The transformation of the pharmaceutical industry, both in terms of ensuring the quality of medicine and reducing prices of drugs at manufacturing, distribution and retail industry levels has been the most challenging part of the transformation process in the health sector so far.
Following broad and intensive consultation, the government passed the Medicines and Related Substances Act in 1997 to provide a legislative framework for improving access to affordable medicine. This entails making the entire pricing system on medicine more transparent and capping the prices where necessary. While seeking to reduce the prices at manufacturing and distribution levels, the interventions also sought to remove any incentive that encouraged prescribers and dispensers of medicines to issue more expensive medicines to recoup a better percentage margin.
A total of 38 major drug companies were the first to launch an attack by taking the government to court questioning the constitutionality of the government’s intentions to regulate this industry. This litigation halted any progress towards achieving our transformation goals. It took almost five years — from 1997 to 2001 — for them to accept the legitimacy of our actions, both in terms of our own Constitution and international trade agreements that we are party to. Because of the long delay, the government was forced to make amendments to update certain sections of the Act.
The manufacturing industry has since taken a more constructive approach by engaging with the government and presenting the necessary data to support their argument through consultative processes facilitated by the Department of Health during the drafting and finalisation of regulations under this Act.
At least two major drug manufacturer’s organisations — Innovative Medicine SA and the National Association of Pharmaceutical Manufacturers — were last week reported to have taken a decision to comply with the medicine pricing regulations.
Their commendable stance came in the middle of the debate where those opposed to the government’s efforts to reduce the prices of medicine expressed their determination not to abide by the medicine pricing regulations set by the government. They argue that last month’s decision by the Supreme Court of Appeal, which set aside the pricing regulations, stands despite the appeal process lodged by the Department of Health at the Constitutional Court.
Ordinarily, when a higher court has decided to consider an application for leave to appeal, the decision of the lower court is suspended until the higher court rules on the matter. This thesis is based on a general judicial rule that any appeal to a higher court suspends the decision of the lower court.
Unfortunately as a young democracy, we still have a few in our society who are yet to be convinced that the Constitutional Court is the highest court in this country, particularly on this issue that has been argued on constitutional grounds by both parties since the beginning of the case at the Cape High Court earlier last year.
Also during last week, one of the main opponents of the medicine pricing regulations, New Clicks, reported a 25% increase in the company’s turnover for the four months ending December last year. The company said one of the main contributors to this improved profit was its wholesale pharmaceutical distributing division, which grew its turnover by 34,5% to R943-million. ”The pricing regulations proved to be favourable for the division, since pharmacists had moved away from stocking large amounts of medicine,” the company chief executive Trevor Honeysett was quoted as saying in Business Report.
It appears as though at least two levels of the drug distribution chain — manufacturers and wholesale distributors — are generally adapting to the new dispensation and some are already reaping the benefits of the government pricing regulations.
Over the past year or two, there has been resistance to this transformation process at the third level of the drug distribution chain, which is responsible for delivering the medicines directly to the consumer — the dispensing doctors and pharmacists.
Some dispensing doctors were vehemently opposed to the new policy of licensing dispensing health professionals with the aim of ensuring that health professionals who dispense are competent and adhere to good standards of practice.
The matter is now awaiting the ruling of the Constitutional Court and, in the meantime, these professionals are generally complying with the law. The Department of Health has issued thousands of dispensing licenses.
The opponents of the transformation process within the retail pharmacy industry initially argued that the dispensing fee that can be charged by pharmacists was too low and would therefore undermine the viability of this industry. In subsequent arguments in court on this matter, they questioned not only the dispensing fee set by the government, but also the whole idea of regulating prices to improve accessibility to medicine. Highly priced medicine is preferred because of better returns when using a percentage mark-up system. The lowering of medicine prices to benefit the consumer is therefore bad news for those who have built their business models on this practice.
The Department of Health has no reservation in discussing the appropriateness of the current dispensing fee with the retail pharmacy industry. If information that requires the recalculation of the current dispensing fee becomes available, the department can engage in that process. We have said the dispensing fee will be reviewed every year in line with the appropriate economic indicators.
This means that the current dispensing fee, which became effective last year, will have to be revisited and adjusted accordingly during the course of this year.
We set up a task team to consider the concerns of pharmacies. The task team requested concrete evidence from the Pharmaceutical Society of South Africa (PSSA) and New Clicks to substantiate their concerns. Instead of providing this evidence to the department, Netcare, New Clicks and PSSA chose a difficult path by taking this matter to the Cape High Court.
Unhappy with the proceedings at that court, the group took the unprecedented step of applying for an appeal directly to the Supreme Court of Appeal in Bloemfontein — even before the Cape High Court could make its ruling whether to grant leave to appeal.
The issues of transformation of our judiciary that this case has raised have been discussed widely. It is clear that these groups are keen to fleece medical aids through high dispensing fees without any regard for the poor patient who is going to end up exhausting his or her medicine benefits before the end of the year.
Managed HealthCare Systems (MHS), a company contracted by pharmacists to come up with an alternative medicine pricing structure to that set by the government, has advised the pharmacists to charge a dispensing fee of between 15% and 50%, plus a fixed fee of between R5,50 and R40.
The MHS pricing structure will result in pharmacists earning close to three times more than what they were receiving even before the implementation of government pricing regulations.
When applying government pricing regulations, a pharmacist would simply add 26% on the manufacturer’s price for medicine costing R100 and below.  Where the single exit price is higher than R100, a maximum of a R26 dispensing fee can be charged.
The role of civil society in defending their rights of access to health cannot be overestimated. Our people can exercise their right to access affordable medicine. They can do so by refusing to pay unjustifiable fees that some pharmacists are adding on to the price of medicine. They can also opt for pharmacies that are complying with the regulations such as Dis-Chem, Pick ‘n Pay Hypermarket pharmacies, Shoprite MediRite pharmacies, the Van Heerden Pharmacies Group and other individually owned pharmacies.
This is an edited version of a piece by Minister of Health Manto Tshabalala-Msimang, which first appeared on the website ANC Today on January 21