11

Practical ChallengesPractical Challengeson theon the

Medicine pricing RegulationsMedicine pricing Regulations

Presentation to thePresentation to the

Portfolio Committee on HealthPortfolio Committee on Health

By the National Department of HealthBy the National Department of Health

16 November16 November 20042004

22

Key IssuesKey Issues

Single exit price for medicinesSingle exit price for medicines Fee for wholesalers, distributorsFee for wholesalers, distributors Fee for dispensing of medicinesFee for dispensing of medicines Transparent pricing systemTransparent pricing system No volume discounts, rebates or bonuses.No volume discounts, rebates or bonuses.

33

Pricing CommitteePricing Committee

Committee appointed in 2003Committee appointed in 2003 Researched the operations of the Researched the operations of the

pharmaceutical industry in SApharmaceutical industry in SA Prepared draft regulations for Ministers Prepared draft regulations for Ministers

considerationsconsiderations Reviewed comments from stakeholdersReviewed comments from stakeholders Amended and published final regulations in Amended and published final regulations in

April 2004.April 2004.

44

Directorate Pharmaceutical Directorate Pharmaceutical Economic EvaluationsEconomic Evaluations

Establishment of the Directorate Establishment of the Directorate Pharmaceutical Economic Evaluation in the Pharmaceutical Economic Evaluation in the Cluster Pharmaceutical Policy and Planning.Cluster Pharmaceutical Policy and Planning.

Directorate responsible for implementation, Directorate responsible for implementation, monitoring and advise on strategic planningmonitoring and advise on strategic planning

Structure and functioning of the Directorate Structure and functioning of the Directorate based on international modelsbased on international models. .

55

Pharmaceutical challenges facing Pharmaceutical challenges facing South AfricaSouth Africa

The public spends The public spends R3 billionR3 billion on medicines for on medicines for 38 million38 million South Africans. South Africans.

The private sector spends The private sector spends R13 billionR13 billion on on medicines for medicines for 7 million7 million South Africans South Africans

Many employed South Africans cannot buy Many employed South Africans cannot buy medicines in the private sector simply medicines in the private sector simply because the prices are out of reach.because the prices are out of reach.

66

Interventions used Internationally Interventions used Internationally to promote accessto promote access

Pricing policies Generic substitutionGeneric substitution Reference pricingReference pricing Performance based pricingPerformance based pricing

Promoting appropriate use of medicinesPromoting appropriate use of medicines-EDL, STGs-EDL, STGs

Volume controlVolume control

77

Interventions targeting Interventions targeting manufacturersmanufacturers

Removal of discounts, rebates and other Removal of discounts, rebates and other perverse incentives from the 2003 perverse incentives from the 2003 manufacturer pricemanufacturer price

International BenchmarkingInternational Benchmarking

Reference pricingReference pricing

Economic analysesEconomic analyses

88

Interventions targeting Wholesalers Interventions targeting Wholesalers and pharmacistsand pharmacists

A fee for wholesalers/distributorsA fee for wholesalers/distributors

A fee for pharmacistsA fee for pharmacists

99

Implementation of RegulationsImplementation of Regulations

Liaison committees established with major Liaison committees established with major stakeholder groupingsstakeholder groupings

Phased approach to implementation – web Phased approach to implementation – web page, hotlinepage, hotline

Constant monitoring of prices and impact of Constant monitoring of prices and impact of the regulations on all stakeholders in the the regulations on all stakeholders in the supply chain.supply chain.

1010

Calculation of the dispensing feeCalculation of the dispensing fee

Guiding Principles in setting the feeGuiding Principles in setting the fee:: Reimburse pharmacists for professional services Reimburse pharmacists for professional services

renderedrendered Simple for the consumer to understandSimple for the consumer to understand Cover the costs of dispensing Cover the costs of dispensing Discourage profiteering from dispensing of high Discourage profiteering from dispensing of high

cost medicinescost medicines Schedule 0 medicines should be excluded from Schedule 0 medicines should be excluded from

the pricing regulationsthe pricing regulations

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Pharmacy Council Procedure Codes Pharmacy Council Procedure Codes for Dispensingfor Dispensing

Review prescription - 2 unitsReview prescription - 2 units Picking and labelling of medicines – 1 unitPicking and labelling of medicines – 1 unit Handing medicine to patient plus Handing medicine to patient plus

counselling – 3 unitscounselling – 3 units Total of 6 unitsTotal of 6 units

1 unit = one minute1 unit = one minute

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DATA ANALYSISDATA ANALYSIS

PSSA report (bar graph) confirms that after PSSA report (bar graph) confirms that after discounts pharmacists margin is 20%.discounts pharmacists margin is 20%.

Data from IMS, Mediscor and Medikredit Data from IMS, Mediscor and Medikredit analysed to determined the overall margins analysed to determined the overall margins of retail pharmacies. of retail pharmacies.

Analysis suggests that an overall retail Analysis suggests that an overall retail markup of approximately 24%.markup of approximately 24%.

Additional 2% for stockholdingAdditional 2% for stockholding

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Meetings with the PSSAMeetings with the PSSA

August 2002 – advise PSSA that DOH will be setting a August 2002 – advise PSSA that DOH will be setting a dispensing fee. (Dr Zokufa/Pillay)dispensing fee. (Dr Zokufa/Pillay)

October 2003 – request for data on overhead costs, October 2003 – request for data on overhead costs, number of scripts, expected remuneration. (Data task number of scripts, expected remuneration. (Data task team)team)

26 April 2004 – request for raw data – Task Team 26 April 2004 – request for raw data – Task Team appointed by Ministerappointed by Minister

7 May 2004 – second meeting about data required7 May 2004 – second meeting about data required 19 May 2004 – raw data on financial statements only 19 May 2004 – raw data on financial statements only

supplied to NDOH. Other data requested still outstanding.supplied to NDOH. Other data requested still outstanding. TWO WEEKS LATER WE ARE TAKEN TO COURTTWO WEEKS LATER WE ARE TAKEN TO COURT

1414

What about the Actuaries report?What about the Actuaries report?

Data is from only 81 pharmacies (3%) – NDOH Data is from only 81 pharmacies (3%) – NDOH was not provided with the raw data despite was not provided with the raw data despite requests.requests.

Limited to the period 1 March 2003 – 31 May 2003Limited to the period 1 March 2003 – 31 May 2003 Actuaries do not provide any assurance about the Actuaries do not provide any assurance about the

data – “conclusions affected by data accuracy”data – “conclusions affected by data accuracy” Actuaries recommend longer time period, other Actuaries recommend longer time period, other

data sets incorporated and alternative scenarios data sets incorporated and alternative scenarios tested.tested.

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The Auditors ReportThe Auditors Report

The only raw data the department has The only raw data the department has received from the PSSA is UNAUDITED received from the PSSA is UNAUDITED financial statements from 176 pharmaciesfinancial statements from 176 pharmacies

The Financial statement relates to the entire The Financial statement relates to the entire pharmacy not just the dispensary. pharmacy not just the dispensary.

The pricing regulations only affect the The pricing regulations only affect the dispensary within a pharmacy!dispensary within a pharmacy!

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Gross Profit vs Net profit

-2

-1

0

1

2

3

4

5

<20 20 21 22 23 24 25 26 27 28 29 30

Gross Profit %

Net P

rofit

%

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No. of pharmacies making a loss in each GP category

0

2

4

6

8

10

<20 20 21 22 23 24 25 26 27 28 29 30

Gross Profit

Num

ber o

f Pha

rmac

ies

mak

ing a

loss

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What did the PSSA propose?What did the PSSA propose?

Drug less than R50 (SEP):Drug less than R50 (SEP):

Dispensing fee = R25 plus 25%Dispensing fee = R25 plus 25%

Example - drug with an SEP of R10 will cost Example - drug with an SEP of R10 will cost R37.50 since the pharmacist will get R37.50 since the pharmacist will get R27.50R27.50

Drug greater than R50 (SEP):Drug greater than R50 (SEP):

Dispensing fee = R25 plus 12.5%Dispensing fee = R25 plus 12.5%

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Estimated Savings to PatientsEstimated Savings to PatientsIMSA study suggests that the potential savings IMSA study suggests that the potential savings

to patients is in the region of 19% which is to patients is in the region of 19% which is estimated to be worth 2.3 billionestimated to be worth 2.3 billion

These are ex-manufacturer price comparisons.These are ex-manufacturer price comparisons.

The consumer has not been able to extract the The consumer has not been able to extract the full benefit of these savings due to admin full benefit of these savings due to admin fees.fees.

This savings has to translate into lower medical This savings has to translate into lower medical aid subscriptions.aid subscriptions.

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Interim Relief and PharmacistsInterim Relief and Pharmacists

BHF study involving data from majority of BHF study involving data from majority of administrators suggests that pharmacists administrators suggests that pharmacists have been making much more than even have been making much more than even the dispensing fee they have asked for!the dispensing fee they have asked for!

Average dispensing fee for acute – 47.68%Average dispensing fee for acute – 47.68%

Average dispensing fee for chronic – 42Average dispensing fee for chronic – 42..31%31%

2121

What has happened since the court What has happened since the court ruling in favour of the Ministerruling in favour of the Minister

Pharmacists have started to charge Pharmacists have started to charge administration feeadministration fee

NDOH has emphasised that this is contrary NDOH has emphasised that this is contrary to the spirit of the regulations to the spirit of the regulations

The administration fees seem to vary and The administration fees seem to vary and are clearly unrelated to the cost of any are clearly unrelated to the cost of any administrationadministration

NDOH IS LOOKING AT AMMENDMENTS NDOH IS LOOKING AT AMMENDMENTS TO STOP THIS PRACTICE.TO STOP THIS PRACTICE.

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Are retail pharmacies closing down?Are retail pharmacies closing down?

How do we assess the validity of this claim?How do we assess the validity of this claim?FACTS VERSUS EMOTIONFACTS VERSUS EMOTION

Survey of the incomes and expenses of the dispensary only. Survey of the incomes and expenses of the dispensary only. (300 required to date only 80)(300 required to date only 80)

Submitted to the retail pharmacy stakeholders for Submitted to the retail pharmacy stakeholders for comment.comment.

Survey will assess whether the claim is valid Survey will assess whether the claim is valid What is the reason for the loss? (scripts, rent, dispensing What is the reason for the loss? (scripts, rent, dispensing

fee, other overheads)fee, other overheads) If the dispensing fee is inappropriate then what should the If the dispensing fee is inappropriate then what should the

fee be given the items dispensed and expenses?fee be given the items dispensed and expenses?

2323

Are retail pharmacies closing down?Are retail pharmacies closing down?Data on number of pharmacies opening over the Data on number of pharmacies opening over the

past 3 years:past 3 years:20022002 18618620032003 15015020042004 105(Jan – Sept)105(Jan – Sept)Data on number of pharmacies closing over the past Data on number of pharmacies closing over the past

3 years:3 years:20022002 16016020032003 12912920042004 55 (Jan-Sept)55 (Jan-Sept) (Source: SAPC)(Source: SAPC)

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NOT ALL RETAIL PHARMACISTS NOT ALL RETAIL PHARMACISTS SUPPORT THE PSSA APPROACHSUPPORT THE PSSA APPROACH

Pharmacists from disadvantaged communities Pharmacists from disadvantaged communities distance themselves from the court action.distance themselves from the court action.

Acknowledge that the PSSA has not been co-Acknowledge that the PSSA has not been co-operative with NDOH. Most pharmacists are nor operative with NDOH. Most pharmacists are nor aware of the quality of the data supplied by PSSA.aware of the quality of the data supplied by PSSA.

Embarked on a policy of co-operation with the Embarked on a policy of co-operation with the NDOH.NDOH.

Supplying the data as required by NDOH.Supplying the data as required by NDOH.

Embrace the objectives of the NDP and partner Embrace the objectives of the NDP and partner NDOH to achieve objectives of the policy.NDOH to achieve objectives of the policy.

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What about VAT?What about VAT?Pricing committee recommended that Pricing committee recommended that

Department of Finance review the possibility Department of Finance review the possibility of removing VAT on medicines.of removing VAT on medicines.

Dept of Finance investigating this issue.Dept of Finance investigating this issue.Challenges:Challenges:Will the removal of VAT result in a 14% Will the removal of VAT result in a 14%

reduction in medicine prices?reduction in medicine prices?Alternatively can we use VAT on medicines to Alternatively can we use VAT on medicines to

promote access to medicines?promote access to medicines?

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OECD CountriesOECD Countries How have the OECD countries responded to How have the OECD countries responded to

the increased cost of pharmaceuticals?the increased cost of pharmaceuticals?

introduction of a transparent pricing system ,introduction of a transparent pricing system , policies to influence physician prescription behaviour, policies to influence physician prescription behaviour, introduction of generic drugs policy,introduction of generic drugs policy, development of formularies and guidelines,development of formularies and guidelines, introduction of price controls and/or profit controls introduction of price controls and/or profit controls Fixed fee for wholesalersFixed fee for wholesalers Fixed fee for dispensingFixed fee for dispensing

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Thank YouThank You