Transcript Implications of the medicines pricing regulations

Practical Challenges
on the
Medicine pricing Regulations
Presentation to the
Portfolio Committee on Health
By the National Department of Health
16 November 2004
1
Key Issues





Single exit price for medicines
Fee for wholesalers, distributors
Fee for dispensing of medicines
Transparent pricing system
No volume discounts, rebates or bonuses.
2
Pricing Committee
 Committee appointed in 2003
 Researched the operations of the
pharmaceutical industry in SA
 Prepared draft regulations for Ministers
considerations
 Reviewed comments from stakeholders
 Amended and published final regulations in
April 2004.
3
Directorate Pharmaceutical
Economic Evaluations
 Establishment of the Directorate
Pharmaceutical Economic Evaluation in the
Cluster Pharmaceutical Policy and Planning.
 Directorate responsible for implementation,
monitoring and advise on strategic planning
 Structure and functioning of the Directorate
based on international models.
4
Pharmaceutical challenges facing
South Africa
The public spends R3 billion on medicines for
38 million South Africans.
The private sector spends R13 billion on
medicines for 7 million South Africans
Many employed South Africans cannot buy
medicines in the private sector simply
because the prices are out of reach.
5
Interventions used Internationally
to promote access
Pricing policies
 Generic substitution
 Reference pricing
 Performance based pricing
Promoting appropriate use of medicines
-EDL, STGs
Volume control
6
Interventions targeting
manufacturers
 Removal of discounts, rebates and other
perverse incentives from the 2003
manufacturer price
 International Benchmarking
 Reference pricing
 Economic analyses
7
Interventions targeting Wholesalers
and pharmacists
 A fee for wholesalers/distributors
 A fee for pharmacists
8
Implementation of Regulations
 Liaison committees established with major
stakeholder groupings
 Phased approach to implementation – web
page, hotline
 Constant monitoring of prices and impact of
the regulations on all stakeholders in the
supply chain.
9
Calculation of the dispensing fee
Guiding Principles in setting the fee:
 Reimburse pharmacists for professional services
rendered
 Simple for the consumer to understand
 Cover the costs of dispensing
 Discourage profiteering from dispensing of high
cost medicines
 Schedule 0 medicines should be excluded from
the pricing regulations
10
Pharmacy Council Procedure Codes
for Dispensing
 Review prescription - 2 units
 Picking and labelling of medicines – 1 unit
 Handing medicine to patient plus
counselling – 3 units
 Total of 6 units
 1 unit = one minute
11
DATA ANALYSIS
 PSSA report (bar graph) confirms that after
discounts pharmacists margin is 20%.
 Data from IMS, Mediscor and Medikredit
analysed to determined the overall margins
of retail pharmacies.
 Analysis suggests that an overall retail
markup of approximately 24%.
 Additional 2% for stockholding
12
Meetings with the PSSA
 August 2002 – advise PSSA that DOH will be setting a
dispensing fee. (Dr Zokufa/Pillay)
 October 2003 – request for data on overhead costs,
number of scripts, expected remuneration. (Data task
team)
 26 April 2004 – request for raw data – Task Team
appointed by Minister
 7 May 2004 – second meeting about data required
 19 May 2004 – raw data on financial statements only
supplied to NDOH. Other data requested still outstanding.
 TWO WEEKS LATER WE ARE TAKEN TO COURT
13
What about the Actuaries report?
 Data is from only 81 pharmacies (3%) – NDOH
was not provided with the raw data despite
requests.
 Limited to the period 1 March 2003 – 31 May 2003
 Actuaries do not provide any assurance about the
data – “conclusions affected by data accuracy”
 Actuaries recommend longer time period, other
data sets incorporated and alternative scenarios
tested.
14
The Auditors Report
The only raw data the department has
received from the PSSA is UNAUDITED
financial statements from 176 pharmacies
The Financial statement relates to the entire
pharmacy not just the dispensary.
The pricing regulations only affect the
dispensary within a pharmacy!
15
Net Profit %
Gross Profit vs Net profit
5
4
3
2
1
0
-1 <20 20
-2
21
22
23
24
25
26
27
28
29
30
Gross Profit %
16
Number of Pharmacies
making a loss
No. of pharmacies making a loss in each GP category
10
8
6
4
2
0
<20 20
21 22
23 24
25 26 27
28
29 30
Gross Profit
17
What did the PSSA propose?
Drug less than R50 (SEP):
Dispensing fee = R25 plus 25%
Example - drug with an SEP of R10 will cost
R37.50 since the pharmacist will get R27.50
Drug greater than R50 (SEP):
Dispensing fee = R25 plus 12.5%
18
Estimated Savings to Patients
IMSA study suggests that the potential savings
to patients is in the region of 19% which is
estimated to be worth 2.3 billion
These are ex-manufacturer price comparisons.
The consumer has not been able to extract the
full benefit of these savings due to admin
fees.
This savings has to translate into lower medical
aid subscriptions.
19
Interim Relief and Pharmacists
BHF study involving data from majority of
administrators suggests that pharmacists
have been making much more than even
the dispensing fee they have asked for!
Average dispensing fee for acute – 47.68%
Average dispensing fee for chronic – 42.31%
20
What has happened since the court
ruling in favour of the Minister
 Pharmacists have started to charge
administration fee
 NDOH has emphasised that this is contrary
to the spirit of the regulations
 The administration fees seem to vary and
are clearly unrelated to the cost of any
administration
 NDOH IS LOOKING AT AMMENDMENTS
TO STOP THIS PRACTICE.
21
Are retail pharmacies closing down?
How do we assess the validity of this claim?
FACTS VERSUS EMOTION
Survey of the incomes and expenses of the dispensary only.
(300 required to date only 80)
 Submitted to the retail pharmacy stakeholders for
comment.
 Survey will assess whether the claim is valid
 What is the reason for the loss? (scripts, rent, dispensing
fee, other overheads)
 If the dispensing fee is inappropriate then what should the
fee be given the items dispensed and expenses?
22
Are retail pharmacies closing down?
Data on number of pharmacies opening over the
past 3 years:
2002
186
2003
150
2004
105(Jan – Sept)
Data on number of pharmacies closing over the past
3 years:
2002 160
2003 129
2004 55 (Jan-Sept)
(Source: SAPC)
23
NOT ALL RETAIL PHARMACISTS
SUPPORT THE PSSA APPROACH
Pharmacists from disadvantaged communities
distance themselves from the court action.
Acknowledge that the PSSA has not been cooperative with NDOH. Most pharmacists are nor
aware of the quality of the data supplied by PSSA.
Embarked on a policy of co-operation with the
NDOH.
Supplying the data as required by NDOH.
Embrace the objectives of the NDP and partner
NDOH to achieve objectives of the policy.
24
What about VAT?
Pricing committee recommended that
Department of Finance review the possibility
of removing VAT on medicines.
Dept of Finance investigating this issue.
Challenges:
Will the removal of VAT result in a 14%
reduction in medicine prices?
Alternatively can we use VAT on medicines to
promote access to medicines?
25
OECD Countries
How have the OECD countries responded to
the increased cost of pharmaceuticals?







introduction of a transparent pricing system ,
policies to influence physician prescription behaviour,
introduction of generic drugs policy,
development of formularies and guidelines,
introduction of price controls and/or profit controls
Fixed fee for wholesalers
Fixed fee for dispensing
26
Thank You
27