Practical Challenges on the Medicine pricing Regulations

1
Practical Challengeson theMedicine pricing
Regulations

• Presentation to the
• Portfolio Committee on Health
• By the National Department of Health
• 16 November 2004

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
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
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
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
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
Interventions targeting manufacturers

• Removal of discounts, rebates and other perverse
  incentives from the 2003 manufacturer price
• International Benchmarking
• Reference pricing
• Economic analyses

8
Interventions targeting Wholesalers and
pharmacists

• A fee for wholesalers/distributors
• A fee for pharmacists

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
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
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
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
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
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
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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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
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
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
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
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
Are retail pharmacies closing down?

• Data on number of pharmacies opening over the
  past 3 years
• 186
• 150
• 105(Jan Sept)
• Data on number of pharmacies closing over the
  past 3 years
• 160
• 129
• 55 (Jan-Sept) (Source SAPC)

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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
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
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

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Thank You