A man is HIV positive.   His doctor prescribes Bactrim, a common anti-biotic used as a prophylaxis (prevention) and for the treatment for pneumocystis carinii pneumonia ‘€“ a generally treatable condition if the person is HIV negative, but potentially fatal if he or she is HIV positive.

At present, the pharmacist, private hospital or doctor who dispenses this patient’€™s prescription will charge up to R126,94 for 20 adult-strength Bactrim capsules.

After May this year, when government enacts the recently-published draft regulations relating to a transparent pricing system for medicines and scheduled substances, the same prescription could cost as little as R46,56.

The old pricing structure in South Africa is notoriously complicated, secretive and confusing with incentives, discounts and mark ups hidden along the drug chain. Until now, South African consumers, who pay amongst the highest prices for prescription drugs in the world, have suffered the brunt of these huge markups and profits.

As a result the pharmaceutical industry has become one of the most lucrative in the world raking in what experts term as ‘€œsuper profits’€.

For years drug companies have been by far the richest in America’€”weighing in on last year’s Fortune 500 list with an average 18.5 percent profit margin, more than four times that of all other industries.

The new legislation does not seek to deny the pharmaceutical industry, pharmacists, private hospitals and dispensing doctors the right to earn a profitable living, but it is the excessive profiteering that has placed healthcare beyond the reach of ordinary people, that the law is seeking to address.

But who has been making profits and where?

The December 2003 issue of the Blue Book (an electronic publication by the drug industry and provides maximum prices for sale of medicine) lists Bactrim at a Manufacturer Net Price (MNP) of R61,24.

If the buyer was a large private hospital or a pharmacy group, the drug could have been sold to the wholesaler/distributor at a discount of up to 80% or for as little as R12.25.

This discount varies enormously depending on a variety of factors including the ability to buy in bulk or whether the drug will be stocked exclusively.

Generally the drug is sold to retailers (by wholesalers or distributors) at around R74,23, or at a 10 to 20 percent markup of the Blue Book price.   The retailer (your pharmacist) could then price the drug as high as R126,92. The consumer continues to pay the maximum price while those along the chain – manufactures, wholesalers, distributors and retailers – pocket the discounts.

There is also evidence of what is known in the industry as ‘€œperverse incentives’€:   overseas trips, office equipment, huge discounts or other perks that are offered to hospital groups, individual doctors and pharmacists in order to influence their decision about which drugs are placed on formularies (lists) from which dispensing doctors and private hospitals prescribe.

For example at present, an individual pharmacist in Pofadder would purchase Bactrim at the full price of R74,23, while a private hospital group could be paying much less (possibly R12.25) – but both sell the drug to the consumer at R126,92. The pharmacist and the private hospital pocket the discount and view this amount as legitimate profit.  

Considering solid evidence and comparing local to international prices, Government’€™s Pricing Committee, chaired by University of Cape Town professor Di McIntyre, has recommended that manufacturers sell presently available drugs to the wholesalers and distributors at 50% less than the Blue Book price from May, when the new regulations are expected to become law.

‘€œPresently available drugs’€ are defined as medicine that were introduced to the market before January 16.

Manufacturers will still, for now, be at liberty until then to discount even further.

From May this single exit price (Blue book price minus 50%) will be printed on the drug package, ensuring transparency. This single exit price could be increased annually in accordance with a number of factors including the inflation rate.

Drugs introduced after January 16 would also have a single exit price printed on the package and a newly established directorate in the health department will supposedly monitor this.

The draft legislation makes provision that in future, wholesalers and distributors will be entitled to a maximum mark up of 15% on drugs costing less than R40 and R6 if the drug exceeds R40.

Pharmacists will then be entitled to add a dispensing fee of 24 percent for drugs under R100 and R24 for drugs over R100. Dispensing doctors will be able to add 16% to drugs under R100 and R16 to drugs over R100.

Again the example of Bactrim: After May, the single exit price (Manufacturer Net Price) is R30,62. The wholesaler/distributor will mark it up by up to 15 percent increasing the price to R35,21. The pharmacist will add a 24 percent dispensing fee and include 14 percent VAT. Ultimately the consumer will pay up to R49,78. In the case of a dispensing doctor, the cost of the drug would be R46,56.

With over the counter medication such as Paracetamol, retailers will be entitled to a maximum 16% mark-up on drugs.

Wholesalers, distributors, pharmacists, retailers and dispensing doctors have been given 45 days (from May) to get rid of the old stock without the printed price.

Legislation to control the price of medicines is not strange or new. Although South Africa is one of the first lower to middle income countries to introduce such legislation, Australia, France, Germany, Canada and the United Kingdom, have used different models (depending on their particular health and social systems) to achieve the same outcome.   There is also general agreement that these measures would lead to huge savings in the medical aid industry but, said one industry insider: ‘€œThe onus is on consumers to ensure that these are passed on to them in the form of decreased contributions.’€

Expectations are that private hospitals, that profit enormously from prescription drugs, will try and cushion losses by implementing increases in other areas like ward fees.   The fact that wholesalers and distributors do not trade solely in drugs should also cushion the blow.

Distributors and wholesalers stock a range of products such as medical supplies and stationery items sold in pharmacies.

There are experts who believe that rather than cutting margins for pharmacists and manufacturers, medicines should be VAT exempt, however, the Minister of Health has no say in this matter as Treasury who controls decisions with regard to VAT.  

Health department spokesperson, Jo-Anne Collinge, said consumers would have to become more informed and discerning and shop around for the best price they could get. She added that organizations such as the Diabetes Society or Heart Foundation could play an active role in this regard.

‘€œWe are not ruling out providing more consumer information in future including a complaint line,’€ she said.

She added it was important for medical aids to be vigilant and for pharmacists to offer consumers the cheapest options, including generic substitutes.

A contravention of the Act caries a maximum penalty of 10 years in jail or an equivalent fine. ‘€œOf course this is the last resort,’€ she added.

That South Africans will pay less for medication, is a given. How significant the reduction is will become clearer as stakeholders debate the draft legislation over the next few months.

Drug Prices

BACTRIM (20 adult strength tablets)

BEFORE MAY

Blue Book price (price at which manufacturer sells drug to wholesaler/distributor) R61,24

Wholesaler/distributor sells drug to retailer at R74,23

Retailers (pharmacist/dispensing doctor) sell drug to consumers at R111,35

Including VAT consumers pay R126,92

AFTER MAY

Single exit price (no blue book price) printed on box as R30,62

Wholesaler/distributor sells drugs to retailer at up to R35,21

Pharmacists sells drug at up to R43,66

Including VAT consumer pays R49,78

Dispensing doctor charges R46,56

AMOXICILLIN (150mg tablets x 15)

BEFORE MAY

Blue Book price (price at which manufacturer sells drug to wholesaler/distributor) R11,10

Wholesaler/distributor sells drug to retailer at R13,45

Retailers (pharmacist/dispensing doctor) sell drug to consumers at R20,18

Including VAT consumers pays R23,00

AFTER MAY

Single exit price (no blue book price) printed on box as R5,55

Wholesaler/distributor sells drugs to retailer at up to R6,38

Pharmacists sells drug at up to R7,91

Including VAT consumer pays R9,02

Dispensing doctor charges R8,44

PROZAC (20mg tablets x 30)

BEFORE MAY

Blue Book price (price at which manufacturer sells drug to wholesaler/distributor) R296,38

Wholesaler/distributor sells drug to retailer at R359,24

Retailers (pharmacist/dispensing doctor) sell drug to consumers at R538,86

Including VAT consumer pays R614,30

AFTER MAY

Single exit price (no blue book price) printed on box as R148,19

Wholesaler/distributor sells drugs to retailer at up to R154,16

Pharmacists sells drug at up to R178,19

Including VAT consumer pays R203,14

Dispensing doctor charges R194,02

E-mail Anso Thom