procurement process is unique in that (1) private sector participants who are stakeholders in the outcome of the process are directly involved; (2) large, discrete amounts of public expenditure are involved; and (3) it entails significant discretion on part of public officials (PEFA Secretariat 2005). In such contexts, the absence of a clearly regulated procurement process, incentives for performance, accountability, adequate monitoring and oversight, and controls, the opportunity for procurement fraud is exacerbated (Ware et al. 2007).

Procurement and logistics for medicines and specialized supplies in the health sector are different in several respects from goods procurement in other sectors due to the difficulty of assessing the quality of drugs provided, the need for coordination between procurement processes and regulatory processes, the wide range of prices observed in the private sector for products with the same active pharmaceutical ingredient, the need to manage expiration dates and technically stringent storage conditions in the distribution chain, and the challenge of ensuring supplies in the face of unpredictable demand for products due to health care emergency situations to name but a few (Cohen et al. 2007). Inability to handle these factors results in system inefficiencies as manifested in failed bidding, non-competitive bidding, overstocking and stock-outs, and waste of date-expired or damaged product in public sector supply chains. As competitive bidding is a more protracted process than direct contracting, there is a tendency for government agencies to choose the latter option, using “emergency need” for medicines as a rationale. In addition, health goods procurement is susceptible to many of the same risks as other sectors among them collusion, bid-rigging, biased technical specifications, shaving of quantities delivered, and leakage in the distribution chain.

> 12 The study used a combination of (i) interviews with public officials; (ii) industry interviews with local pharmacies and multinational companies; (iii) focus groups with health care professionals; and (iv) exit surveys for a representative sample of patients (Lewis 2006).

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