# \[e-drug\] Research paper on hidden drug costs (cont) **URL:** \ **Category:** e-drug\ **Created:** [February 13, 2003, 4:27am UTC](https://talk.edrugplus.org/t/e-drug-research-paper-on-hidden-drug-costs-cont/16099 "2003-02-13T04:27:49Z")\ **Posts on this page:** 1\ **Page:** 1
**Author:** ![owner-e-drug](https://avatars.discourse-cdn.com/v4/letter/o/bbce88/32.png) [@owner-e-drug](https://talk.edrugplus.org/u/owner-e-drug)\ **Post date:** [February 13, 2003, 4:27am UTC](https://talk.edrugplus.org/t/e-drug-research-paper-on-hidden-drug-costs-cont/16099/1 "2003-02-13T04:27:49Z")
E-drug: Research paper on hidden drug costs (cont) --------------------------------------------- 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](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" \ -- To send a message to E-Drug, write to: e-drug@usa.healthnet.org To subscribe or unsubscribe, write to: majordomo@usa.healthnet.org in the body of the message type: subscribe e-drug OR unsubscribe e-drug To contact a person, send a message to: e-drug-help@usa.healthnet.org Information and archives: [http://www.essentialdrugs.org/edrug](http://www.essentialdrugs.org/edrug)