1. 1 Practical Challenges on the Medicine pricing Regulations Presentation to the Portfolio Committee on Health By the National Department of Health 16 November 2004

2. 2 Key Issues  Single exit price for medicines  Fee for wholesalers, distributors  Fee for dispensing of medicines  Transparent pricing system  No volume discounts, rebates or bonuses.

3. 3 Pricing Committee  Committee appointed in 2003  Researched the operations of the pharmaceutical industry in SA  Prepared draft regulations for Ministers considerations  Reviewed comments from stakeholders  Amended and published final regulations in April 2004.

4. 4 Directorate Pharmaceutical Economic Evaluations  Establishment of the Directorate Pharmaceutical Economic Evaluation in the Cluster Pharmaceutical Policy and Planning.  Directorate responsible for implementation, monitoring and advise on strategic planning  Structure and functioning of the Directorate based on international models.

5. 5 Pharmaceutical challenges facing South Africa The public spends R3 billion on medicines for 38 million South Africans. The private sector spends R13 billion on medicines for 7 million South Africans Many employed South Africans cannot buy medicines in the private sector simply because the prices are out of reach.

6. 6 Interventions used Internationally to promote access Pricing policies  Generic substitution  Reference pricing  Performance based pricing Promoting appropriate use of medicines -EDL, STGs Volume control

7. 7 Interventions targeting manufacturers  Removal of discounts, rebates and other perverse incentives from the 2003 manufacturer price  International Benchmarking  Reference pricing  Economic analyses

8. 8 Interventions targeting Wholesalers and pharmacists  A fee for wholesalers/distributors  A fee for pharmacists

9. 9 Implementation of Regulations  Liaison committees established with major stakeholder groupings  Phased approach to implementation – web page, hotline  Constant monitoring of prices and impact of the regulations on all stakeholders in the supply chain.

10. 10 Calculation of the dispensing fee Guiding Principles in setting the fee:  Reimburse pharmacists for professional services rendered  Simple for the consumer to understand  Cover the costs of dispensing  Discourage profiteering from dispensing of high cost medicines  Schedule 0 medicines should be excluded from the pricing regulations

11. 11 Pharmacy Council Procedure Codes for Dispensing  Review prescription - 2 units  Picking and labelling of medicines – 1 unit  Handing medicine to patient plus counselling – 3 units  Total of 6 units  1 unit = one minute

12. 12 DATA ANALYSIS  PSSA report (bar graph) confirms that after discounts pharmacists margin is 20%.  Data from IMS, Mediscor and Medikredit analysed to determined the overall margins of retail pharmacies.  Analysis suggests that an overall retail markup of approximately 24%.  Additional 2% for stockholding

13. 13 Meetings with the PSSA  August 2002 – advise PSSA that DOH will be setting a dispensing fee. (Dr Zokufa/Pillay)  October 2003 – request for data on overhead costs, number of scripts, expected remuneration. (Data task team)  26 April 2004 – request for raw data – Task Team appointed by Minister  7 May 2004 – second meeting about data required  19 May 2004 – raw data on financial statements only supplied to NDOH. Other data requested still outstanding.  TWO WEEKS LATER WE ARE TAKEN TO COURT

14. 14 What about the Actuaries report?  Data is from only 81 pharmacies (3%) – NDOH was not provided with the raw data despite requests.  Limited to the period 1 March 2003 – 31 May 2003  Actuaries do not provide any assurance about the data – “conclusions affected by data accuracy”  Actuaries recommend longer time period, other data sets incorporated and alternative scenarios tested.

15. 15 The Auditors Report The only raw data the department has received from the PSSA is UNAUDITED financial statements from 176 pharmacies The Financial statement relates to the entire pharmacy not just the dispensary. The pricing regulations only affect the dispensary within a pharmacy!

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18. 18 What did the PSSA propose? Drug less than R50 (SEP): Dispensing fee = R25 plus 25% Example - drug with an SEP of R10 will cost R37.50 since the pharmacist will get R27.50 Drug greater than R50 (SEP): Dispensing fee = R25 plus 12.5%

19. 19 Estimated Savings to Patients IMSA study suggests that the potential savings to patients is in the region of 19% which is estimated to be worth 2.3 billion These are ex-manufacturer price comparisons. The consumer has not been able to extract the full benefit of these savings due to admin fees. This savings has to translate into lower medical aid subscriptions.

20. 20 Interim Relief and Pharmacists BHF study involving data from majority of administrators suggests that pharmacists have been making much more than even the dispensing fee they have asked for! Average dispensing fee for acute – 47.68% Average dispensing fee for chronic – 42.31%

21. 21 What has happened since the court ruling in favour of the Minister  Pharmacists have started to charge administration fee  NDOH has emphasised that this is contrary to the spirit of the regulations  The administration fees seem to vary and are clearly unrelated to the cost of any administration  NDOH IS LOOKING AT AMMENDMENTS TO STOP THIS PRACTICE.

22. 22 Are retail pharmacies closing down? How do we assess the validity of this claim? FACTS VERSUS EMOTION Survey of the incomes and expenses of the dispensary only. (300 required to date only 80)  Submitted to the retail pharmacy stakeholders for comment.  Survey will assess whether the claim is valid  What is the reason for the loss? (scripts, rent, dispensing fee, other overheads)  If the dispensing fee is inappropriate then what should the fee be given the items dispensed and expenses?

23. 23 Are retail pharmacies closing down? Data on number of pharmacies opening over the past 3 years: 2002 186 2003 150 2004 105(Jan – Sept) Data on number of pharmacies closing over the past 3 years: 2002 160 2003 129 2004 55 (Jan-Sept) (Source: SAPC)

24. 24 NOT ALL RETAIL PHARMACISTS SUPPORT THE PSSA APPROACH Pharmacists from disadvantaged communities distance themselves from the court action. Acknowledge that the PSSA has not been co- operative with NDOH. Most pharmacists are nor aware of the quality of the data supplied by PSSA. Embarked on a policy of co-operation with the NDOH. Supplying the data as required by NDOH. Embrace the objectives of the NDP and partner NDOH to achieve objectives of the policy.

25. 25 What about VAT? Pricing committee recommended that Department of Finance review the possibility of removing VAT on medicines. Dept of Finance investigating this issue. Challenges: Will the removal of VAT result in a 14% reduction in medicine prices? Alternatively can we use VAT on medicines to promote access to medicines?

26. 26 OECD Countries OECD Countries How have the OECD countries responded to the increased cost of pharmaceuticals?  introduction of a transparent pricing system,  policies to influence physician prescription behaviour,  introduction of generic drugs policy,  development of formularies and guidelines,  introduction of price controls and/or profit controls  Fixed fee for wholesalers  Fixed fee for dispensing

27. 27 Thank You