Medicine price reform will, on average, save consumers between 13% and 15% this year compared with 2003 prices, says the Department of Health, saying that pricing reform is working.
Medicine costs a total R13-billion and R3-billion annually in the private and state sectors respectively, suggesting that patients are saving about R2-billion a year if the government’s estimates are correct.
While unable to provide overall price savings, the Department of Health says illustrative examples of top-selling medicines show that its attempts at preventing excessive pricing are working.
For example, combination analgesic drugs (such as paracetamol and ibuprofen), the country’s top-selling drug category, cost on average R52 in 2003.
Based on inflation, this medicine would cost R58 in 2006 without government interference. With the new, tiered-fee dispensing system in place, these drugs cost R47, a saving of 18%.
Antibiotics cost R203 in 2003. In 2006 they cost R224 based on the old system and R161 in the new system, a saving of 15%.
“It is understandable that pharmacies don’t like the new system and that they would prefer a free market so they can charge whatever they like,” says Anban Pillay, director of the Department of Health’s Pharmaceutical Economic Evaluations.
“When the price of medicine comes down, it is bad news for pharmacists. The higher the price of the medicine, the more money they make out of it.”
Without a tiered-fee dispensing system in place, the department says, all medicine would be considerably more expensive.
Pharmacies challenged the right of the government to regulate prices, claiming it to be unconstitutional. Last September, the Constitutional Court ruled in favour of the dispensing fee, but said the government had to take input from the industry into consideration.
Currently, pharmacists are allowed to charge a dispending fee of a maximum of 26% of government’s regulated price, called the single-exit price, up to a maximum of R26.
Last week the government announced a new four-tiered pricing structure, which allows a set fee plus percentage depending on the single-exit price. The minimum fee the pharmacist can charge is R7 plus 28% on an item less than R75. The maximum is R31 plus 3% on items more than R250.
The Department of Health says it balances the lowest possible cost to the patient (affordability) with pharmacies remaining viable (availability) in determining fees.
Too cheap and the pharmacies will go out of business; too expensive and people would stop buying, thus limiting availability.
Although pharmacies argued that the government’s involvement is unconstitutional, the Department of Health is adamant that a free market cannot work.
“This is an industry that has been built on perversities. The idea that the healthcare industry is there to benefit the patient is in fact a falsity,” says Pillay. “It is a system that has been able to extract as much as possible from those who are in greatest need.”
In 2002, the World Health Organisation (WHO) compared prices of drugs in countries that have little or no regulation in place.
It looked at the price of Superfloxin, a drug used for sexually transmitted diseases, and found that the pharmaceutical industry set its price depending on what legislation exists in that country. “If there is no legislation, they charge you an arm and a leg,” says Pillay.
In a study with Health Action International, a European-based NGO that assists developing countries to gain access to medicines, the WHO showed prices in countries without regulation are often markedly higher.
The study showed that Amoxycillin, a drug used to treat infections, has an average cost of R61 at the manufacturer level in countries with little or no regulation. The wholesaler’s price was R93, while the retailer (usually a pharmacy) charged R161, meaning the patient paid on average 2,5 times more than the manufacturer’s price.
The Department of Health intends monitoring the effectiveness of the new system by means of a price database, which will provide consumers with free information regarding the trade name, ingredients, price and cost effectiveness of each drug.
“South Africa will be the first developing country that will have this system in place,” says Pillay.
Although there are practical challenges (many South Africans do not have access to the Internet, for instance), the department is optimistic. “We will be briefing on a tender for the database very soon,” says Pillay, adding that the service will be also available via SMS and cellphones.
Rakesh Daya, chairperson of the South Africa Progressive Pharmacists Associations, is pleased about the combination of fixed rate plus a percentage. “We are glad that there is finally a draft and will use the one-month commentary period to review it in detail.”
Clive Stanton, president of the Pharmaceutical Society of South Africa, is equally positive. “We are extremely comfortable with the proposed mixed-fee tiered tariff. I believe it is a major step in the right direction because the formula looks at the correct price both at the bottom end of the scale and at the top.”
How it works
Proposed four-tiered dispensing fee:
- If the single-exit price of the medicine is less than R75, the dispensing fee is calculated: R7 plus 28% of the single-exit price
- If the single-exit price of the medicine is between R75 and R150, the dispensing fee is calculated: R23 plus 7% of the single-exit price
- If the single-exit price of the medicine is between R150 and R250, the dispensing fee is calculated: R26 plus 5% of the single-exit price
- If the single-exit price of the medicine is greater than R250, the dispensing fee is calculated: R31 plus 3% of the single-exit price