State control cut medicine costs significantly, study shows
Single-exit price regulations aimed at easier access to private-sector medication and transparency in supply chain
The government’s controversial controls on private-sector medicine prices delivered immediate and sustained savings after they were implemented in 2004, according to research published earlier this week in peer-review journal PLOS ONE.
The study found there was a significant drop in prices of innovator drugs and generic copies of those that were no longer patent protected.
The health department introduced the single-exit price (SEP) regulations in an attempt to make private-sector medicines more accessible by regulating prices and introducing transparency along the entire supply chain, from manufacturer gate to pharmacy shelf. The SEP is the ex-manufacturer price of a medicine combined with the logistics fee and VAT, and is the same for all customers, regardless of volume bought. The regulations also cap dispensing fees pharmacists and dispensing doctors may levy.
When the SEP regulations came into effect, a new price was calculated for each private-sector medicine, based on the weighted average of all of the previous year’s sales, including all the discounts and off-invoice rebates enjoyed by key customers. Since then, manufacturers usually get only one price increase a year at a ceiling set by the pricing committee that advises the health minister.
Until now there has been little hard evidence of the effect of this policy. But in a study published in PLOS ONE this week, researchers showed that there were significant and immediate price cuts for the majority of medicines, and that in many cases prices continued to fall.
“This research shows the SEP had a real impact, even on generic pricing, which came down remarkably,” said study co-author Fatima Suleman, who is professor of pharmaceutical sciences at the University of KwaZulu-Natal.
The researchers selected three baskets of drugs, and examined prices between 1999 and 2014. In one of the baskets, dubbed the “global” core and drawn from a list of World Health Organisation-approved medicines, they found 10 out of 14 originator molecules showed a significant price drop in 2014. Twenty six out of 28 generics also saw a sharp price cut, and two-thirds of the medicines (65%) saw a sustained drop in prices.
The SEP regulations were immensely controversial when they were first flighted. Pharmaceutical manufacturers warned that the government’s plans to cut medicine prices threatened their viability. Retail pharmacists launched a legal challenge that went all the way to the Constitutional Court, but ultimately saw their dispensing fees regulated.