Tamar Kahn: Business Day, 1 November 2006

THE future of independent pharmacies is threatened by government's latest plans for capping the fees they may charge on medicine sales, says the Pharmaceutical Stakeholders Forum, representing SA's three biggest pharmacy organisations.

Health Department director-general Thami Mseleku yesterday announced new dispensing fees for pharmacists, along with measures allowing drug manufacturers to hike prices by up to 5,2%, and a proposed methodology for benchmarking medicine prices internationally.

The new dispensing fee comes almost three years after government first announced its controversial regulations to the Medicines and Related Sub-stances Control Amendment Act, launched in April 2004.

The regulations banned a host of perverse incentives such as free samples, ensured the ex-factory price of medicines - the price at which pharmaceutical companies may sell their products to retailers - was the same for all customers (effectively doing away with discounts and volume deals for favoured clients) and, most contentious of all, limited the mark-ups pharmacists could add to the medicines they sold.

The caps were R26 for prescription medicines, and R16 for non-prescription items, levels pharmacists maintained were so low they rendered their businesses unviable.

Pharmacy organisations, private hospital group Netcare and retailer New Clicks took government to court in a bid to overturn these pricing rules.

The Constitutional Court ultimately upheld government's right to regulate medicine prices while ordering Health Minister Manto Tshabalala-Msimang to devise an "appropriate" dispensing fee for pharmacists.

Under the new system announced yesterday, pharmacists may charge R4 plus 33% of the price of medicines costing less than R75, while drugs costing R75-R250 may attract fees of up to R25 plus 6% of their price.

The fee for medicines costing R250-R1 000 will be R33 plus 3% of their price, and for drugs above R100 the fee will be limited to R50 plus 1,5% of their price. The fees include value added tax, and apply to prescription and over-the-counter medicines.

Pharmacies have been given until January 1 to comply.

The system is a slight variation on the draft announced by the minister in March, which said pharmacists could charge R7 plus 28% of the price of medicines costing less than R75; drugs costing R75-R150 could attract fees of R23 plus 7% of their price; medicines costing R150-R250 could garner fees of R26 plus 5% of their price, and fees for drugs above R250 were limited to R31 plus 3% of their price.

"The new model seems considerably less than the one proposed by the Pharmaceutical Stakeholders Forum (PSF). Our concern is that it will jeopardise the viability of pharmacies," said PSF spokesman Ivan Kotze.

He declined to comment further until the PSF had fully analysed the effect of the new system on its members, which include United South African Pharmacies (representing pharmacy businesses), the Pharmaceutical Society of SA (rep-resenting pharmacists), and the South African Progressive Pharmaceutical Association (representing black pharmacy owners).

In contrast to the independent pharmacies, New Clicks welcomed the new dispensing regimen. "We think this is a fair return for pharmacies and benefits consumers," said New Clicks MD David Kneale.

The department's head of pharmaceutical evaluation and planning, Anban Pillay, said the system would see consumers paying less for their medicines than they did in 2003, and urged them to shop around as the new model allowed pharmacies to offer lower rates.

Thabiso Mochiko: Business Report, 1 November 2006

PHARMACISTS have until the end of January to implement a new medicine pricing structure that will also allow drug manufacturers to increase their single exit price by up to 5.2 percent for the first time since 2003.

The single exit price is what pharmacies pay for medicine from suppliers or drug manufacturers.

Under the new regulations, drug manufacturers could apply from October 1 to raise prices by up to 5.2 percent. But approvals may take time as the government is benchmarking prices against those in countries such as Australia, New Zealand, Canada and Spain.

Vicki Ehrich, the chief operating officer of the Pharmaceutical Manufacturers' Association, said the industry welcomed the news as companies had been under pressure from the weaker rand and the fuel price increase.

However, Ehrich said the price increase implementation might be delayed as the government still had to do the benchmark study.

New Clicks chief executive David Kneale said the proposed regulations were viable and the return to the industry would be fair. He added that consumers would also get a better deal.

Thami Mseleku, the director-general at the Department of Health, said the single exit price increase was allowed to be applied to products that were priced below the international benchmark up to the maximum increase allowed, but not exceeding the international benchmarking price.

The news received a cold response from United SA Pharmacies (USAP), the 1200 member-strong retail pharmacy body, which expressed its disappointment with the new regulations.

Under the regulations, pharmacies are allowed to charge a dispensing fee of R4 plus 33 percent of the single exit price of medications that cost less than R75. For drugs that cost between R75 and R250, the dispensing fee is set at R25 plus 6 percent.

On medicines costing between R250 and R1000, the dispensing fee is R33 plus 3 percent. On medication that costs R1000 or more, the dispensing fee is R50 plus 1.5 percent of the price of the drug.

Pharmacies can apply the new fees at once, but have been given until the end of January to comply fully.

USAP chairman Julian Solomon said: "[We] are rather disappointed as this is not going to be adequate." USAP would study the regulations before commenting further.

Mseleku said the new fee structure would ensure that low-cost medicines did not become expensive. Consumers who would benefit the most were those who were not covered by medical aid.

Prices will drop even more once international benchmarking is implemented, the government anticipates.

Since the government and industry players began discussing pricing regulations, medical schemes have made savings of up to 22 percent on the prices of medicines. But those decreases have not been realised by scheme members.

Humphrey Zokufa, the managing director of the Board of Healthcare Funders, said this was because some healthcare services, especially hospital fees, had increased, which made it difficult for schemes to pass the savings through to consumers.