Medicines and Related Substances Amendment Act Implementation and Regulation: briefing by Department

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Health

16 February 2004
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Meeting report

HEALTH PORTFOLIO COMMITTEE
17 February 2004
MEDICINES AND RELATED SUBSTANCES AMENDMENT ACT IMPLEMENTATION AND REGULATION: BRIEFING BY DEPARTMENT

Chairperson:
V Ngculu (ANC)

Documents handed out
General Regulations in terms of the Medicines and Related Substances Control Act, as amended.
Regulations relating to Transparent Pricing System For Medicines and Scheduled Substances made in terms of Section 22G of the Medicines and Related Substances Act, 1965
Medicine Prices Dispensing Licences
Medicine Prices regulations
Medicines and Related Substances Control Amendment Act [No. 90 of 1997]
Medicines and Related Substances Amendment Act [No. 59 of 2002]

SUMMARY

The regulations are to come into effect on 2 May 2004. It puts into place a system to ensure that the prices of medicines are reasonable. There would be a single exit price for medicine. The Regulations would have some impact on Medical Aid Schemes in that they outlaw discounts. A licence would be required for everyone who wants to compound and dispense medicines. Such a person should have completed a course which is determined by the Pharmaceutical Council. A person can apply for a licence before completing the course but the licence would not be issued until the successful completion of the course.

MINUTES
Pricing of Medicines
Dr H Zokufa (Chief Director, Pharmaceutical Policy and Planning, Department of Health)

said that the legal provision to control the prices of medicines is found in the Medicines and Related Substances Control Act 90 of 1997, as amended. He said that Section 18A of the Act prohibits bonusing. It provides that no person shall supply any medicine according to a bonus system, rebate system or any other incentive scheme. This section comes into effect on the 2 May 2004. This section prohibits the giving of discounts to people who buy medicines in bulk. Section 18B prohibits the sampling of medicines. This section came into effect on 2 May 2003.

Section 22G empowers the Minister to appoint a Pricing Committee that has the powers to make recommendations regarding the introduction of a transparent pricing system for all medicines, appropriate dispensing fee to be charged by a pharmacist, as well as the appropriate fee to be charged by wholesalers or distributors of medicines. The Minister has already done so.

Dr Zokufa said that the transparent pricing system contemplated in Section 22G(2)(a) shall include a single exit price which shall be published as prescribed, and such price shall be the only price at which manufacturers shall sell medicines and Scheduled substances to any person other than the State. The price is divorced from the quantity that one buys. It eliminates the benefit for big buyers of stock who buy huge volumes of stock hoping to get a discount. Section 22G (3)(b) provides that no pharmacist or person licensed in terms of section 22(c)(1)(a) or a wholesaler or distributor shall sell medicine at a price higher than the price contemplated in paragraph (a). This prohibition fixes the price at the manufacturer level. There is, however, provision for some charges to be added. For instance, dispensing fees may be added on top of the price.

Regulations
Dr Zokufa said that the regulations had been published for comment and that the final date for submission of comments is 16 April 2004. After that they would be amended and promulgated so that they would take effect on 2 May 2004 when section 18 also takes effect.

Regulation 2
The presenter drew the Members' attention to some of the definitions in the Regulations.

"Blue Book" is defined as the electronic publication known as the Pharmaceutical Blue Book published by the Pharmaceutical Printers and Publishers. The book contains the prescribed prices of medicines in the retail sector. The government has established that there are games played around prices, discounts are being given for medicines and that the book reflects artificial prices of medicines.

"CPI" means a consumer price index

"PPI" is the production price index

"Purchasing power parity" means the comparative purchasing power of the currencies of two countries with respect to a predetermined basket of goods and services.

The definitions are important tools to use in evaluating the prices of medicines in South Africa. They help one in checking if prices in South Africa compare favourably with prices of the same medicines in another country. It is not good enough to look at the rate of exchange when comparing this. One has to look at power of currency in terms of basket of goods one can buy.

"Single exit price" includes all costs associated with the manufacture and the sale of the medicine or scheduled substance. This is the price at which any person would buy the medicine according to the Act.

Regulation 3
To promote transparency the regulation makes it mandatory for the price of the medicine to be made known to the public by publishing a notice in the Gazette.

Regulation 4
The regulation provides that the label on the container of every medicine or Scheduled substance intended for sale to a user must reflect the single exit price of the medicine or Scheduled substance.

Regulation 5.
On the commencement (2 May 2004) of these regulations the prices reflected in the Blue Book when these regulations were published (16 January 2003) must be reduced by 50 %. It also says that price of the medicine would be set by the manufacturer. The government, in particular the Department of Health is not positioning itself to set the price but would interrogate the price to see if it is reasonable value for money. If the price is found to be unreasonable then the Department would engage the manufacturer to indicate the unreasonableness. He said that the Department is gearing itself to be able to analyse if the price is reasonable.

Regulation 6
The regulation prohibits a manufacturer from charging any fee or other amount, except the single exit price, in respect of the sale of a medicine or scheduled substance to a person other than the state.

Regulation 7
This provides that the price of medicine would be increased once a year by the manufacturer or importer.

Regulation 8
This is related to regulation 7. It provides that the extent to which the single exit price of medicine may be increased would be determined annually by the Minister, after consultation with the Pricing Committee. The presenter said that one is trying to prevent a situation where prices of medicines are increased willy-nilly. The determination by the Minister would have regard to CPI, PPI, changes in foreign exchange and purchasing power parity. These would serve as motivating factors for a manufacturer who wants to increase prices.

Regulation 9
This provides for manufacturer to apply for increase of price by a specified amount greater than that permitted in terms of Regulation 8

Dispensing fees

Regulation 10
This regulation provides that where a medicine costs less than R100, the dispensing fee may not exceed 24% of the single exit price in respect of each such medicine. Where the medicine costs R100 or more, the dispensing fee may not exceed R24 in respect of each such medicine. The Department wants to eliminate the incentive to dispense the more expensive drugs. There is a lot of profiteering if one dispenses the more expensive drugs. One needs to ask which is the best medicine for the patient and not what is the most expensive medicine available. If the best is the more expensive there is no problem, as the dispenser would not gain anything as the price is capped. This regulation also stimulates competition since it does not stop one from dispensing a product at a fee which is less that 24% or R24.

Regulation 11
This regulation allows persons who are not pharmacists but licensed to dispense medicines to add a dispensing fee of not more than 16% where the medicine is less than R100 and not more than R16 if the medicine is more than R100.

The presenter said that the difference in amounts that can be added under Regulations 10 and 11 is motivated by the fact that the person referred to under Regulation 11 does not have to do all the functions that a pharmacist has. For instance, a pharmacist has to look at the script and see if it is correctly written before going to the next step.

Regulation 12 and 13
This regulation provides that a wholesaler may not add 15% to the single exit price of a medicine if the medicine is less than R40 and not more than R6 if the medicine is more than R40. These regulations eliminate the incentive of wholesaling and distribution more expensive drugs only.

Regulation 14
This regulation applies to situations where one has a product distributed to a wholesaler by a distributor who may in turn distribute to a retailer or hospital. In this situation the amount for distribution must be the same regardless of whether one breaks the leg in the distribution chain. This is trying to avoid a situation wherein a 15% distribution fee is charged for one leg and another 15% for the other.

Regulation 15
This regulation applies to Schedule 0 medicines sold at any place other than a pharmacy. The single exit price and the maximum fee of 16% apply here as well. It outlaws situations where retailers buy medicines in bulk at discounted rates. The major problem is that such retailers are available in every corner of the Republic and this means that people who are staying in the periphery would buy medicines at higher prices than those living closer to the retailers. He noted that the retailers do not necessarily pass on the discounts they get to the consumers.

Regulations 16-20
These make provision for the Director-General to ask for information pertaining to the prices. Such information would be used in evaluating if the price charged is reasonable or not.

Regulation 21
This regulation concerns an applicant who seeks the registration of a medicine which has not yet been registered. Such a person must give the information listed under 21(1)-(10) at least six months before the sale of the medicine. The envisaged price of the product must be stipulated and its reasonability should also be shown. The Department would not block the registration of such medicine even if it is unreasonable.

Regulations 22-25
These try to give the Director-General certain powers, so as to interrogate the price further in the event that it is established that the price is unreasonable.

Regulation 26
This gives power to the Director-General prepare publications and receive representations from various stakeholders.

Regulation 27
This takes care of transitional arrangements. It provides that persons selling medicines manufactured prior to the date of the promulgation shall for a period of 45 days from the date of promulgation of these regulations not be required to comply with the regulations' requirements.


Dr Zokufa said that the Regulations were drafted by the Pricing Committee. The Department is expecting extensive comments on each of these Regulations. The Department has scheduled sessions from 8 March to listen to comments from various stakeholders. The Department is encouraging stakeholders to come with data to substantiate their claims. He said that the Minister is unlikely to agree with changing the thinking behind the Regulations but would be prepared to tinker with the figures.

Minister M Tshabalala-Msimang said that when the Department had gathered information from manufacturers it did not get as much information as it had hoped. She said that the expected submissions would help the Department to further interrogate the information that they had received.

She reminded them that there was a process that gives anyone who wants to interact with the Pricing Committee the opportunity to do so. The Minister requested members of the Committee not to allow themselves to be lobbied by pharmaceutical companies. People were encouraged to place their concerns before the Pricing Committee and not before the Minister or Members of the Committee. The Minister said that she would not intervene until the process before the Pricing Committee had run its full course.

Questions
A member asked if the hearings would be on 8 March or throughout the whole of March. She commented that pharmacists were concerned that they would not be able to sustain their businesses if they charged the 24% dispensing fee. She hoped that this issue would be looked at during the hearings.

Dr Zokufa replied that the hearings would commence on 8 March and continue throughout March. With regard to the concern around dispensing fees, the presenter said that South Africa has 2500 retail pharmacists and they are not enough to cover the whole country. There is a need to increase this number. The 24% and R24.00 dispensing fee is a minimal figure. The Department was interested in seeing what pharmacists would say about it. Their survival would be influenced by volumes of prescriptions that they get. The more prescriptions they get and the more items they dispense, the more they would get the 24% or R24 dispensing fee. The Department felt that the dispensing of medicines should be left to the pharmacists and not medical practitioners. This would ensure an increase in the volume and number of items that the pharmacies dispense. If the Department were not strict about how it gave licences to people who are not pharmacists, the 24% or R24.00 dispensing fee would not make the sector viable. This is because the pharmacists would not be seeing big volumes, as these would have been dispensed by persons who were not pharmacists.

Ms S Baloyi (ANC) asked what the impact of these Regulations would be on decisions that might be taken by the Competition Commission. She also asked if the issue of pricing of medicines has been discussed with the Competition Commission. With regard to the single exit price, what was the practice internationally?

Dr Zokufa replied that the Competition Commission was represented in the Pricing Committee by Advocate M Simelane who did not see the Regulations as anti-competitive, given that one was not dealing with an ordinary commodity. The government would not allow a free market system in which people would be preyed upon. The system was advanced, defended and fought for by the government, for the people, to ensure that prices of medicines were reasonable.

With regard to the single exit price the presenter said that the situation varied from country to country. In some countries profit margins were allowed but were very small whilst in others discounts were allowed but very much controlled. The price from manufacturer level was severely interrogated. Australia had a system where, if one were a manufacturer coming with a new product, the price of the new product would be compared to that of an existing product. One would be asked to indicate how the new product was superior to the existing product and substantiate the need for a difference between the price for the new product and that of the existing price. In France, if the price was unreasonable the medicine might not be registered.

Dr E Jassat (ANC) asked if there had been any consultation before the dispensing fees were arrived at. With regard to the single exit price he wondered what would happen in situations where half quantities of medicines were prescribed

Dr Zokufa replied that the Department had decided to consult with the various stakeholders instead of having the stakeholder representatives form part of the Pricing Committee. The Minister established a Pricing Committee Working Group in 2002, which consulted most of the stakeholders around these issues. Stakeholders were asked what, in section 22G, they thought would affect them negatively. The stakeholders responded to the question. When the Pricing Committee was formed, it read through the report of the Working Group and further consulted with the same stakeholders. The Department is again encouraging stakeholders to make submissions on the Regulations.

With regard to the single exit price, the Department wants the price to be fixed to a unit and not to a packet. For instance, the Department wants to know the price for each tablet. The Department is aware that it might be difficult to set prices per unit or tablet.

The Chairperson asked the presenter to clarify Regulation 5.

The presenter replied that the regulations would commence on 2 May 2004. The price that currently applies was set by the manufacturer and not the government. This would remain the case on 2 May. The importers of medicines would also set the price of the imported medicines. For a period of one year after the commencement of these Regulations such price would not be higher than 50% of the manufacturer net price as reflected in the Blue Book as at the date of publication of these Regulations in the Gazette.

Ms P Tshwete (ANC) asked the presenter to comment on the view that if one uses a medical aid to buy medicines the prices go up.

A] The presenter replied that medical aids would be greatly affected by these Regulations. He said that if one goes to a pharmacy the medicine is billed on the medial aid at full price but the medical aid scheme gets some discount. The discount is pocketed by the medical aid scheme. One gets a situation where medical aid schemes instruct their members to buy medicines from certain pharmacies because such pharmacies had some arrangements with the medical aid scheme. The presenter felt that if pharmacies were able to give 30% discount on medicines it meant that there was already something wrong with the price.

The Minister of Health reminded members that the Competition Commission ruled that doctors should fix their prices. The Department asked the Medical Aid Council to explain what the ruling meant. The Council has worked out guidelines which indicate the amount of money that doctors may charge. The guidelines are very persuasive, thus 90% of doctors are trying to follow them. The guidelines are not enforceable as they are not law. Once the National Health Bill comes into effect the Minister would be empowered to fix the prices. This would ensure that the prices of medicines are the same all over the country.

Dr I Cachalia asked to how the single exit price of imported medicines would be determined.

The presenter conceded that determining the single exit price of imported medicines was problematic. Most of the multinational companies imported medicines from other countries. The cost of manufacture would be linked to the cost of manufacture in those countries and these might be higher than the costs in South Africa. He also acknowledged the problem of transfer pricing where a holding company was a foreign country, which sold its product at a profit to its subsidiary in South Africa. The pharmacist was entitled to add the costs of importing the medicines and other costs. However, the question remained as to whether that price was fair and reasonable.

The Minister asked the presenter to talk about Active Pharmaceutical Ingredients (APIs) as well.

Dr Zokufa said that the APIs that go into making medicines are largely imported by South Africa and this impacts on the price of the medicines. When it comes to antiretrovirals (ARVs) about 80% of the cost is accounted for by the Actives. There is a need for South Africa to begin to make its own actives.

The Chairperson asked if the Director-General would be empowered to request information about trade secrets.

Dr Zokufa replied that the Director-General would ask for information which is likely to be asked for in other countries as well. This would for instance, include information relating to the potential size of the market and production costs.

A set of regulations would be released on marketing practices; code of ethics; and how companies must behave when they market their products. A problem arises when one deals with a company that has a product which is protected by a patent for 20 years, and argues that it has to recoup its R&D (Research and Development) costs and adds a fee. The Department's argument is that the South African market constitutes less than 0.4% of the international companies marketing the product. Since South Africa is a developing country, is it fair to load prices of medicines in this country so as to recoup research and development costs. The situation is compounded by the fact that such research and development was done in a first world country with costs linked to first world activities.

The presenter said that a company must look at the size of its potential market. When marketing its product in South Africa, a manufacture probably estimates that it would sell a certain amount of medicines in the first year and that as the product becomes known, it would gradually scale up its supply. The Department wants the manufacturer to give a fair price on the projected off- takes for the first year. If a company decided to give discounts, the discount should be evenly distributed across the country and not given only to the people who buy more stocks. The discount should be given on the off-take volumes that would be sold in the country.

Dr Tshabalala-Msimang asked Dr Zokufa to talk about the WTO commission as it would be of assistance to the Committee.

Dr. Zokufa said that the commission was looking at how patent protection could be abused in terms of drug prices in developing countries in pursuit of public health. One could hide behind the fact that a product was completely protected, as well as all the intellectual property rights, and unfairly price a product in developing countries' markets.

A member asked what Dr Zokufa thought about pharmacists in small towns who sell their products at high prices and claim that this is the only way that their businesses can survive.

Dr Zokufa replied that the first question to ask is how many other people are dispensing medicines in that town. The assumption is that the current volume of medicines distributed from pharmacies is far less than what it should be because there are doctors who are also dispensing medicines. If this is changed around and doctors no longer dispense medicines, that pharmacist would see an increase in the volume of medicines dispensed. With a 24% profit margin, this small pharmacist's business should be able to succeed. Anyone who feels that their business would not be viable with this 24% margin was invited to say so during the commentary period. The process was enriched by the fact that there would be a workshop in Johannesburg to discuss how these Regulations would affect a pharmacist in a small town and what remedial action needed to be taken to ensure the survival of such pharmacists.

Dr Zokufa said that these Regulations were putting a huge challenge to every sector in the health industry. For the first time, the retail pharmacists were challenged to show how they would come out with 24% or R24 from the medicines they sell. The distribution wholesale sector was challenged to show how they would come out with the capping that they had done here because they had been working on percentage profit margins. The manufacturing industry was challenged to indicate how they can come up with a fair price without having to make incentives that give rise to unsavory activities and further challenged not to take the South African market for a ride, but to behave in South Africa the way they behave in other developed countries. Pharmacies do not only make their living out of prescription medicine, they make profits from their front shops too. The big discount pharmacies were not worried about the regulations because they received high volumes of prescriptions, and they make most of their money from the front shops which were not affected by these Regulations. They were even prepared to sell medicines at less that the 24% or R24 profit margins.

General Regulations in terms of the Medicines and Related Substances Control Act

Regulation 18
The provision for a licence to be given to somebody who was not a pharmacist to compound and dispense medicines was S 22C(1)(a) of the Medicine Act, 1997. In terms of section 22C(2) a licence would not be issued unless the applicant has successfully completed a course determined by the South African Pharmacy Council after consultation with, amongst others, the Health Profession's Council of South Africa. The section does not say that the Council would provide the course or that the people who had done the course should be registered with the Council. Anybody who was competent can provide the course. Section 22C5 provides that no person shall compound or dispense a medicine unless authorised in terms of the Pharmacy Act, was a veterinarian or was a holder of a licence as contemplated in subsection (1)(a). The Act also binds the state and this means it has to get its house in order since there were many people in the public sector dispensing medicine without a licence.

Dr Zokufa said that Regulation 18(3)(iii) had been continually misinterpreted to mean that one could only apply for a licence once one had already completed the course. The Department feels that the Regulation only means that a licence would not be issued unless the course has been completed. The Department had received many applications from people who want to compound and dispense medicines. Objections to some of the applications had also been lodged.

The presenter indicated that the providers of the course would recognise prior learning and experience of someone who has applied to do the course. The course was flexible and can be done through distance learning.

In terms of Regulation 18(9) there was no need for a licence for one who sees a patient in one's consultation rooms and has to give medicine at that time. The licence would be required if the doctor gives medicine to use at home or anywhere else.

An applicant for a licence should demonstrate the need for the licence. If applying for a licence to own a pharmacy in terms of the Pharmacy Act, the need must be established. An inspection would be done to establish if the need exists as indicated by the applicant and determine if the premises from which the pharmacy would operate was suitable.

Regulation 20
This Regulation says that the licence would be valid for a period of three years and can be renewed. The reason for this was that the need might change as time goes by.

Regulation 21
This allows one to appeal against the decision of the Director-General or Council. The Minister would attend to the appeal.

The presenter said that the Regulations did not deny access to health services. They provided for access to medical care.

Questions

Ms Baloyi asked for some clarification on how the Regulations differ from the National Health Act which provided that the certificate of need would be valid for 20 years

The Chairperson said that the Certificate of Need would be required from someone who wants to open a practice whilst the certificate under the Regulation was for one who wants to dispense medicines. The dispensing licence would be valid for 3 three years.

Dr Cachalia asked if a pharmacist who manufactures an ointment would be able to dispense it.

The presenter replied that it depends on the nature of the illness. If one was dealing with a serious illness then the patient should be referred to a doctor. However, the tricky part was for the pharmacist to know the potential hazard of the medicine. The Medical Council would also not encourage people to prepare huge stocks of medicines. The pricing of the medicines was very critical.

The Chairperson thanked the presenter for the way he handled the briefing and adjourned the meeting.

 

 

 

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