When Australian Professor David Henry popped into a South African pharmacy during a recent visit he was shocked at the small amount of shop space set aside for dispensing medicines as opposed to front shop items such as toiletries, home appliances and other goods.

Retail activities are not nearly so prominent in other countries ‘€“ for example some European pharmacies trade almost exclusively in medicines and display a professional image rather a than retail one. Australia tends to be more like South Africa although ‘€œpharmacy activity’€ is more prominent.

‘€œSouth Africans are simply paying too much for their medication,’€ says Henry, who advised the South African government on the pricing regulations as a member of the Pricing Committee.

Based at the Department of Pharmacology at the University of Newcastle in Australia, Henry has advised several countries on similar policies and is an advisor to the World Health Organisation.

South Africa, says Professor Gavin Mooney is simply coming into line with international standards and consumers need to support the Regulations relating to a transparent pricing system for medicines and scheduled substances, as it will result in lower medicine prices.

Mooney, of Curtin University in Perth, Australia and acknowledged as one of the leading health economists in the world, believes that ‘€œtransparency can only be a good thing’€, when it comes to the private health sector in South Africa even if it only serves a small percentage of the population.

There is wide agreement that the regulations will lower exorbitant medicine prices for those reliant on the private health sector. It is also hoped that medicine could become more accessible for those able to pay cash, but who are not necessarily members of medical aids.

Henry said that an informal survey of 121 drugs showed that prices were on average 30% higher in South Africa than Australia and New Zealand.

The Australian government has become a large buyer via the country’€™s public health insurance system enabling it to negotiate good prices.

‘€œThe government becomes a client of the drug companies as opposed to a regulator,’€ he explains. Once a government becomes a buyer it has a range of technical tools at its disposal such as reference pricing and generic substitution, all which make medicine more affordable.

The government uses its buying power and establishes principles like mandatory substitution of generic brand-name equivalents, equivalent prices for equivalent therapeutic effect. A generic product in a class becomes the reference against which all drugs in the class (including brand name products) are priced.

Henry said the 50% mark-up by the retail sector in South Africa was too high, despite the discounts offered in some instances.

‘€œAll the add-ons along the line can double the price of medicine and not add much value along the way.’€

Critics of the regulations have warned that it could lead to the demise of the corner pharmacy. This is a scenario that is dismissed by some experts who cite reports that reveal that a quarter of the industry was already struggling long before the proposed legislation.

Mooney agrees that the survival of the retail pharmacy is essential, but not in its current form.

‘€œThe market is oversaturated. There are too many pharmacies and for too long sick people have been subsidising an inefficient industry,’€ he says.

Mooney adds that to have sick people paying extra for pharmaceuticals to subsidise the inefficient ‘€œfront shop’€ activities of non-pharmaceuticals cannot be defended in either economic terms or moral terms.

The regulations, some of which came into effect on June 2, aim to exert downward pressure along the medicine supply chain, starting with the manufacturer or importer, through the logistics sectors (wholesalers and distributors) and ending in the retail sector where it is bought by consumers mainly through pharmacies, private hospitals and dispensing doctors.

The part affecting pharmacists will come into effect on August 2 pending a court challenge to have the regulations scrapped.

Henry said that in South Africa the pharmacy sector was torn between wanting to be part of the health profession and needing to be a profitable business enterprise.

‘€œThe (Pricing) Committee felt strongly that remuneration should be though a professional fee structure. It is clear that a pharmacist is not doing more work when dispensing an expensive drug, so there is no reason to charge the higher mark-up (percentage fee),’€ says Henry.

‘€œYou do not want a situation where the sick people are subsidizing the not so sick,’€ he adds.

Mooney and Henry concurred that the essence of the court case was money and that despite all the arguments to the contrary, pharmacists simply believe they are not getting enough.

Currently pharmaceutical manufacturers and importers in particular are facing two phases in this process of ‘€œdownward pressure’€.

The first phase is stopping of what is known in the industry as ‘€œperverse incentives’€. These include the offering of overseas trips, office equipment and huge discounts to hospital groups, doctors and pharmacy chains to influence what drugs are placed on their dispensing lists.

This phase also aims to ‘€œlevel the playing fields’€ by introducing a single exit price, which ensures that a small pharmacy in Pofadder pays the same price as the large private hospital in Johannesburg, and therefore their consumers, for their medicine.

The logistics fee is included in the single exit price printed on the package. From June 2, all newly manufactured medicines were required to have the single exit price printed on the package.

The second phase of the ‘€œdownward pressure’€ on prices involves the manufacturing and logistics sector. Here an attempt will be made to ‘€œinternationally benchmark’€ manufacturer prices. Guidelines will be formulated that will require manufacturers to ensure that prices are no higher than those in a number of selected countries. This legal mechanism is expected to place considerable pressure on the manufacturing component of medicine prices in South Africa.

The final link in the medicines chain is the retail pharmacist, private hospital, dispensing doctor or courier pharmacy (used by many medical aids).

Government has suggested a R26 (scripts of R100 or more) and 26% (scripts under R100) dispensing fee for schedule 1 to 8 drugs for the pharmacy sector. A

dispensing fee of R16 (R100 or more) or 16% (less than R100) is proposed for schedule 1 and 2 medicines when not on prescription (so when the sale is initiated by the pharmacist of the consumer themselves).

A R16/16% fee is proposed for dispensing doctors.

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