Health, during the announcement of the new dispensing fee for medicine
31 October 2006
Good afternoon
We are here to present to you a new dispensing fee for medicine in South
Africa. It will ensure that South African citizens obtain value for money when
purchasing pharmaceutical products, whether this is in the public or private
health sector.
Since the implementation of the medicine pricing regulations, the consumer
has not enjoyed the full benefits of the medicine pricing regulations. Patients
are billed different prices at different pharmacies, having to pay a so-called
administration fees and high dispensing fees in certain pharmacies.
The new dispensing fee will produce a saving for such patients. It is
important that I emphasise that patients should no longer be paying
administration fees for a dispensing service. The only additional service
linked to dispensing that patients may be levied a fee for is the delivery of
medicines.
As you know, the introduction of the medicine pricing regulations in 2004
led to a court challenge by retail pharmacies. The matter was heard in the Cape
High Court, Supreme Court of Appeal and ended in the Constitutional Court.
The Constitutional Court judgement of 30 September 2005 declared that the
dispensing fee regulations were invalid. The court recommended that the Pricing
Committee reconsider the fee of 26% of the single exit price cupped at R26,
giving due regard to the viability of retail pharmacies (especially rural and
courier pharmacies).
The review of the dispensing fee by the Pricing Committee included:
* a survey of all retail pharmacies to obtain income and expenditure
information
* data on dispensing patterns from medical scheme administrators
* a review of written submissions to the Pricing Committee on an appropriate
dispensing fee.
It is worth noting that the viability of a retail pharmacy is influenced by
both its ability to generate income and the level of its operating expenses,
which in turn are each influenced by a number of factors.
Income from dispensing activities is influenced primarily by:
* number of items dispensed
* distribution of the value of items dispensed
* dispensing fee.
The key factors influencing expenses in the dispensary of a pharmacy
include:
* number and skills mix of professional staff
* other recurrent expenses such as rent, electricity, insurance, etc
* quantity and type of capital equipment.
The Committee used a small efficient retail pharmacy as the basis for
calculating the new dispensing fee. After extensive research and consideration
of inputs from stakeholders the committee has determined that the dispensing
fee shall be calculated as follows:
* Where the single exit (SEP) price of a medicine is less than R75, the
dispensing fee is a total of R4 plus 33% of the single exit price of the
medicine.
* Where the single exit price of a medicine is R75 or more but is less than
R250, the dispensing fee is a total of R25 plus 6% of the single exit price of
the medicine.
* Where the single exit price of a medicine is R250 or more but less than R100,
the dispensing fee is a total of R33 plus 3% of the single exit price of the
medicine.
* Where the single exit price of a medicine is R100 or more, the dispensing fee
is a total of R50 plus 1,5% of the single exit price of the medicine.
The fee is currently structured in tiers to ensure that low cost medicines
do not become very expensive. The proposed fee will still offer consumers a
saving on their medicines when compared to the pre regulation period. Consumers
will experience further savings once international benchmarking, reference
pricing and economic analyses are implemented.
It is anticipated that the price of medicines will reduce after the
implementation of international benchmarking. This may reduce the dispensing
fee income so the committee has decided to review the dispensing fee after the
implementation of the benchmarking methodology.
Annual increase
The medicine regulations also make provision for an annual single price. The
Pricing Committee was expected to make a recommendation on a price increase in
2005 however the legal challenge to the regulations did not allow
implementation of this legislation.
In 2006 the committee called for submissions from interested parties on an
annual price increase. The committee has considered all submissions on an
annual price increase before making its determination.
Certain manufacturers have made representations to the Committee about the
urgency of the price increase due to the depreciation of the Rand and the fact
that there has been no price increase since the implementation of the
regulations.
Ideally the committee would have preferred to implement the price increase
after the implementation of the international benchmarking methodology. The
Pricing Committee has therefore decided to declare the increase at this
stage.
The annual single exit price increase for the period 2006/07 should be a
maximum of 5,2% of the ex-manufacturer price. The single exit price as at 1
October 2006 shall be used as the basis for calculating the price increase.
It is recommended that manufacturers take note of the international
benchmarking methodology before implementing the price increase. The single
exit price increase should be implemented after the international benchmarking
methodology has been applied.
The single exit price increase may be applied to those products that were
priced below the international benchmark up to the maximum permitted SEP
increase, but not to exceed the international benchmark price after the SEP
increase. This single price increase is effective until 1 July 2007.
The committee has noted that certain manufacturers have indicated the
urgency of this matter. The committee recommends that such manufacturers may
implement a single exit increase after 30 days of supplying the necessary
information (electronic and hard copy) to the Directorate Pharmaceutical
Economic Evaluation.
International benchmarking
The Committee has also made recommendations on a draft methodology for
international benchmarking. The committee would like to invite comment on their
proposed methodology.
The Pricing Committee has proposed two different methodologies to
benchmarking since there are significant differences between multinational
companies and local manufacturers.
Multinational companies will have to benchmark their products directly
against equivalent products in a basket of countries. Ideally the committee
would have liked to select countries with an equivalent Gross Domestic Product
(GDP), burden of disease, health system, population and regulatory environment
as South Africa.
Unfortunately, it is impossible to satisfy all of these criteria so the
committee had to identify country that had a similar medicine regulatory
environment as South Africa. The countries selected in the basket are
Australia, Canada, New Zealand, Spain and South Africa.
Companies that manufacture generic medicines will have to apply an indirect
method of benchmarking. The committee has proposed that the price of the
generic drug should be at least 40% lower than the internationally benchmarked
price of the originator drug.
Finally, there are pharmacies that continued to charge the 26%/R26 fee even
though other pharmacies were charging higher fees. We would like to thank these
pharmacies for making medicines more affordable to our people. It is our
understanding that many of these pharmacies will continue with the 26%/R26 fee.
We therefore would advise patients to shop around for your medicines.
Issued by: Department of Health
31 October 2006
Source: Department of Health (http://www.doh.gov.za)
