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Medicines pricing, impact and pharmaceutical benchmarking

02 April 2008

In Categories: Nursing

On 1 December 2006, a draft medicine pricing benchmarking methodology was published by the Department of Health on the recommendation of the Pricing Committee.

Val Beaumont, M.Pharm, FPS, Executive Director, Innovative Medicines SA Elsabé Klinck, B.Juris, L.LB, BA Hons, Health Projects Manager, Innovative Medicines SA

On 1 December 2006, a draft medicine pricing benchmarking methodology was published by the Department of Health on the recommendation of the Pricing Committee. Background to international benchmarking The benchmarking of medicines forms part of the Pricing Regulations of 2004, published in terms of the Medicines and Related Substances Act of 1965, as amended. Section 22G of the Act tasked the Pricing Committee with the introduction of a transparent pricing system.

This system included the setting of a Single Exit Price (SEP) and a system of logistics- and dispensing fees. The logistics fees are included in the SEP, so that the basic price patients pay for medicines in the private sector, are exactly the same, irrespective of where such patients are. SEPs were set during the second half of 2004.

Other components of the regulations include:
• The capping of logistics fees
• The setting of dispensing fees for medical practitioners and pharmacies
• The setting of the SEP for new products
• Annual price increases
• International benchmarking
• Publication of unreasonable prices.

Of these, only the setting of the SEP for new products and annual prices increases has been established. Success of current pricing regulation implementation The implementation of the SEP in 2004 yielded a saving of between 19 and 21% over the total market. In addition, there has been price freezes since the publication of the draft SEP-regulations.

The first announcement for price increases (of 5.2% for the years 2005 and 2006) where made in October 2006, which increases became effective, for companies, which notified the Department of Health, early 2007. These savings have also impacted the medical schemes environment. If the so-called “healthcare pie” is re-drawn (figure 1, based on CMS Annual Report 2005-2006) to include the costs relating to the full delivery of healthcare, medicines only constitute 13,45% of the Rand spend in the total medical schemes market. When non-healthcare costs are removed from the pie, the medicines portion is still in line with international benchmarks (if set in terms of the relevant insured populations) (Figure 2).

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