Pharmaceutical cost recovery programmes, which have been mainly implemented in Africa, are gradually spreading to Southeast Asian countries that formerly belonged to the socialist bloc. This report describes the economic and operational realities of revolving drug funds (RDFs) at district hospitals and health centres in the capital of the Lao PDR by reviewing research conducted by the implementing department.

People in the municipality spent an average of US$11 on drugs in 1996. The RDFs comprised only 3% of the total yearly drug sales in the municipality, whereas private pharmacies accounted for 75%. The RDFs were forced to operate in conjunction with the remaining government drug endowment and the thriving private pharmacies. This scheme has provided a stable supply of essential drugs. The assurance of drug availability at the front-line health facilities has resulted in increased utilization of the facilities despite the introduction of a drug fee. The cost recovery rate was 107% at health centres and 108% at district hospitals in two monitored districts during the 10 months from November 1997. Decentralized financial management was essential for cost recovery, allowing timely adjustment of selling prices as purchase prices rapidly inflated after the Asian economic crisis. The health staff observed that the people perceived drugs as everyday commodities that they should buy and take based on self-diagnosis and personal preference.

Adaptation of the public health authorities to market-oriented thinking along with the establishment of pharmaceutical cost recovery occurred with few problems. However, both financial and operational management capacity at the municipal level pose a major challenge to policy clarification and scheme setting, especially in procurement, control of prescribing practices and the integration of drug dispensing with other components of quality clinical care.