• Report from the AG’s Nat. Audit Office finds a tangled web of gross procedural irregularities & systemic procedural shortcomings 

A recent audit conducted by the National Audit Office (NAO)/Auditor General’s (AG) Department on the requirement, procurement, supply, distribution, and regulation of medicines in 2022 and 2023 (last year), has uncovered irregularities and systemic shortcomings, thrusting into stark relief the inefficiencies and lack of transparency within the system. 

Shocking revelations have emerged, revealing that the Government incurred additional costs totaling over Rs. 709 million due to emergency purchases made without comprehensive consultation on the relevant information regarding 11 essential medicines. Another cost of Rs. 167 million was attributed to the cancellation of orders related to the procurement of four medicines, purportedly due to redirection to local manufacturers. These findings paint a picture of mismanagement and oversight, prompting urgent calls for accountability and remedial action.

The report highlights that following the approval of the Cabinet memorandum submitted by the then Minister of Health (Keheliya Rambukwella), in September and October of 2022, emergency drug purchases were initiated due to insufficient medicine stocks. Suppliers were selected using both the expression of interest (EOI) method and the unsolicited proposal method. At this time, the health sector had received $ 200 million under the Indian credit line, and the Ministry of Finance, Economic Stabilisation and National Policies, had introduced more lenient procurement guidelines tailored for these emergency purchases.

Although the suppliers were selected using the aforementioned methods, the absence of a technical evaluation committee (TEC) to assess the drug suppliers meant that drugs were purchased without a proper evaluation of their quality based on advanced technical aspects. The report also notes that, according to the National Medicines Regulatory Authority (NMRA) Act, No. 5 of 2015, all medicines should be registered with the Authority, which can issue waivers of registration (WOR) certificates only in specific and crucial circumstances. These certificates, which require a fee, have, according to the report, been issued under an accelerated mechanism, deviating from the established procedure. The then Chief Executive Officer (CEO) of the NMRA is found to have personally granted approval instead of following the established procedure of evaluation through a TEC, thus deviating from the Authority's primary objective.

Despite the arrangements to purchase 285 pharmaceutical drug items through the EOI method and 38 items through unsolicited proposals under these emergency purchases, the report states that no attention was given to the stocks of medicines expected from orders placed through normal procedures when determining the required quantity. The audit revealed that steps were not taken to make optimal decisions considering working capital related requirements, resulting in certain medicines being received in excess of the requirement during that period. Furthermore, certain medicines were purchased as emergency stocks at significantly higher prices compared to those purchased through normal methods, yet, these emergency stocks had not arrived even by the time the stocks ordered through normal processes were received.

Controversy has emerged regarding specific medicines procured under emergency purchases during the relevant period, and the audit focused its attention on one such medicine, Human Intravenous Immunoglobulin 5-6 g, which was found to be counterfeit according to the NMRA's documents. The report states that Isolez Biotech Pharma AG Limited, the supplier of this medicine, claimed that it was imported and supplied from India, but information from the Imports and Exports Controller General and the Customs revealed that the Company had not imported it. Furthermore, the Indian manufacturing company cited by the supplier confirmed that they did not supply the medicine. Given these discrepancies, the audit suggests that this pharmaceutical product was illegally manufactured in Sri Lanka by Isolez Biotech Pharma AG Ltd, violating the relevant provisions of the NMRA Act.

The report states that the relevant parties failed to fulfil their responsibility of conducting quality testing of medicines before purchasing, providing, and distributing them to patients. Despite the sensitive nature of these items, which are critical to human life, this crucial step was neglected. Additionally, due to the failure in properly evaluating and completing the medicine-related files submitted by the suppliers to the NMRA for registration within the stipulated 300-days period, the audit reveals that there had been a shortage of formal suppliers for medicines. Consequently, orders were placed with unregistered suppliers, relying on letters of WOR. Furthermore, the report states that the audit could not confirm that evaluations were conducted properly and impartially, as certain medicines were evaluated and approved in less than two days, significantly shortening the standard evaluation timeframe.

During the economic crisis in the country, the report states that there was a tendency to use the limited local currency for imported goods without fully leveraging the provisions available under the Indian credit line, which offered concessional terms. The audit observed that insufficient attention was given to potential working capital and foreign exchange related challenges. Consequently, a crisis situation arose in the health sector during 2022-2023. This crisis was attributed by the audit report to poor management in the health sector, a lack of effective coordination between the relevant institutions, the failure to ensure that the necessary information for making correct and rational decisions was provided, and the absence of a proper stock control system.

It was noted that an additional cost of Rs. 709,149,099 (Rs. 709 million) was incurred by the Government due to emergency purchases made without consulting all the relevant information regarding 11 medicines in a sample audit inspection. Consequently, it was recommended to conduct a formal investigation to identify those responsible for this oversight. The report states that the Government should seek to recover the additional costs incurred and take disciplinary action against the responsible officials. It was also found that an additional cost of Rs. 167,717,935 (Rs. 167 million) was incurred due to the cancellation of the orders related to the procurement of four medicines. These cancellations are said to have been associated with the redirection to local manufacturers of medicines. It was recommended that appropriate measures be taken, including further investigations, to address this issue and take necessary actions against the responsible parties.

Although the NMRA, established to provide authentic, safe, and high quality medicines to the public, issued WOR certificates based on the recommendation of a technical committee in the past, the report states that such reports had been issued under a special pathway, deviating from the standard procedure. Considering the matter, it was recommended that an investigation be conducted and legal actions be taken against the relevant officials including the then NMRA CEO who recommended this special pathway. This pathway allowed medicines to be brought into Sri Lanka without adhering to the minimum methods required to confirm their quality, thereby putting patients at risk. Additionally, the AG recommended that legal action be taken against the Governing Board that approved the related deviation.

In situations requiring suppliers to be exempted from registration in emergencies, the NAO recommended to issue WOR certificates in accordance with the existing rules, emphasising that it is crucial to verify the quality of medicines and take necessary measures to prevent any irregularities in the issuance of such waivers, ensuring compliance with accepted formal methods. It was also recommended to address the shortcomings and deficiencies of the National Medicines Quality Assurance Laboratory and to elevate it to the level of an accredited international standardisation Laboratory. Priority should be given to confirming the quality of medicines used for patients by testing samples at various stages, the report suggested, including in the registration, importation, and storage of medicines.

The report further recommended that law enforcement agencies take further action against the supplier following a formal investigation into fraudulent actions and the serious endangerment of patients' lives during the procurement process of five medicines, including IVIG and Rituximab, as well as the supply of medicine stocks. In the process of calling for EOI and carrying out procurements of medicines, including IVIG, on an unsolicited basis, it was recommended to conduct further investigations and take legal actions against those responsible for allegedly overriding Cabinet decisions, improper technical evaluations, providing recommendations beneficial to suppliers, and prioritising payments for two fake medicines.

In the process of blacklisting companies and organisations that have provided substandard medical supplies, it was recommended that the Finance Ministry Secretary, the Registrar of Companies, and the Procurement Commission should promptly take action to blacklist the owners of such companies and organisations using identity documents such as national identity cards or passports, so as to prevent them from resupplying medicines under different names. It was recommended to develop a structured programme to expedite and formalise the registration process for medicines conducted by the NMRA. This programme should prioritise the Government's medicinal requirements to prevent issues arising from inefficient registration processes and the accumulation of pending files.

The establishment of an online computerised system that links related agencies such as the Medical Supplies Division (MSD), the State Pharmaceuticals Corporation (SPC), the Customs, and the Imports and Exports Control Department with the NMRA was recommended. The report states that such a system would enable the cross checking of all documents, including registration and WOR certificates, related to medicine clearance during the importation process. Additionally, it was recommended to implement an accurate stock management system based on reordered stock levels through a scientific method. The report states that the proposed system would help reduce the lead time for obtaining medical supplies, accurately forecast medicinal requirements for Government hospitals, determine reorder levels precisely, and maintain reliable, updated data systems, and eventually facilitate the timely submission of annual orders.

It was recommended to assess medicine shortages not only based on the available balance stock indicated on a specified date by information systems, but also taking into account pending orders from suppliers, the likelihood of receiving those orders, the monthly usage of the medicine, and other relevant factors. The NAO pointed out in the report that efforts should be made to obtain pending orders from suppliers before resorting to emergency procurement, and that immediate steps should be taken to fulfil general annual orders that have not been completed. If emergency purchases are deemed necessary despite these measures, and if such emergencies result from negligence or the inefficiency of officials, it was recommended that disciplinary actions should be taken against them. Furthermore, any losses incurred by the Government due to emergency purchases were recommended to be recovered from the responsible officials. Due to the breakdown of effective communication and coordination among interconnected institutions such as the Health Ministry, the MSD, and the SPC, the report states that various problems have arisen, and, as a remedy, it was recommended to take necessary steps to establish a formal mechanism to build strong coordination among these institutions.