Журнал молекулярной фармацевтики и исследований органических процессов

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Regulatory Analysis of Mark-up Structure in Medicine Prices by the Pharmaceutical Industry in South Africa

Ondo ZG

ABSTRACT
Access to medicines depends on variety of interconnected
factors: Medicine prices, one among the foremost common
factors are often suffering from the manufacturer’s selling
prices, duties, taxes, patent legislation and mark-ups along the
supply channel. The South African government has passed
price legislation prohibiting discounts and rebates in the
pharmaceutical sector by setting a single exit price for all
manufacturers and a fee-for service logistics fee for
wholesalers, distributors and dispensing fee for retailers as
compensation. In this study the South African mark-up
structure associated with medicine prices goes to be
analysed due to its tribulations in implementing a transparent
wholesale reform and therefore the fact that it had been once
classified under the nine countries from the WHO African
Region for analysis of knowledge from their Medicines
Prices Surveys. This Literature based-analysis study made
use of articles, journals for assessing and identifying the
denominators liable for high mark-ups on medications.
Documentation pharmaceutical policy papers and
publications, researches performed using PubMed and
WHO/HAI medicine price database were also used to assess
those areas and come up with possible strategies to reduce
high price of medication and improve access of healthcare
by the general public .
In private sectors, regulating mark-ups is more complex and
weaker than in the public sector which is a reason for higher
medicine costs. Policy development need to be reviewed in
terms of pricing policies and regulation of mark-ups so that
people of South Africa receive the medicine they need at a
cost that they and the system as a whole can afford. This
structure can help to raise further awareness and prompt the
government to evaluate the regulation on entry point drug
developers.
In today’s world, the access to medicines depends on a
number of interconnected factors of the availability of safety
and efficacy, the quality of medicines, its quality assurance, a
reliable supply system, rational selection and use of
medicines as well as functioning health care system . Even
when all those elements are present the lack of affordable
medicine prices can prevent access to essential medicines.
Medicine prices are usually affected by the manufacturer’s
selling prices, duties, taxes and mark-ups along the supply
channel. Various retail strategies are often used by suppliers
of medicinal products to induce their clients (wholesalers or
retailers) to purchase and sell more of their products. These
global strategies can include cash rebates, volume discounts,
bundling or other deals .
Each of those are often addressed separately or compositely
in attempts to scale back the costs of medicines and
thus facilitate access to essential medicines.
The South African government has passed legislation which
makes it unethical for prescribers to be influenced by
pharmaceutical representatives in unduly prescribing a product
on the promise of an incentive and compel manufacturers to be
transparent in their pricing structure. In South Africa, traditional
pharmaceutical wholesalers have been a strong force in the
pharmaceutical sector. During the 1990’s, pharmaceutical
companies started to establish their own distribution channel to
supply products whereas others entered into distribution
agreements with independent thirdparty logistics companies
.These changes allowed manufactures to bypass wholesalers and
gain greater control over the supply and marketing of their
product. It also increased their margins at the expense of
wholesalers .In 2004, price regulation was introduced which
prohibited discounts and rebates in the pharmaceutical sector
setting a single exit price for all manufacturers and a fee-forservice
logistics fee for wholesalers, distributors and dispensing
fee for retailers as compensation . This does however not apply
to the national or provincial governments where drugs on the
essential medicines list (EML) are acquired through a tender
process and supplied to the relevant healthcare facility.
Exclusion from this practice is based on the National
Department of Health’s aim to provide equal access to
medicines for all South Africans through the Essential Drugs
Programme.
Another factor that plays a role in medicine price is the patent
system which is granted in South Africa to the developers of
medicine for legal protection on new and industrially applicable
inventions. In this legislation of act 57 of 1978, protection is
granted for 20 years from the filing date of the non-provisional
patent application. Patent legislation contributes to high prices
to cover research and development costs whereas generic drugs
are important cost-savers bypassing the developmental stage of
drug manufacturing . Medicine prices can be considered a
crucial element in determining its access by the population,
which may be constrained by many factors, both geographic and
economic . South Africa was selected for this study as a result
of its tribulations in implementing a transparent wholesale
reform of the medicine pricing structure and also because it was
once classified under the nine countries from the WHO African
Region to analyse data from their Medicines Prices Surveys .
High price mark-up structures could raise further awareness and
prompt the government to evaluate the regulation on entry point
drug developers . The government subsidies will be taken into
consideration knowing that government industries prices should
be less than the private companies. This study will help to
identify areas in the chain where pricing structures are
concerned analysing the critical aspects disabling access to
medicines.
Regulation of mark-ups as a part of a comprehensive price regulation strategy probably will cause reduced medicine
prices. However, regulation of mark-ups without regulation
of either the manufacturer’s asking price or the retail asking
price is unlikely to steer to reduced medicine prices. In
private companies regulating mark-ups is probably more
complex than in the public sector. While banning discounts
rebates and bonuses in the supply chain probably increased
transparency in medicine pricing but there is insufficient
evidence to say whether it leads to reduced price. The real
test is in implementation of work policy to satisfy the public
which should be supported by good governance.
The public will only be happy when prices start to go down
because nowadays, people want visible action and results to
follow statements of good intent. This commitment must go
beyond lip service to include active participation in the
process of initiation, review and modification to ensure that
the people of South Africa receive the drugs they need at a
cost that they and the system as a whole can afford.
The poor governance is costly for governments and result not
only to valuable health sector resources lost, consumers or
buyers of products un-satisfaction but also in future donor
funding compromised due to the loss of credibility affecting
the economic sector. The high market value of medicines
makes them a target for theft according to consumers.
Policy development need to be reviewed in terms of pricing
policies and regulation of mark-ups that are required to
increase availability, reduce prices, and improve affordability
and also include more sectors and other essential medicines.
It should contain aspects of price control and incentives in
order to reduce prices.
Further research to find out factors that impact on medicine
prices within private and public sectors by comparison to
medicine prices making use of a survey for assessing and
identifying the denominators responsible for high mark-ups
on a particular medication from the start of manufacturing to
the eventual sale to the consumer would be one of my further
objective.
Keywords
Mark-up; Medicine prices; Regulations; Pharmaceutical
sectors; Pricing policy; Regulation; Access to medicines;
Possible strategies; Supply chain