Disappointed: The severe backlog in the registration of new medicines will be extended. Picture: SUNDAY TIMES
Disappointed: The severe backlog in the registration of new medicines will be extended. Picture: SUNDAY TIMES

Medical schemes are appealing to the health department to reject pharmaceutical manufacturers’ request for an extra price increase for medicines, arguing they are already taking strain from 2018’s VAT increase.

Medical schemes would incur additional costs of at least R260m over the next four months if the government agreed to a price increase at the level of consumer price inflation, according to the Health Funders’ Association (HFA), which represents medical schemes and administrators.

The increase in VAT, which rose from 14% to 15% in April, had already imposed an unexpected increase in expenditure of R875m on the industry, it said. Most schemes had absorbed these costs without passing them onto members.

"Based on data from our member organisations, medical schemes have experienced significant cost inflation during the first half of 2018, a trend which is expected to continue through the rest of 2018 and into 2019.

"Overall cost inflation of medicine is driven not only by the [price] adjustment but by volume growth as well, which compounds annual medicine price increases," said HFA CEO Lerato Mosiah.

BASED ON DATA … MEDICAL SCHEMES HAVE EXPERIENCED SIGNIFICANT COST INFLATION

"Despite this year’s regulated [price] increase of 1.26%, during the first half of 2018 overall cost inflation for chronic medicines increased by up to 6%, and up to 8% in the case of cancer medicines for some medical schemes," she said.

Pharmaceutical manufacturers are lobbying the department for an extra increase for private sector medicine prices to counter the weak rand. Private sector medicine prices are controlled by the health department, which means drug makers cannot pass increased input costs on to consumers, and they thus face a squeeze on profits when the rand weakens. The rand is down 12.65% against the dollar so far in 2018, and was trading at R14.17 on Tuesday afternoon.

Drug manufacturers are required to sell their products at the same price to all their customers, which is known as the single exit price (SEP). An annual SEP increase is determined by the health minister, based on advice from the medicines pricing committee, but he has the power to permit an extra increase and did so in 2016 when the rand weakened significantly over a sustained period.

The pricing committee is on Wednesday due to meet the Pharmaceutical Task Group, which represents all the key industry associations for drug manufacturers, along with the HFA and the Board of Healthcare Funders.

Mosiah said funders were concerned about the lack of government oversight of the launch price of medicines. "Deals secured in other countries especially for novelty medicines are not competitively secured for SA [as] there is no formal international price benchmarking. This will be discussed for further investigation … with the health department," she said.

The PTG said last week that it had been disappointed by the 1.26% SEP increase that took effect in January, as it failed to cover manufacturers’ increased input costs, notably labour and utilities. The margin pressure this created had been compounded by the weak exchange rate, it said at the time.

The BHF’s benefit and risk department head Rajesh Patel said medical schemes wanted greater transparency from drug manufacturers about their pricing structure.

kahnt@businesslive.co.za

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