E-drug: Research paper on hidden drug costs (cont)
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Dear E-druggers,
While I agree with the points made by Hilbrand Haak, I think there
are additional factors to consider when reading Libby Levison's paper
on "hidden costs".
Some of these may however be more reflective of my own environment
than generally true of the wide range of countries that Libby
surveyed (or of developing countries as a whole). South Africa might
represent an atypical case - it is a middle income country with
considerable local manufacturing capacity (also relevant perhaps to
the current Para 6/Doha discussions?), and a distinct market served
by both a for-profit private sector and a largely free (at point of
care) public sector. Only 17% of the population have access to
medical insurance (medical aid schemes), while most of the balance
depend on the public sector (although the extent of out-of-pocket
purchases remains poorly characterised). SA Pharmaceutical
Manufacturing Association (PMA) projections for 2002 were that the
public sector would account 23% of medicines sales (by value),
private hospitals 13%, dispensing practitioners 12% and retail
pharmacies 52% - worth in total about US$1.1billion.
My reason for quoting these figures is that the "hidden costs"
operate to very different extents in the two major markets - while
wholesale/retail mark-ups and VAT (as in Libby's Table 3) certainly
contribute a lot in the private sector, they are also somewhat
ameliorated by the practice of discounts, rebates and loyalty awards.
The manufacturer's factor gate price is still the single largest
component (see a chapter I did with Thulani Matsebula for the 2000 SA
Health Review - at http://www.hst.org.za/sahr/2000/chapter9.htm - for
details; we estimated the exit price as accounting for 60-69% of
final prices to private sector purchasers). The public sector faces a
totally different set of "hidden costs" - these are perhaps even more
difficult to measure, as they should include issues such as losses
due to shrinkage, expiry, irrational use, poor supplier performance
and poor quantification. To further complicate matters, it could be
argued that at least some of these also apply to the private sector.
SA is also not typical, in that it relies entirely on local
procurement (including competitive bidding in the public sector), and
also levies minimal import taxes, rendering import-related costs
"hidden" in factory-gate prices.
While not all of Hilbrand's additional cost control mechanisms (to
add to Table 4) are within the grasp of public policymakers (eg
differential pricing can be seen as a choice made by manufacturers,
cf. use of reference pricing as a government measure), he does add
some useful pointers. Thulani and I listed the options open to
government as:
* Producer price control measures (direct price controls, reference
pricing systems, equity pricing, generic policies)
* Distribution chain cost controls (mark-ups and fixed professional
fees, value-added tax)
* Bulk purchase measures (tender and negotiation strategies,
regional initiatives)
* International trade agreement relief measures (compulsory
licensing, parallel importing)
* Demand side measures (rational drug use, co-payments).
[note: we also listed equity pricing - is that really a govt choice?]
SA will also be worth watching in the near future, as it constitutes
an advisory "Pricing Committee", prohibits bonusing, sampling and all
forms of discount/incentive schemes, introduces parallel importation
and allows for international tendering by the State procurement
authorities. Regional procurement options have also been examined.
Overall, while these SA-specific twists and turns show how
complicated the field is, they don't detract from a though-provoking
paper. While Table 4 might be a bit "thin", the 9 identified policy
and programming options remain valid. The last of those - introducing
transparency - is one of the aims of the SA Medicines Amendment Act
of 1997, expected to be brought into effect in April 2003. Achieving
that goal is not going to be easy.
regards
Andy
Andy Gray
Senior Lecturer
Department of Experimental and Clinical Pharmacology
Nelson R Mandela School of Medicine
University of Natal
andy@healthlink.org.za
PBag 7 Congella 4013
South Africa
Tel: 27-31-2604334/4298 Fax: 27-31-2604338
"Andy Gray" <andy@gray.za.net>
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