Qua Pric bud

Harishankar Sahu
School of Pharmaceutical Management,
The IIHMR University, Jaipur.
 A process that involves estimating—
What Is Quantification?  Quantities of a specific item needed for a procurement
 Financial requirements needed to purchase the items
 Estimating needs within a given context—
 Finances
 Human resources capacity
 Storage capacity
 Capacity to deliver services

Objectives of Good Quantification

 Consistent availability  Cost-effectiveness
 Adequate supplies  Easy management
 Minimal wastage  Meeting demand
 No overstocking  Satisfied clients
 Applications of Quantification Methods

 Calculate needs for—

 Procurement (for example, central bulk purchases)
 Forecasting (for example, for manufacturers)
 Plan for new or expanding programs
 Prepare and justify a drug budget
 Estimate storage needs
 Calculate emergency needs for disaster relief and epidemics
 Compare current medicines consumption with public health priorities and usage in
other health systems
 The Quantification Process

A. The Preparatory Phase.

B. The Quantification Phase:
 Data collection, quantification, costing, reconciliation to budget, calculation of final quantities.

 Feedback results to managers for placing orders & allocating drugs to individual facilities

 Provide training in prescribing & stock management

 Evaluate the quantification process & make any necessary improvements

 Quantification Methods

 Based on past consumption records to estimate future needs, adjusted for stock-outs,
expiration of overstocked items and projected changes in utilization.
Advantages:
 Does not require detailed morbidity data or standard treatment schedules.
 Reliable if consumption is well-recorded & stable.
 Identifies stock management problems & encourages improvements.

 Based on the number of expected patients x the drugs and materials consumed
according to the standard treatment protocol.
 Does NOT require drug consumption data; useable for new services where such data are NOT
available.
 Reliable.
 Quantification Methods

 Relies on past consumption records from other facilities or even other countries
 Data is extrapolated and adjusted to local circumstances like population coverage or
service level provided.
 Can be very accurate when based on accurate statistics and conformity to treatment guidelines.
 Less complicated, easy to calculate.

 Used for estimating budget needs

 Does not estimate quantities of medicines needed
 Uses the average medical supply procurement cost per attendance or bed-day in
different types of health facilities in one system to project needs for similar types of
facilities in another system
 Consumption Method
 Step 1. Selection of Essential Medical Supplies.
 Step 2. Total Consumption in a period.
Consumption = Opening + Drugs Received - Closing stock
Stock
 Step 3. Number of days out of stock.
 Step 4. Average monthly consumption.
 Step 5. Lead Time.
 Step 6. Safety Stock:
For calculation: SS = LT X CA
Where SS=Safety stock, LT=Lead Time, CA=Average Consumption.
 Step 7.Adjust for avoidable wastage and losses.
Consumption Recorded Avoidable
= -
adjusted for consumption wastage
avoidable wastage
 Step 8.Period of stock on hand.
 Price

 The price of an item in India is in Rupees ₹.

 Ideally the price list mentioned in District Guidelines should be used.
 If the price of an item is not on the list, then another reputable source of price should be used.
Examples are previous invoices, price lists and local price lists.
 Care should be taken to check that the price used corresponds to the pack size used in
quantification. If there is a discrepancy, an adjustment should be made.
DPCO 1995 CEILING PRICE FORMULA

Retail Price = (M.C + C.C. + P.M. + P.C.) X (1+MAPE/100) + E.D.

MC - material cost including drug cost

CC - conversion cost
PM - packing material cost
PC - packing cost
MAPE - Maximum Allowable Post-Manufacturing Expenses
which includes trade margin
ED - excise duty.
 Price Formulas/Calculations:

 To calculate the selling price or revenue R based on the cost C and the desired gross
margin G, where G is in decimal form:
 R = C / ( 1 - G)

 The gross margin is the Profit divided by the selling price or revenue R
 G=P/R

 So, the gross profit P is the selling price or revenue R times the gross margin G,
where G is in decimal form :
 P=R*G

 The mark up percentage M, in decimal form, is gross profit P divided by cost C.

 M = P/ C
 M * 100 will change the decimal to a percentage.
 Budgeting

 Proactive approach, rather than a reactive

approach to manage money.
 Basically, it's making sure that we spend
less than we bring in.
 Planning for both the short- and long-
term.
 Budgeting helps to make conscious
decisions about how to allocate money.
 Drug Budgeting

 Annual drug budgeting is a challenging.

Unanticipated situations that result in
extreme increases in drug expenditures
may occur.

 Pareto Principle, applies to drug

budgeting . A relatively small number of
drugs typically account for 80% of most
hospital drug budgets.

Source: Company filings/GEN

 Drug Budgeting
 Better data and more experience will improve a department’s ability to forecast
institutional drug expenditures.
 Data must underlie all types of planning to manage medication expenditures.
Systems should be established to have ready access to the data and continually
review and monitor these data
 It is essential to interact and collaborate consistently with physician leaders from
various specialties to successfully plan, prioritize, and implement medication-cost
management efforts
 Drug Budgeting
 ABC/VEN-analysis used for the investigation represents the simple and effective method of analysis of
medicine expenditures, identifying priority groups of medicines, the use of which, when improved, may
provide the greatest clinical and economic impact.
 VEN/ABC-analysis helps to prioritize between various medicines in their selection for procurement
and use within a drug supply system.
 A-Items are responsible for most of the budget therefore validating a number of these items will
validate a large proportion of the budget eg. Validate the consumption method for quantifying drugs
by making some estimates based on morbidity method.

Investment

Order quantity
 Conclusion

 The drug is link between the patient and healthcare system, The Quantification of drug
requirement is necessary estimating the requirement budget, fund, total cost, for effectively
running of drug procurement, supply chain and logistics.
The success of quantification can be improved by—
 A team approach to making assumptions and decisions and share information on—
 Potential changes in demand and prescribing practices
 Potential changes in rate of scale-up or roll-out
 Market intelligence—availability of product
 Epidemiological data sets and consumption data sets
 New science
 Successful problem-solving approaches (and failures)
 Cross-checking data, information, and projected needs
 Using ongoing monitoring of projected vs. actual needs to adjust assumptions
 References

 From Business dictionary, Excess 06-10-2016

Address: http://www.businessdictionary.com/definition/price.html

 From Calculatorsoup, Excess 06-10-2016

Address: http://www.calculatorsoup.com/calculators/financial/price-calculator.php

 http://www.businessdictionary.com/definition/pricing.html, Excess 06-10-2016