Don’t pop the champagne yet

A question put to me by a radio talk-show host last week suggested that the government’s publication of regulations to keep down medicine prices was an election ploy intended to win over voters.

It would be rather stupid of the government not to do this before the election. But the truth is it’s been a long time coming.

Let’s reel the film back a bit to the jubilation outside the Pretoria High Court a few years ago as multinational drug companies capitulated in their legal action against the government. Only one company, Pfizer, did not joined the court challenge.

The government could now put in place legislation to keep drug prices down, something it had intended doing since coming to power in 1994. The Medicines Act was promulgated. To give it life regulations were needed — and these have now been published.

The law seeks to remove what economists call “perverse incentives” (to you and me, corruption) throughout the system, so that these do not enrich players along the food chain at consumers’ expense.


It was designed to promote generic medicines over the expensive originals and take the profit motive out of dispensing by doctors and pharmacists. It also aimed to make the system transparent and accountable by setting a single exit price from the factories to end backhanders and discounts, setting up a pricing committee to ensure scrutiny by, and accountability to, a public body, and installing a mechanism to ensure that if Australia and the United States could get a cheaper drug than here, we should be able to import that drug more cheaply.

Somewhere along the line the fight took on the character of a fight for cheap Aids drugs, but that was not its original intention.

Generic drug manufacturers have put the time taken to prepare and publish regulations to good use — for their shareholders, not consumers. Generic prices have increased startlingly and at much higher rates than brand-name drugs.

Meanwhile, medical schemes, administrators, managed-care companies, large retail pharmacists and others, using other laws where they can, but employing mainly the good old market, have changed the face of who gets what on that food chain.

Most medical schemes and administrators have designed “formularies” — lists of drugs they will pay for. These largely steer medical scheme members in the direction of generic drugs, but also towards other commercial arrangements.

We now have managed-care companies, which see to it for schemes, pharmacies and drug companies that the benefits are appropriately managed. Often the profits in this type of arrangement are not reflected in medical scheme accounts, but in those of the other entities involved, making it harder for the Council for Medical Schemes to keep track of the money.

These organisations can use considerable financial muscle to manipulate the price of drugs.

Medscheme’s pharmacy benefit management company reports that the prices of brand-name drugs have dropped to match those of generics on the formularies. Discovery, a comparative latecomer to the formulary game, can also point to large gains in this area. It has used the very simple market device of asking drug companies to tender on price for a place in the formulary. Guess what — manufacturers dropped their prices.

Medical scheme members, however, have not felt these benefits in their pockets. Administrators and schemes say it would have been much worse for them without the measures — but that is cold comfort for members, whose drug bills continue to occupy one-third of the annual spend on health care among medical schemes.

A major culprit is the hospital industry, which uses its own muscle to make large profits on the drugs it dispenses. This is a warning bell for all the new measures.

New animals have emerged in the drug profit food chain: pharmacy benefit management companies, administrators, large retail pharmacy groups. Some older players will lose out here, including community pharmacists, dispensing doctors and perhaps wholesalers.

But until we are able to track the discounts and profits that are not finding their way into consumers’ hands, I would hold off popping the champagne corks.

The Medicines and Related Substances Act was always going to be a good piece of legislation for South Africans. Now it has more flesh on it. But it is partly up to us to make it live up to its intentions.

Pat Sidley is the head of communications and education at the Council for Medical Schemes

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