From an equity or financial protection point of view, out-of-pocket payment is undesirable. As a form of financing it is a source of citizen dissatisfaction and a contributor to poor health outcomes. But as this review of financing options suggests, fiscally hard-pressed governments in low- and middle- income countries do not have many other options to finance the costs of medicines, given citizens’ demand for pharmaceuticals. Out-of-pocket financing for medicines also creates a series of incentives (up and down the supply chain) for inappropriate use. Dispensers have every reason to stock and push more profitable products, including onpatent medicines, well-known originator brands now off-patent, and wellestablished and branded generics. All are likely to have higher prices and margins, compared to the lowest-priced generics. Another example is customer desires for medicines that are not consistent with principles of rational use. Why not sell a customer less than a full course of antibiotic treatment, if that is what they want or is all they can afford? Because of the profits to be made, distributors and manufacturers have strong incentives to offer financial inducements to enlist the cooperation of retail sellers to increase the sales of their products. These can be based, for example, on the volume of sales that retailers produce for a wholesaler’s product line, or on the amount of visible shelf space they devote to a particular product. The incentives can take the form of rebates, discounts, or cash bonuses—payments that in other contexts might be labeled bribes or kickbacks but which may not be illegal, depending on national law. In effect, frontline medicine sellers are in the same position as traditional herbalists (and many of their modern medicine counterparts) in Asian countries who both prescribe and dispense medicines and depend on medicines sales for much or most of their income. That situation has led to efforts to separate dispensing from prescribing for physicians in the Republic of Korea; Japan; and Taiwan, China, because of the conflicts of interest inherent when dispensing and prescribing are combined in the same individual or institution. Studies of cash-and-carry systems in the public sector reveal some of the same tendencies seen in the for-profit sector for dispensers (and central stores managers) to promote high-margin products and the overuse of some medicines to raise total revenue (Govindaraj and Herbst 2006). Similarly, subsidized drugs, which provide little or no profit, can be underused in cash-and-carry public systems, as sellers have no economic incentive to encourage their purchase. Such questions have been raised about the effect of the new global subsidy for artemisinin-based combination therapies (ACTs) for malaria. These new antimalarials are being sold cheaply in the private sectors of many Financing the Pharmaceutical Sector
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