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Proposed drug pricing regulations

15 April 2004 Heidi Kruger

All stakeholders in the healthcare industry have long recognised the need for a transparent pricing system, which could create stability and reduce the cost of pharmaceuticals.

Act 101, which govern all medicines and related substances in South Africa, was amended in 1997 to initiate the process, appointing a pricing committee, which would recommend ways to establish a transparent pricing system for all medicines, a single exit price and a dispensing fee.
 
The regulations relating to this transparent pricing system were published recently and will be implemented on 2 May 2004. The Board of Healthcare Funders (BHF) is one of the stakeholders, which has provided its comments on the proposals. “The BHF has always supported the introduction of a transparent pricing system,” remarked Heidi Kruger, BHF Communications Manager. “We applaud initiatives to reduce the cost of drugs, but would caution against seeing this as a main driver in reducing the cost of private healthcare. Cost is but one of the elements of a complex equation in private healthcare expenditure.”

Single exit price
The regulations require all pharmaceutical manufacturers to establish a single exit price for drugs and to ensure that on 2 May 2004, this price be no more than 50% of what the drug cost on 16 January 2004.

Says Kruger that requiring all manufacturers across the board to reduce their exit price by 50% was unrealistic.  “This requirement assumes that doing away with the discounts and rebates that manufacturers give to the retail sector will enable them to reduce the prices by 50%.  BHF believes that these prices should be set on a company by company bases that than an across the board request to reduce by 50%. Considerable volumes of stock are held by retail pharmacists, dispensing health professionals and others in the supply chain,” she pointed out. “These would have been purchased at higher prices than that of the single exit price so sales will involve significant losses. This could threaten the survival of many such role-players.”
 
No professional fee?
“The regulations do not specify whether the pharmacists can charge an appropriate professional fee. Many pharmacists have significant handling costs, since certain provisions and standards must be maintained in storing and dispensing drugs.

She also points out that the lack of guidelines on setting professional fees could distort any gains the pricing committee could be trying to make. “Not being able to charge more than 24% of a drug which costs less than R100 could encourage members of the dispensing community to dispense higher-priced medicines or scheduled substances in order to maximise their dispensing fee,” she explained.

Set of rules
She stressed that the regulations should be better contextualised within other supporting legislation, such as changes to scopes of practice within the Health Professionals Act and the Nursing Amendment Bill, changes to the Pharmacy Act, the National Health Bill, the general regulations pertaining to Act 90 as amended and published during 2003, the relevance and relationship to Section 18a of Act 90 and provisions and requirements for dispensing health professionals.
 
The BHF also believes it important that the Department of Health should come up with contingency plans in the event of the large manufacturing companies leaving the country.
 
In conclusion, Kruger stressed that the pricing committee establish objective criteria and an appropriate format to assess impact on manufacturers and suppliers. Impact should also be measured against a reduction in doctors being able to dispense as well as the potential closure of certain retail pharmacies and remaining pharmacies picking up the slack.

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