Finalisation of regulations on medicines pricing

22 April 2004

In January this year we published draft regulations on a transparent pricing system for medicines and invited comment over a three-month period. We have had extensive comment and rigorous debate and I have this week signed off on the final regulations.

The whole purpose of the Medicines Control Amendment Act of 1997 - the law that governs these regulations - is to make medicines affordable to the people of our country and to improve practices relating to the manufacture and sale of medicines. These regulations are a landmark in terms of reducing the price of medicines. The changes are extremely far-reaching, And, I want to say to the public, that the results will not be instant, but a year from now you will look back and appreciate when the tide began to turn in your favour.

The regulations will appear in the Government Gazette next week. I want to take this opportunity to end speculation and give stakeholders and the general public a good idea of what to expect. We have listened closely to the input from interested groups. The Department of Health received more than 90 written submissions. And a total of 70 presentations - each lasting more than 2 hours - were made to the Medicines Pricing Committee. All this information has impacted on the final formulation.

Principles remain unchanged
The principles of the transparent pricing system as contained in the draft regulations remain unchanged.
· Central to the system is a single exit price set by the manufacturer for every medicine.
· Equally important, is the introduction of a professional fee for dispensing services. This replaces a system of commercial mark-ups.
· The regulations retain a strong theme of mandatory disclosure of information relating to pricing.

Significant changes in the method
While the cornerstones of the regulations have remained unmoved, there have been significant revisions to some aspects of the regulations. The comment process really yielded a wealth of information that was previously not available to the Pricing Committee and the Department. And this information has resulted in new formulations that we believe to be more fair and more workable.

The method for setting the single exit price
The draft regulations required that manufacturers set the single exit price at 50% below the official listed price contained in a publication known as the "Blue Book".

The final regulations specify that:
· The level of the exit price will be determined on a product-by-product basis.
· The single exit price will be determined in two phases.
In Phase 1 the single exit price will be the net price at which a medicine is currently being sold.
In Phase 2 the benchmark for the single exit price will be based on an international price, calculated according to a prescribed formula.

Phase two will probably commence at the end of this year or early 2005.

· New products will use international pricing as the benchmark from the date of launch.

This change in approach rests firmly on the hard evidence we secured during the comment period - information we had never had access to before --of hugely different mark-ups across pharmaceutical companies. In a few cases, products were selling below the international average. At the opposite end of the spectrum, products were selling 80% above the international price. Clearly it was not fair and it simply wouldn't work to impose a simple, undifferentiated formula across the board.

The fee for wholesalers and distributors
The draft regulations proposed a controlled fee for wholesalers and distributors that would be added on to the single exit price.

The final regulations determine that the wholesaler's and distributor's charges will be incorporated into the single exit price. The downward pressure exerted on the exit price will also be exerted on the wholesaler and distributor charges as manufacturers attempt to negotiate the best possible rates.

The fee for dispensing services
The draft regulations proposed a series of dispensing fees for pharmacists and for other dispensing professionals. This proposal remains essentially unchanged and the details of percentages and flat rates will appear in the Government Gazette late next week.

What this means for the public is that the consumer price of any medicine will be really simple to calculate. It will simply consist of the single exit price - printed on the medicine package -- plus the maximum dispensing fee. The man or woman in the street will easily be able to tell where overcharging occurs and the law is being flouted.

The status quo of schedule 0 (over the counter) medicine remains the same.

Submission of information
The requirements on submission of information have been simplified without sacrificing the principle of transparency.

Timescales for implementation
The regulations contain revised timescales for implementation:
· On May 2 discounting by manufacturers, wholesalers and retailers will become unlawful.
· By May 26 the list of single exit prices must be lodged with the Director-General and sales must be effected at these prices.
· Within 90 days of May 2 the regulations must be fully implemented, with audited single exit prices in operation.

This means that outlets in the supply chain will have time to sell existing stock and to move to the new system in a coherent way.

Concluding comments
The new system will take some time to move into top gear. When it does, South African consumers will find themselves on an equal footing with other countries where the price of medicines is controlled. I have no doubt that the savings will be substantial. A year from now we should be paying nearly a third less, on average, for generic and brandname products.

We have always argued that medicines are not an ordinary commodity. They constitute a lifeline, an answer to the most basic human need. We thank many organisations for the spirit in which they have enriched the process of lawmaking. I have no hesitation in say that we expect them to seize this law proactively. We look to manufacturers moving well ahead of the deadlines in a spirit of social responsibility. We all owe our best to this country. There are many lost opportunities in terms of health the health of our people and the protection of life that we must make up for.

Dr Manto Tshabalala-Msimang
Minister of Health