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Sonsonala (A)
Young, David W.
Functional Area(s):
   Finance/Financial Management
   Management Accounting
   Developing Country
   Health Policy
Difficulty Level: Intermediate
Pages: 3
Teaching Note: Available. 
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Sonsonala (B)
First Page and the Assignment Questions:

Carlos Delgado, Undersecretary of Finance in the Ministry of Health of Sonsonala, a small Central American Republic, emerged from his weekly meeting with the Minister more harried than usual. He had just been given the assignment of preparing a financial plan for the country's essential drug program. The Program, called PEAR (Pharmaceuticas Essenciales para Areas Rurales), was a joint undertaking of the World Health Organization (WHO) and the Ministry, and was designed to provide for essential drug distribution throughout the entire area of the country, focusing in particular on rural communities.

According to the Ministry's strategy, PEAR was to utilize a network of community pharmacies and be financed by means of a revolving drug fund. Foreign lenders had indicated an interest in financing both construction of the pharmacies and the initial working capital requirements of the fund, but, because of internal timing requirements, they had told the Minister that the formal request for funding needed to be ready in one week.


Sonsonola, with an area of about 15,000 square miles, had a population of 5 million inhabitants, 70 percent of whom lived in rural areas. The country's Gross Domestic Product was $1.3 billion 1, or about $260 per capita, with an inflation rate of some 24 percent a year. Its infant mortality rate was 120 per thousand live births, and communicable diseases, such as malaria, tetanus, diarrhea, worms, and measles accounted for some 30 percent of all deaths, particularly for children under 5 years of age.

Because of this mortality pattern, the Ministry of Health had identified the country-wide distribution of essential drugs to children as a high priority activity. A listing of the 9 most significant infant and childhood diseases and the corresponding drug requirements are contained in Exhibit 1. By focusing on these 9 diseases, the Ministry felt that it could make significant improvements in both infant and childhood mortality.

Although almost everyone in the urban and semi-urban areas of the country had reasonable access to a pharmacy, many individuals living in rural areas did not. As a result, the Ministry needed both to convince the country's approximately 100 existing pharmacies to carry the essential drugs shown in Exhibit 1 (in addition to the analgesics, balms, and brand-name drugs that they currently stocked) and to develop community pharmacies in rural areas. As might be imagined, the approaches to these two situations differed considerably. While the attempt to convince existing pharmacies to carry essential drugs was an important aspect of the Ministry's overall strategy, Sr. Delgado had little information to work with. He decided therefore to concentrate his analysis on the development of community pharmacies, and to extrapolate from that information to the potential implications of cooperation and participation from the existing pharmacies.


According to the Ministry's survey of the country's rural areas, there was a need for approximately 230 community pharmacies, each of which would serve a population base of . . .


  1. For the 9 diseases and drug regimens shown in Exhibit 1, what is the projected total pharmaceutical cost for the country? if this were determined to be too much, what options does the Ministry have in order to reduce it?
  2. Assuming the total cost calculated in Question 1 is acceptable, and using the data given on annual operating costs, what percentage markup is needed in order to assure the financial viability of the community pharmacies?

1 All figures are in U.S. Dollar equivalents