ACFE Insights Blog

Strengthening Preventive Strategies Against Product Diversion in India's Pharma Industry

The Indian pharmaceutical sector is increasingly facing a formidable challenge — the diversion of institutional drugs to retail markets.

By Anuj Choudhary, CFE April 2024 Duration: 2-minute read
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The Indian pharmaceutical sector is increasingly facing a formidable challenge — the diversion of institutional drugs to retail markets. This issue, predominantly orchestrated by sales representatives and stockiest, is eroding market integrity and posing risks to public health and ethics.

Institutional drugs, usually offered at significant discounts to healthcare facilities, are being diverted to retail markets for higher profits. This trend not only incurs financial losses but also contributes to corruption in the retail sector.

This blog is a follow up to the previous insight published in May 2023 on ACFE Insights and focuses on preventive strategies, rather than investigative experiences.

Core Preventive Strategies

  1. Robust Stockiest Agreements: Implementing agreements with zero-tolerance policies to discourage diversion is crucial. Regular audits and stringent compliance checks are essential.
  2. Binding Anti-Diversion Contracts: Contracts that restrict distributors from selling outside assigned channels and assigned areas, backed by severe penalties, are necessary.
  3. Rotational Policy for Sales Representatives: Rotating representatives across different regions and therapeutic areas can help prevent collusion and fraud.
  4. Comprehensive Reconciliation Processes: Adopting reconciliation processes akin to GSTR-1 for secondary sales can aid in identifying discrepancies early.
  5. Data-Driven Approaches: Utilizing analytics to monitor sales patterns and detect anomalies is key.
  6. Enhanced Due Diligence on Business Partners: Conducting thorough risk assessments on all business partners to identify and mitigate potential diversion risks.

Additional Control Measures

  1. Transparent Inventory Management: Implementing real-time inventory tracking systems to prevent unauthorized product movement.
  2. Training and Awareness Programs: Educating employees about the ethical, legal and business implications of product diversion.
  3. Whistleblower Policies: Encouraging the reporting of unethical practices with adequate protection and incentives for whistleblowers.
  4. Collaboration with Regulatory Bodies: Staying updated with regulatory changes and compliance requirements through active collaboration with authorities.

Preventing product diversion requires a holistic approach, combining legal, technological and educational strategies. By adopting these measures, pharmaceutical companies cannot only protect their operations from fraud but also uphold market integrity and public health.

The author's views are entirely personal and do not represent those of any affiliated organization.