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Room for interpretation

23 April 2004 Angelo Coppola

This is the first in a two part series.

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 governs 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.

So much for the background. The regulations relating to this transparent pricing system were published recently and will be implemented on 2 May 2004.

"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.

One element

“Cost is but one of the elements of a complex equation in private healthcare expenditure."

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.

To date it has been difficult to establish the real cost of any drug because of the complex system of discounts, rebates, bonuses and incentives used by manufacturers in selling to their broad spectrum of clients.

"The Pricing Committee has not clarified the wording used to describe the single exit price," commented Kruger.

Some confusion?

"This could lead to confusion and misinterpretation. It has also based its proposals only on price lists contained in the Pharmaceutical Blue Book, which is only one of several pharmaceutical price lists published.

“However, we support the attempt to establish a single pharmaceutical price list which is electronically published and maintained."

She added however, 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%.

Individual treatment

BHF believes that these prices should be set on a company by company basis ratherthan 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."

She suggested that the pricing committee consider a limited period of time to phase in the new regulations.

The 50% reduction could also affect the continued operation of manufacturers in South Africa, which in turn will negatively impact on the supply of medicines, with serious consequences for medical schemes and hospitals.

Generics vs ethical

Many manufacturers conduct research and development and clinical trials in South Africa. This is factored into the exit price of drugs. However, some manufacturers, specifically generic manufacturers, do not have these costs.

Halving the exit price of drugs whose manufacturer has included research and development costs would be very different for the manufacturer who has few or no such costs.

Many manufacturers have indicated that they would not be able to continue operation in South Africa if this regulation were to be implemented.

Mark-up regulated

The new pricing system establishes percentage mark-ups for pharmacists and those licensed to dispense drugs, and for wholesalers and distributors.

If the single exit price of a drug is less than R100, the pharmacist may charge a dispensing fee of 24%.

More tommorrow...

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