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Streamlining drug procurement at appropriate levels of the health system, Tamil Nadu
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Subject Area="Logistics." Objective="Drug supply"
Details for Reform Option "Streamlining drug procurement at appropriate levels of the health system, Tamil Nadu"

Action: Tamil Nadu State Government set up the Tamil Nadu Medical Services Corporation (TNMSC) in 1994 to be the sole purchaser and distributor of drugs to government medical institutions in the state, in an effort to make significant cost-savings and ensure a regular supply of quality drugs to its health facilities. Items available from TNMSC are listed in a booklet and follow an Essential Drugs List, based on the World Health Organisation model, which is distributed to all doctors, nurses, pharmacists and to post graduate institutions. The items are available from a warehouse designated for each district. In addition, doctors hold an emergency fund to purchase other drugs. The institution is given a pass book which details the funds it is allowed to spend that year on medicines and surgical items, based on the previous year’s outpatient and inpatient attendance and also the number of surgeries performed. If they need additional supplies, additional funds can be requested from TNMSC. On a fixed date each month, it can draw drugs from the warehouse and the transaction is noted in its pass book as well as in a duplicate pass book kept at the warehouse. The warehouse also enters the transaction on a computerised database which links directly with TNMSC’s headquarters. In this way the HQ knows exactly the quantity of drugs in each warehouse at any one time. Drugs are stored by date order so those closest to expiration date are used first, minimising wastage. Procurement system: The procurement is done through open tender, with certain minimum criteria for eligible bidders and a strict lowest price policy. TNMSC deals directly with the manufacturer or importer of the drug, cutting out suppliers and middle men, and visits the place of manufacture before awarding a contract. It also tests all drugs delivered to the warehouses and does not pay the manufacturer until the tests have been completed. Contract duration is one year. Outsourcing of services: TNMSC makes use of outsourcing wherever feasible. This has included annual contracts for operation of the electronic data processing/software system, transport of supplies from warehouse to hospitals and health centres and drug testing/quality control. Results: There have been a number of independent external evaluations to confirm the operational and cost effectiveness of the system. These have been financed by DANIDA. TNMSC supplies drugs to 11,059 facilities in Tamil Nadu from 24 warehouses (September 2004). The bulk buying/streamlined/prompt payment advantages of the system have resulted in significant cost-savings (see power point presentation in documents). For example: One Ciprofloxacin tablet cost INR 168 in 1998-99 and cost INR 82 in 2003-04. The cost of a Paracetamol tablet has fallen from INR 13.14 in 1998-99 to INR 12.4 in 2003-04. In the financial year 2003-04, total value of drugs purchased by the TNMSC was INR 12,14,200,000. Quality control: The percentage pass rate of drugs tested has risen from 96.73% in 1998-99 to 98.9% in 2003-04.

Cost Dependent on the size of the state and the number and size of the warehouses that need to be constructed. The Tamil Nadu system is completely self-sustaining. All profits are used to improve/extend facilities and services.
Place Tamil Nadu, functioning since 1995.
Time Frame One year: to register company, draw up drugs list and construct warehouses.

Cost-effective: Generates considerable revenue/ savings through: (i) Rational drug management (introduction of an essential drug list). (ii) Streamlining tender procedures and contract management with manufacturers/importers. (iii) Introducing a comprehensive transportation/distribution system (suppliers deliver directly to warehouses). (iv) Close monitoring and auditing to avoid systemic losses such as pilferage and tampering. (v) Bulk buying for all hospitals in the state rather than each buying their own at different rates. (vi) Outsourcing, including drugs testing; data processing; security. TNMSC is a very lean organisation. Transparency: Clear purchasing system. All drugs labelled with TNMSC logo. Quality control: All drugs tested before they are paid for. Manufacturers who repeatedly supply ‘bad’ drugs are blacklisted. Patient/Doctor satisfaction: Ensures a constant supply of quality drugs to medical institutions.


Opposition: Possible opposition from private sector and other groups with vested interests and a threat of legal action by suppliers who lose tenders.


An independent agency exclusively designed for procurement. Warehouse system. Drugs list. To implement successfully, there has to be a strong political will and commitment to absolute transparency.

Who needs to be consulted

State government, specifically heads of all health and family welfare departments. Government laboratories. Drug controller. Hospitals.



Excellent. The scheme is completely self-financing and TNMSC charges a handling fee of 1.5% and laboratory charges on all supplies to cover costs. It is allowed to charge 5% to fund the administration but has to date (2004) never needed to charge more than 2.25%. As the Company’s Act does not permit profit orientation, TNMSC finances new initiatives and projects with the revenues it generates.

Chances of Replication

Good with modifications. Several other states are following or learning from the Tamil Nadu model (Andhra Pradesh, Orissa, Rajasthan, Gujarat, Karnataka, Assam).


The system is so successful that the state government has asked TNMSC to extend its services. It supplied 3,078 items of medical equipment to Government institutions between 2002-04 using a similar procurement system. It also runs several user-fee wards at Government hospitals, charging significantly less than private facilities. The construction department (established to build the warehouses) has constructed 8 Urban Health Posts, 21 Health Sub Centres (HSCs) and upgraded 35 Primary Health Centres and 70 HSCs. See power point presentation for further details.


Submitted By

Indrajit Pal, Former Programme Advisor, European Commission Technical Assistance, New Delhi. July 2002. Last updated September 2004.

Status Active
Reference Files
PROD27-1.jpg Drug warehouse at Anna Nagar, Chennai
PROD27.jpg BIN Card
PROD27-2.jpg Entering data into the centralised system
Reform Ideas at Work.doc
TNMSC power point.ppt TNMSC power point presentation 2004.
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