Lead Author: Christopher F. Palombo
Organization: DoH
Country: USA


There is an unprecedented opportunity to transform global access to medicine without significant change to the interests of manufacturers, while serving the needs of the 2 billion people worldwide who lack access. Across the world, there is a large volume of unexpired, usable and regulatory-compliant medicine surplus within every country’s healthcare distribution system, all of which is incinerated due to a lack of coordination and partnership. Should the right attributes be present within a country, that surplus can be redirected internally from waste to need.

An increase in chronic illness in the developing world has compounded the volume of the challenge of lack of access to medicine. Yet, Medication Surplus Recovery is a policy problem that has been given very little attention. The opportunity is massive – in the United States, where there are 30 million low-income uninsured people, over $100 billion in generic medication is sold, with billions more manufactured and incinerated due to oversupply. In the U.S., a collaboration between drug manufacturers and hospitals has demonstrated a transformation in medication access – resulting in a public health impact of shortened hospital length of stay, decreased Emergency Department utilization and hospital readmissions, as well as significant hospital cost savings. Since 2010, the DoH has collected $80,776,290 worth of donated medication. This medication is then distributed to healthcare facilities across the nation.

The United Nations has the opportunity to make Medication Surplus Recovery a policy priority, and to facilitate collaboration between manufacturers, distributors, and the providers serving those who lack essential medicine. Scaling Medication Surplus Recovery initiatives could play an important role in expanding access to essential medicines – a critical component for countries seeking to improve population health. The work can be organized in a matter of months, and incur considerable cost savings due to replication of tested concepts.


Medication Surplus Recovery is an underutilized opportunity. Medication Surplus needs to become a policy priority of the United Nations for the following reasons:
• There is a moral responsibility for leaders in the commercial and political space to identify opportunity and host collaborative solutions to solve large-scale social problems.
• The model of Medication Surplus Recovery is tested and tried. The DoH model has been successful for over a decade.
• Data is available demonstrating the opportunity of waste, the need of the poor, the value to the donor, the costs associated with dispensing, and the impact of the medication when applied to population health goals.
• Replication is prepared. The DoH has processes, systems, documents, and expert staff prepared to provide open source access to suitable partners. The replication toolkit is available, capturing an enterprise which required an investment of over $10 million in expense over 12 years to create, undergoing four quality improvement review processes, and including the ideas and test results from dozens of knowledgeable contributors.
• Relationships are in place with several of the most important multi-national drug manufacturing organizations. The DoH has found donor organizations to be ethical, engaged, and willing to take the opportunity to collaborate for important societal goals. While these relationships are not “scalable” in the way replication documents may be, the right relationships are in place to host meaningful exploration of a good idea.

Previous regulatory efforts addressing medication surplus and international distribution were often a narrow-scope treatment of a specific challenge, or a single issue rather than systemic policy approach. One example is policy addressing the dangerous unregulated flow of expired, near-expired and/or clinically inappropriate medications between well-meaning wealthy regions and into countries that faced need. The policy guidance, the WHO in Guidelines for Medicine Donations, 3rd Edition 2010, put in place an international best practice which supported sustainable distribution of medication. Guideline 6 requires 12 months of product life for donated medication shipped between counties, and for large donations, an assurance that the need match the donation. This resulted in a reduction of short-dated medication shipped internationally, but has not yet resulted in the international growth of in-country Medication Surplus Recovery systems. One of the most important policy benefits of the Medication Surplus Recovery opportunity put before the UN is its efficiency - for in-nation donation of the surplus medication specified above, there are no current systemic regulations, except those governing its shipping over national borders, and that which addresses the environmental impact of its destruction. The slate is clear form a policy perspective to expand this model.

THE IMPACT – Globally, mediations are being destroyed which could be used to improve public health. It is standard practice to produce medication with two to three years of available “life” before expiration. It is also standard practice in the developed world to continue to sell these medications up to the point at which medications are no longer viable for purchase by major wholesale distributors, that typically being 14 to 6 months before expiration. At that point, the medication no longer has adequate time for typical distribution by major wholesale distributors, who will pass on purchasing the product and instead will opt to purchase longer-dated product from competing manufacturers. The result is that public health remains unimpacted by a usable and regulatory acceptable supply of medicine.

The drug manufacturing process, like any manufacturing process, has some level of inefficiency. Production levels for drug manufacturing may be forecast a considerable time before medication meets actual wholesale market demand. Further, drug manufacturing is a highly competitive industry where licensing, government relations, distribution, and capital intensive specialized manufacturing plants mean that forecasts may not always align with market demand. One way to hedge against lost revenue due to inadequate supply is to produce and/or import at a level which is at the highest possibility for potential sales. This tactic may be more efficient than attempting to strike an exact supply/demand balance. Further, the cost of active pharmaceutical ingredients (API), chemicals used in the production of medication, represent just one minority part of the total cost of medication production. With a larger cost for medication nested in the value chain (logistics, marketing and sales, contracting and service), the low marginal cost per pill provides incentive to hedge by achieving the highest likely range of production and importation, even considering the destruction expense of unsold inventory. Thus, the cash cost of potential medication surplus is considerably less than the opportunity cost of underproduction.

Compared to other industries, surplus production may occur more readily in the generic manufacturing industry due to the competitive marketplace. Manufacturers frequently lose customers, which makes for opportunities to utilize surplus. Similarly, global supply chain disruptions also open opportunities to use surplus. Thus, medication surplus is available in every nation as surplus native manufactured inventory, and/or as surplus imported inventory. Both sources result in surplus, and therefore a viable supply of either incinerated waste or newly leveragable value. In the context of the United States, Nearly 80% of all prescriptions written have a generic alternative - many of the chemicals used to treat chronic illnesses – are those which are overproduced and over-imported result in wasted opportunity. The volume of overproduction and over-importation amount to billions of dollars annually.

THE SOLUTION - To draw the value from this surplus supply, DoH operates as a consortium of leading drug manufacturers, hospital systems, charity pharmacies and clinics, funders, supporters, and evaluation partners. Previously, some of these partners worked as quasi-adversaries, with supply levels and pricing negotiated between manufacturer, distributor and healthcare provider. Now, by working together in support of solutions identified and agreed upon by all stakeholders, surplus medication at risk of waste is redirected to solve the need for medication access. The partnership is free to solve the manufacturer’s concern over surplus, the hospital’s concern over need, and solve both institutions’ concern for vulnerable patients.

This model and its guiding collaborative complements the free-market drug manufacturing system as well as the World Health Organization’s best practice guidelines, neither undercutting the commercial interests of industry, nor utilizing surplus across national lines; hence there is no risk of expired medication transfer nor economic collapse of national free market distribution systems. For the manufacturers, modest government incentive is offered in return for their donation to the poor, based on fair market value credit subtracted from tax responsibility. For the dispensing partner, government subsidy is offered to nonprofit corporations which dispense the medication to serve those without access. Next, this model makes medication available to those who were previously priced out of the self-pay medication market and were unable to afford essential medicine, thereby serving those in need with stable, high-quality medication, without undercutting customer markets. Since each patient provided medication is qualified according to manufacturer-endorsed criteria, DoH can work with its partners to assure that the right medicine is going to the right patients in the right way.

In 2015, $1.3 billion in medication (WAC valuation) was offered by drug manufacturers to the DoH, with a substantial number of the U.S. drug manufacturing industry offering donation. The total offered was many times more than the DoH could distribute - the sum in 2015 of $13.9 million, resulting in 123,588 patient encounters. By 2020, the total distributed will more than quadruple, while the expense to run the operation carries an overall cost of $2,508,044, a scale that will be comfortably able to distribute $50,000,000 annually. By 2020, the DoH will return substantial annual value to its stakeholders return on investment of $18.79 in donated medication distributed to the poor for every $1 in operating expenses. After 2020, that return on investment will be even higher.

IMPACT ON PUBLIC HEALTH: In the United States, DoH is growing in order to meet the need, demonstrating that Medication Surplus Recovery is a viable alternative to incineration of surplus, and therefore to address the challenges of chronic illness. In the U.S., public coverage programs for the elderly (Medicare) and the poor (Medicaid) provide millions with access to medication. Yet, the 30 million uninsured do not qualify for public coverage, and cannot afford insurance. Over 40 percent of the 30 million uninsured in the United States are chronically ill, and half report forgoing healthcare, include prescription medication to treat their illness. This resulting lack of timely healthcare results in increased use of the Emergency Room, increased hospitalizations, and lowered overall health status. The typical patient for the DoH tends to be chronically ill and working poor, with one or two jobs held by someone within the household, yet living below 200% of the U.S. Federal Poverty Level, and who seek healthcare from clinics and hospitals due in part to a lack of access to affordable medication.

The US is not the only nation that has surplus, and chronic illness. Chronic illness is a global problem, with rates of chronic illness rising in developing countries. Heart disease, diabetes, adult asthma, and depression/anxiety all are common and require stable access to pharmaceutical treatment, and all have been found, as described below, to be impacted by stable access to DoH medication.

Not all surplus medication is equal. While there are over 10,000 compounds sold each year in the U.S. as prescription and “over the counter” medication, only about 300-500 chemicals and strengths are identified by the DoH as “essential” – providing the broadest possible benefit to the most people, targeting the most common chronic illness such as asthma, diabetes, hypertension, hyperlipidemia, depression, and anxiety. The DoH works with its dispensing site partners to identify and modify the target drug list, making certain that it is compatible with the identified needs of the region’s low-income, uninsured residents. The DoH formulary is driven by requests of doctors and pharmacists participating in the network.

Having access to the right 300-500 medications is a good start, but for patients with chronic illness, it is also important to ensure that access is never disrupted. Many illnesses require medication levels to remain constant in the bloodstream. Transition to a new drug can be disruptive for a patient, and the resulting impact can negatively affect a person’s livelihood, relationships, and long-term health. A drug distribution effort must provide its partner pharmacies and clinics with compounds, medication strength, and unit packaging which is stable and appropriate for the dispensing partners. The DoH has worked to implement a number of business practices to achieve stability in supply of chemical compound, strength, unit packaging, and other variables. First, the DoH targets donor redundancy for each compound and strength, with an ideal of several manufacturers for each. Redundancy in donors ensures that each target medication has several potential sources, should any one manufacturer have an inadequate supply, or should need outpace minimum acceptable product dating. Further, the DoH has established agreements with manufacturers which allow the organization to request and receive supplies of product when surplus supplies are inadequate to cover demand. This allows the DoH to reach into the future and address critical gaps in surplus product availability before items become backordered. Next, the DoH maintains a 20,000 square foot, state-of-the-art, secure inventory warehouse, which allows DoH inventory managers to stock supplies of medication in advance of a need, and keep inventory on hand to satisfy demand. Finally, the DoH makes good use of technology to assess the ideal quantities of medication to have on hand. The data algorithm combines ordering history, site behavior, additional site usage, and data on the availability of medication, stocking adequately to satisfy need without overstocking, which would result in cost to the program. These components work together to ensure that a consistent supply of medication to patients can be mined from an inconsistent supply of surplus product. Great effort is invested into sourcing the right medications, and providing those medications in stable supply. This leads to the highest impact possible on chronic illness.

IMPLEMENTATION: Medication overproduction and over-importation goes beyond any single nation, and is a global aspect of industry. According to the U.S. Food and Drug Administration, the global market for generic medications will be over half a trillion U.S. dollars by 2018. According to USA Today, 80% of that production consists of Active Pharmaceutical Ingredients (API) which are manufactured overseas, and 40% of the finished medication product is manufactured internationally, mostly in the nations of China, India, and Brazil. The surplus is present for drugs, in all therapeutic classes, treating all disease states. If the medication is available globally to treat a condition, then either by overproduction or over-importation, the surplus exists.

The U.S. is not alone in the need for essential medication combined with a waste of medication resources, and the DoH’s learnings are replicable in other counties. For this model to be effectively replicated in an international context, the DoH believes that four conditions must be present within a country: 1) Surplus - a supply of medication must be available either through native manufacturing or source country import and distribution (though both provide opportunity and the absence of native manufacturing does not negate the need for surplus recovery). 2) Security - a supply chain must be in existence, with trustworthy and efficient in-country shipping, reputable partners to dispense the medication to those in need, and supply lines that have manageable levels of oversight to mitigate drug diversion. 3) Suffering - there must be demand, coming from a significant population of vulnerable people who cannot access essential medicines, either through coverage or self-pay, but need access. 4) Subsidy – a tax or a market-driven incentive system that rewards donor altruism and is accessible, fair, stable and dependable. This can be creatively applied to suit the needs of the pharmaceutical company donor - structured as a tax credit, or any other form of cash or noncash remuneration for a company’s service to the vulnerable. When these four attributes are at work, manufactures are more likely to consider participating, and a model such as the DoH is more likely to be successfully replicated in the context of a new nation. These conditions are currently present in dozens of industrialized and developing countries.

EVIDENCE: The impact of the DoH model has been found to be outstanding to reduce cost and improve health outcomes. DoH was evaluated in 2015 by the Advisory Board Company, an international consulting and research company that serves 99 of the 100 largest US hospital systems and 30 of the largest international drug manufacturers. The Advisory Board Company reviewed 2.5 years of data form three pharmacies and three hospitals in the U.S. state of Tennessee. Enrollment into one of the DoH-supplied pharmacies was the critical “intervention,” and the data was compared, using a “pre-” and “post-” enrollment (into DoH donated medication program), a longitudinal analysis of patient’s timeline as they flowed through care, and a review of high utilizers of hospital care. Researchers then compared findings to the NYU Algorithm (Potentially Preventable ED Visits), AHRQ Algorithm (Ambulatory Care Sensitive Admissions), and the 3M Algorithm (Potentially Preventable Readmissions, and Potentially Preventable Complications. As a result, the DoH was found to provide: 1) reduced length of hospital stays for those previously without access to medication but now served by the DoH, 2) reduced need for emergent care facilities, and 3) reduced hospital readmissions for those who have accessed their medication. Further, specific improvement was found in chronic illnesses such as diabetes with ketoacidosis, cardiac disease, and respiratory disease. Overall, the DoH program reduced both the cost and the utilization for the low-income uninsured patients, resulting in a savings per 1,000 lives for hospitals of $2.08M.

The DoH model demonstrates that people, regardless of income, can have a substantial increase in access to the medicine that they need. This expanded access is based on sustainable systems - multinational drug manufacturing companies which host the surplus, and hospitals and their associated clinics and pharmacies, which host and fund the dispensing activity. The result is that this solution is scalable to other nations, and utilizes the same mechanisms and value chain solutions used by for-profit drug provision. Further, the DoH is designed to be financially self-sustaining, with the manufacturers providing the medication from their surplus and planned giving inventories, and with dispensing sites funding both the dispensing of medication, and the costs associated with Medication Surplus Recovery. Participation from the manufacturers and the hospitals are therefore critical to this effort, and the resulting collaborative model and its operating systems are funded through their work.

Bibliography and References

• DoH Summary Video - https://vimeo.com/153332531

• Trefis Team. Why are Generic Drug Prices Shooting Up? Forbes, February, 2015

• World Health Organization, Guidelines for Medicine Donations, 3rd Edition, 2010

• DoH assessment based on industry surplus review, 2014.

• Total US Sales and Total Generic Sales - Institute for Medical Informatics, 2010 Report “The Use of Medicines in the United States” 2010

• US Food and Drug Administration. Generic Drug Products: Moving Forward in a Global Environment.

• Kaiser Commission of Medicaid and the Uninsured. Prescription Drug Trends. May 2010 Fact Sheet.

• USA Today, As Drug Making Goes Global, Lack of Oversight Found. October, 2012

• The Uninsured: A Primer. Kaiser Commission on Medicaid and the Uninsured. January, 2015

• Uninsured Americans with Chronic Health Conditions. Key Findings from the National Health Interview Survey. Robert Wood Johnson Foundation. May, 2005