Govt stalling on medicine supply reform as death toll rises

The system

The National Department of Health is responsible for the procurement, supply and distribution of pharmaceutical drugs and other medical supplies to all public hospitals, health centres and aid posts. Such supplies are grouped into two types, General Hospital Orders and Medical Kits.

For the general hospital orders a number of contracted suppliers deliver the medical products to one of five Area Medical Stores [AMS] located in Badili (Port Moresby), Wewak, Lae, Mt. Hagen and Kokopo. At the AMS the products are re-packed and sent to specific hospitals, health centres and aid posts . LD Logistics Ltd is the sole national distributor contracted to collect the packaged orders from the 5 AMS and delivers them to the health facilities.

The Medical Kits are intended only for Health Centres and Aid Posts. They are sourced from a single supplier, Borneo Pacific Pharmaceuticals Limited, a controversial firm featured in previous PNGi reporting. Borneo is responsible for delivering the kits to seven different seaports around the country. There are then four regional logistics companies contracted to pick up the kits from the ports and distribute them to medical facilities.

Within the NDOH, the Medical Supplies Procurement and Distribution Branch (MSPD) manages all the procurement and distribution of medical supplies.

Contract management

The audit report reveals a frankly pathetic level of contract management and monitoring within the Health Department.

According to the audit, neither the MSPD or Finance Management Services Branch perform any reconciliation of payments made, or purchase orders issued to suppliers, against the prices as agreed in the signed contracts. This means nobody is checking suppliers are invoicing or being paid the agreed contract prices and this ‘could result in overpayment’. [p11]

The audit also found that there is no management of outstanding purchase orders to chase suppliers to deliver the ordered products. At the time of the audit, the auditors found there were K184 million worth of orders pending supply and delivery to the AMS. Over 45% of those order had ‘been outstanding for more than 6 to 12 months’. [p11] No penalties or price reductions are applied for late deliveries.

“Failure to monitor orders requested from suppliers has resulted in poor deliveries significantly delayed by months.” [p23]

The audit also raises the suspicion suppliers are overcharging for delivery to some ports. This is because although it costs almost twice as much to ship goods from overseas to ports like Mt Hagen, Kokopo or Wewak as compared to Badili and Lae, suppliers charge the NDOH the same prices for delivery to any of those places. The audit says that in October 2016 a study by USAID urgently recommended NDOH insist suppliers separately account for their freight costs but this has never been implemented.

The same USAID study also allegedly found the average price paid by NDOH for medicines and other medical supplies from its suppliers was 243% higher than international reference prices even after adjustments for freight and other costs. According to the audit report, ‘this suggests that a large premium is being charged by local suppliers to deliver essential medicines and other medical supplies to the five AMS’. [p14]

The audit estimates the overpricing could have cost the government and taxpayers as much as K80 million in 2016 alone.

Incredibly, the audit also found that although all contracts entered into by the NDOH and service providers, require the suppliers and logistics companies to comply with the terms and conditions of their contracts and payment depends on satisfactory performance, ‘MSPD has not undertaken any evaluation of the suppliers’ performance, and does not have any specific documentation on this subject’. [p15]

“No penalties are laid on the suppliers for poor performance” resulting “in continuous poor performance.” [p24]

One of the reasons identified in the audit for the suppliers’ continuous poor performance is the fact ‘both major and minor suppliers maintain little buffer stock and routinely places orders with international manufactures leading to lengthy delays’. [p25]

_{TABLE: Payments to suppliers with a total value over K1 million}

Procurement and distribution

The procurement and distribution of pharmaceutical drugs and other medical supplies is the responsibility of the the MSPD. The MSPD is directly responsible for requesting quotes from at least three suppliers for contracts under K500,000 in value. Contracts over K500,000 are supposed to be referred to the Central Supply and Tenders Board to publicly tender.

The audit reviewed all purchase orders raised in the period January 2016 to August 2017 and found the NDOH is failing to plan ahead and buy in bulk so it can maximize its savings. Only 14 out of 10,249 of the reviewed orders were for amounts over K500,000. This also indicates the MSPD could be deliberately keeping individual orders below the threshold where there would have to be a public advertised tender.

The audit said the pattern of orders indicates a lack of proper planning, forecasting and accurate record keeping by the MSPD. This lack of a proper coordinated or systematic approach and general ‘bad planning’ results in ‘in paying very high prices to the suppliers’ and ‘could result in non-compliance with mandatory requirements of PMFA’ [Public Finance Management Act].  [p16]

The “failure to improve and address these issues have resulted in the continued worsening of unavailability of medical supplies”. [p16]

The audit also found the MSPD had generally failed to manage and monitor emergency or rush services rendered by logistic companies which ‘has resulted in late deliveries and payment of high prices’. [p17]

Where emergency or ‘rush’ orders are placed the distributer is paid at a higher rate for ensuring delivery within 24 hours. The audit reviewed four claims submitted by LD Logistics for emergency or rush services and found that delivery times varied from 2 days to 74 days. The audit concluded ‘LD Logistics Ltd is submitting claims to NDoH for emergency or rush services at higher than normal rates even though deliveries were not made within a day’. [p19]

The audit found major abuses of the Purchase Order [PO] process, with supplies being made before any PO was issued or approved, suppliers submitting pro-forma invoices, some with changes to unit prices made by hand and ‘multiple versions of POs, pro-forma invoices and quotations with little control over final versions and official documents’. [p20]

The audit concluded ‘Suppliers could abuse the practice of supplying goods without approved PO by sending medical supplies not required/ordered and claim that the deliveries would be eventually covered by PO at a later date’. [p20]

In the specific case of Borneo Pacific, the audit found ‘approximately K10 million worth of medical supplies were delivered during the middle of 2017 with[out] receiving any approved POs’.

The audit report states that the company claimed these were emergency orders or urgent requests from NDOH and they were told POs would be provided after receipt of proof of delivery. The company further claimed “From Secretary of Health to MSPD Officers, they are all aware of the arrangements and delivery notes had been given to each of them after deliveries were done”. [p22]

“It is a serious breach of GoPNG’s procurement policy as stipulated in the PFMA to obtain goods and services without receiving any approved PO.”

In another ‘serious breach of GoPNG’s procurement policy as stipulated in the PFMA’ the audit found ‘AMS are normally requested by MSPD to prepare receiving report for stocks they have neither received nor verified’. The audit report provides details of three specific instances of this practice, all relating to goods allegedly supplied by Borneo Pacific.

The audit attempted but failed to conduct an audit of the payment of suppliers claims by the NDOH. The auditors randomly selected 148 payment samples from the payments made to the logistics companies, and 110 payment samples from payments made to the suppliers. However, when they requested the payment documentation from FMS they received only 25% of the requested payment vouchers.

“Due to unavailability of significant majority of our Audit samples, we were not able to perform the required procedures and provide our fair test results”. [p45]

The audit was however able to note ‘there is a high chance that duplicate payments could have been made’ and ‘Internal Audit Branch of NDoH had compromised its independence and shared the responsibility of FMS to review the suppliers’ claims’. [p45]

Even after the audit, according to the report, senior mangers in NDOH were still failing to following the rules:

“Certain claims are still been forwarded to FMS for payment by senior management without being put through ECC [Expenditure Commitment Committee] for vetting and approval. This is a direct breach of payment policy put in place by Audit commissioned by Chief Secretary”. [p46]

Area Medical Stores Failings

The appalling lack of pharmaceutical drugs and medical supplies at hospitals, health centres and aid posts is not just the result of how the NDOH manages its central drug procurement and distribution contracts. The NDOH’s failures, according to the audit report, also extend to its management of the Area Medical Stores.

“NDoH has constantly failed to improve and address legendary challenges and issues at AMS [Area Medical Stores] level, ultimately resulting in continued worsening in the shortage of life saving and essential drugs.” [p26]

These challenges include minimal staffing, high absenteeism, no overtime pay, poor staff education, and poor stock record keeping at the Area Medical Stores level.

These conditions are made worse, according to the audit report, by MSPD:

• supplying orders very late, and after stocks have already run out;
• not ordering supplies based on the orders it receives from the AMS;
• supplying a ‘good number of drugs’ that are not needed and which are then stored until they expire;
• engaging different suppliers to supply the same stock and flooding the AMS with too many of the same items which then cannot all be used and expire;
• Area Medical Stores receiving drugs that are near-to-expiry, and having no capacity to test the medicines supplied.

LD Logistics

The audit records a number of issues reported by the Area Medical Stores in relation to the national distribution company LD Logistics Ltd.

LD, it will be recalled, is the company engaged by NDOH to distribute medicines and medical supplies from the five Area Medical Stores to hospitals, health centres and aid posts.

According to the audit report the Mt Hagen Area Medical Store reported [p27]:

• LD Logistics Ltd is not doing delivery to all hospitals, clinics, and health centres. Most of the times, the health facilities are sending their own transport to collect their orders as they could not wait any longer;
• LD Logistics Ltd is not delivering orders to clinics and health centres that are located in the remote locations;
• LD Logistics Ltd does not have full capacity to carry out deliveries to all health facilities throughout Highlands Region.

The audit report says Badili Area Medical Store also reported ‘negative feedback from the health facilities that their supplies are not delivered in a timely manner by LD Logistics Ltd’ [p29]. According to the audit, the Lae Area Medical Store reported ‘LD Logistics Ltd needs to improve its deliveries done through sea and air. Health facilities accessible by air and sea do not get their medical supplies on time’. [p30]

Even more seriously, a “handful of remote based health facilities reported that LD Logistics Ltd did not do any delivery at all’. [p34]

The audit concludes:

“Failure to monitor delivery services provided by LD Logistics Ltd has resulted in poor deliveries of medical supplies significantly delayed by months.” [p33]

“generally distribution services rendered by LD Logistics Ltd is poor and their service is frequently delayed.” [p34]

Compounding these issues, the audit also found the NDOH completely mismanaged the expiry of LD Logistics three-year national supply contract in November 2016. This mismanagement included a ‘failure to apply for an extension from CSTB in a timely manner’ and ‘failure to draw up a RFT [Request for Tender] and submit to CSTB for a superseding tender by July 2017’ and ‘not meeting deadline set by CSTB causing long delay in issuing the new tender by almost a year’. [p35]

As a result of this mismanagement, LD Logistics continues to be engaged by the NDOH, not under a new contract, but under ‘certificates of expediency’ and there has been an ’unbudgeted payment of K9.1 Million paid to LD Logistics from January 2017 to August 2017’. [p35]

In total, the audit found, LD Logistics was paid K84,234,130 by the NDOH in the period 2014 to 31 August 2017.

_{TABLE: Payments to LD Logistics Ltd}

Health facility findings

Papua New Guineas 21 public hospitals, 1,993 health centres and 771 aid posts act as the front line of the health crisis.

The audit team visited 28 health facilities around the country to interview managers and staff and inspect the site conditions. As with the Area Medical Stores, the audit concludes:

“NDoH has constantly failed to improve and address the legendary challenges and issues at Health Facilities level, ultimately resulting in continued worsening in the shortages of life saving and essential drugs.” [p31]

Critically the audit found on average, the health facilities receive approximately only 30% of the stock items they order from Area Medical Stores, and of that amount only approximately 30% of the total volumes or quantity ordered are received. In other words, health facilities receive only 3 out of 10 of the products they order and then only one-third of the quantity they need. That means each hospital, health centre and aid posts is only receiving 9% of the pharmaceutical drugs and medical supplies they need.

As a result, the audit report says:

“hospitals and health centres are spending monies intended for other operational costs on the medical supplies. Other primary health facilities simply turn the patients away without giving them any treatment.” [p31]

Unsurprisingly, the audit also found ‘the facilities particularly hospitals and health centres go through huge pressure to make sure common treatments are provided to the patients when they do not receive needed supplies’. [p32]

Official corruption

The audit report contains specific allegations of corruption against one senior manager, the facts of which, the audit alleges, were well known to the Department Secretary, but he had taken no action. PNGi cannot comment on the veracity or otherwise of the allegations, but this is what the audit report says:

During the course of the audit, the team picked up a correspondence containing complains constituting an official corruption nature lodged with Health Secretary, Mr. Pascoe Kase against Mr. Paul Dopsie-Executive Manager Corporate Services.

The letter dated 07 February 2017 outlining the allegations was sent to Health Secretary and Audit confirmed that it was received by Secretary’s Office on 7^th February 2017 and recorded on its 2017 Correspondence Register with ID number 54.

The letter was signed and sent by Mr. Harupa Peke, Managing Director of Global Customs & Forwarding Limited (GC&F Ltd) which was one of the logistics companies contracted to distribute 100% Kits in Momase Region a year ago.

The letter revealed that Mr. Peke had personally paid cash directly to Mr. Dopsie on several occasions to favourably facilitate the payments for the Company’s claims. Based on the copy of the signed Letter from GC&F Ltd dated 07^th February 2017, a total amount of K265,500 was paid between December 2014 and September 2016 to Mr. Dopsie.

We also learnt that the Office of Health Secretary has not independently investigated this allegation to confirm its authenticity and provided any appropriate response to GC&F Ltd. The Audit checked with NDoH’s Internal Audit Branch and noted that the allegation has not been referred to their attention. 

Surprisingly, after we picked up the referred allegation letter from Health Secretary’s Office, we were contacted and advised by Mr. Peke that Mr. Dopsie contacted him on 2^nd of October 2017 and on his request they met at Mr. Dopsie’s Office, Aopi Haus, Waigani at 4:30pm. Audit was told that during the meeting, Mr. Dopsie requested Mr. Peke to write another letter to retract the initial letter he wrote containing allegations made against Mr. Dopsie if he wanted to be awarded the NDoH contract which his company bided. Mr. Peke emailed (on 5^th October 2017) us the copy of the signed retraction letter together with another letter which was also written by him and presented to Mr. Dopsie stating that if his company was not awarded the contract he would pursue this referred allegation again. 

Further, we noted through a letter dated 11^th October 2017 that was cc’d to Chief Secretary, Health Secretary replied to Mr. Peke on his retraction letter. We contacted Mr. Peke on 26^th of October 2017 and was advised that he has not received any letter with regard to the response to retraction letter from Health Secretary yet.

Based on above findings, Audit is satisfied that there is sufficient material evidence and available first-hand witness to warrant further investigation into official corruption allegations lodged against Mr. Dopsie. 

Mr. Dopsie is a Senior Public Servant and occupies an esteemed and influential Position within National Department of Health (NDoH). Any decision or action taken by him would directly affect the provision of vital medical commodities that are procured and distributed to health facilities throughout PNG for the benefit of the citizens. Based on the referred allegation, his actions constitute an intentional misconduct in office for a personal gain and this would have contributed to the medical supplies shortages and other related problems currently faced by the health facilities in the country. 

The abuse of power qualifies as a serious breach of Public Finance (Management) Act (PFMA) 6.(1) a and b. (2) As Accountable Officer, and the National Public Service, through the Public Services (Management) Act and the Code, require that: (a) An officer shall not obtain or seek to obtain from any person (including another officer or Member of Parliament), any property, benefit or payment over and above the officer’s normal remuneration, or any favour, on account of any action done or not done in fulfilling his or her official duties.  Thus, Mr. Dopsie is subject to appropriate disciplinary charges under these and other relevant laws if found guilty.

As it is serious in nature, Audit requests that Mr. Paul Dopsie be immediately suspended under Section 52. (1) (2) (a) (b) (i) or (ii) and (3) of Public Services Management Act so that a full investigation will be completed by the Audit in relation to allegation laid against him.

If it is correct that no action to suspend, refer or investigate Mr Dopsie has yet been taken by the Minister or Department Secretary, such a delay could legitimately bring into question the reasons behind this reluctance to act and cast a possible shadow over the conduct of Mr Kase and the Minister.

Audit recommendations

The most critical and urgent recommendation made in the audit report is for the procurement function of the NDOH to be outsourced.

“With an urgent need to have an effective and efficient procurement and distribution of medical supply system, procurement function of NDoH must be outsourced by GoPNG.” [p3]

The audit recommends this be done in two stages, which it refers to as ‘short term gap filling’ and ‘longer term strategic approach’.

In the short term, the audit advises the government to seek donor assistance to provide an Inline Procurement Specialist to oversee the day to day procurement functions – whilst implementing the ‘immediate’ key recommendations from the Audit Report.

The audit also recommends the current MSPD staff be removed from their current portfolios and replaced with interim staff. This is necessary, according to the audit ‘to allow the Inline procurement specialist to be able to implement immediate improvements without hindrance’. [p3]

In the long-term the audit recommends the establishment of an ‘outsourced Procurement Centre’ to reduce overall costs and provide independent and transparent procurement specialists. It is unclear whether this is intended to be government run or a private enterprise.

In addition the audit report identifies a further 26 recommendations with ‘high priority’ for ‘immediate implementation’ by NDOH.

_{TABLE: Further High Priority Recommendations from the Audit}