The Dispensing Fee for Medications: The Negative Effects of Pricing Uncertainty on Pharmacy Practise in South Africa

 

Problems facing organised pharmacy

Inconsistent pricing under uncertainty 

In the thick of legal disputes and ongoing negotiations, the Medicines
Amendment Act has clearly failed to do what it originally sought: to ensure that
consumers pay the same price for the same medicine at any pharmacy.
Corporate chains are able to follow the 26% / R26 cap from 2004 while others,
mostly community retailers, make additional mark-ups to stay in business.
Kobie Visagie, Clicks manager, relates that the chain has always adhered to the
26% / R26 plan without charging extra administration fees. Vaughan Clark,
owner of two independents in Hout Bay, uses a flat 38% mark-up.14 “Business,”
he says, “wouldn’t be able to survive on anything less.”

The independent manager in Muizenberg uses a tiered structure with rates
higher than those proposed by government thus far. He cites the Medicines
Amendment Act as the beginning of a “disruptive effect.” Though no pharmacy
has ever been forced to change its pricing plan, announcements by the
government about levelling prices and by the Health Minister that consumers
should “shop around for their medications” 15 put pressure on small pharmacies
to fall in line with the corporate chains. “Either you stick to the 26/26 cap and 

risk going out of business, or you charge your own fee and risk going out of
business,” he says.
Consumer choice and adaptation by the supplier are part of any competitive
market, but six years of publicising regulations without implementing or
resolving them have left government with one foot in and one foot out of the
regulatory arena. A market that once self-regulated has long been warned of
change, but left wondering how and whether it will happen.

The effect of pricing uncertainty on consumer choice depends on the ability of
consumers to “shop around” given possible constraints on travel or restriction to
a given pharmacy (and thus a given fee) by a hard-to-find medication.
Their medical schemes, meanwhile, are accused by the PSSA of setting
unreasonably low reimbursement rates and justifying them under conditions of
uncertainty in the market. Certain schemes have allegedly refused to increase
reimbursements since 2005, sticking to the R26 cap and pressuring pharmacies
to either adjust their dispensing fees or pass the excess on to the consumer. 16 In
the latter case, small pharmacies risk losing customers to corporate chains that
implement the R26 cap as a matter of course. 

Problems in government regulation 

Because it was never effectively enforced, the dispensing fee per se cannot be
blamed for problems seen in South African pharmacy. More persuasive is the
idea that the long process of resolution drags on the system, and that government
mismanagement holds some of the blame. Negotiations fuel an uncertain
market, debate expends time and resources, and organised pharmacy struggles to
show commitment to a solution while still keeping to its own fees to safeguard
business. Communication breakdown and policy disagreement could be
minimised if a few problems internal to the Health Department could be
addressed. The solution, it seems, will have to have as much to do with clear
decision-making and enforcement as with the dispensing fee figure itself.

The PC and methodology

 “The Pricing Committee remains problem number one,” said USAP Director
Gus Ferguson during a phone interview in April 2009. The committee suffers
structural problems, according the PSSA, and chief among them is the fact that
key members are employed by the medical aid industry.22 Medical insurers stand
to benefit from a low-capped dispensing fee and, as previously discussed, seem
to be profiting to the detriment of the consumer in these times of uncertainty.
Organised pharmacy cites the PC’s lack of a chartered accountant as evidence
that the committee is not equipped to account accurately for the cost of running
a pharmacy. Returning to the 2006 cost per item analyses, the industry’s R30
figure was validated by Price Waterhouse Cooper, whereas the PC’s R19.46 had
no outside validation. Delays in policy implementation have been attributed to
“incorrect accounting interpretations.”23
Also at issue is the PC’s exclusion of pharmacy costs outside the dispensary.24
Though the fees proposed apply only to the dispensary, their financial

implications reach to wider concerns like property, utilities, staffing and product
stocking. Dispensing fee policy and resultant financial constraints have in some
cases forced pharmacies- community retailers especially- to make changes in
staffing and in stocking of non-medication products like vitamins and toiletries.
Problems internal to the PC and inconsistencies with the PSF led to
discrepancies in cost projections, and hence to the repeated objection to
proposed legislation the part of organised pharmacy. After the Health
Department’s announcement of an R21.46 fee, the PSF determined that of a
sample of 2,467 community pharmacies, 1,557 would likely fail and another 368
would be put at significant risk.

 Non-transparency in government

 Vaughan Clark characterises the relationship between the organised pharmacy
and the Health Department under Health Minister Manto Tshabalala-Msimang
as one of “mistrust and disillusionment,” where meetings with representatives
from the Department and the PC would lead immediately to incongruous policy
announcements. Though established to collect information from all stakeholders
and advise the Health Minister, the PC was thought to be misrepresenting
organised pharmacy’s interests in communication with higher decision makers
in the Health Department.

The PSF hopes to see greater accountability and accessibility of these decision
makers in government. Recent efforts to settle a fee out of court, and indeed
much of the preceding legal history, involved meetings with representatives
whose communication up the chain appeared warped to those on the ground.
The 2006 PC report leading to the announcement of a R21.46 fee – “totally
inaccurate” according to the PSSA – seemed to suggest to the Health Minister
that the majority of stakeholders were in agreement when in fact this wasn’t the
case. 

The Health Department has also been tardy in its release of information
concerning pharmacy closure. USAP projected closures of some 2-300
pharmacies leading the Health Department’s 2004 release of the data, which,
despite a flurry of new state licensures for railway dispensaries and state
pharmacies, was around a “shockingly high” 500 according to Gus Ferguson As mentioned previously, closure data from the South African Pharmacy
Council reveals important gaps. Closures date to either 2004 or 2007 with no
indication of turnover in between, and 2004 is the latest and only available
report on the type and number of pharmacies operating in the country. The
Council was established to register all pharmacists and pharmacies in the
Republic. Composed of pharmacists itself, it seems in prime position to “advise
the Minister or any other person on any matter relating to pharmacy,” as
prescribed in the 1974 Pharmacy Act. In practise, though, pharmacists seem to
regard the Council as less of an advisor and more of a tool of the Health
Department. It “registers who the Health Department tells [it] to,” says Emily
Kalonga, Officer of the Registration and Records department. Given some
initiative of its own, and with its relationship to the Health Department
recalibrated, the Pharmacy Council could be instrumental in channelling
information on the state of pharmacy business to government and to the public.

Issues of accessibility and transparency in decision-making are particularly
disconcerting given the weight of responsibility vested in small groups to
resolve these multilateral and complex negotiations. The 2008 Medicines
Amendment Bill, for example, aimed to regulate costs in the private sector
delivery of health services through the office of a Facilitator, one person
appointed by the Health Minister to weigh the interests of many stakeholders
(pharmacy, medical aid, civil society).29 The Treatment Action Campaign in a
2008 release labels this office “entirely political” and “fundamentally mistaken,”
calling for the increased independence of the Facilitator via parliamentary
appointment.

Barbara Hogan’s appointment as Health Minister in 2008 was viewed as a
positive step to some. She expressed interest in working toward an expedient
and fair solution,31 and Clark and Ferguson both confirm that she met personally
with representatives of the PSF. Though too soon to comment on the intentions
of the new Health Department under Aaron Motsoaledi, they hope for the good 

faith effort to carry over and take as a positive indicator the fact that the PSSA
expects a more reasonable announcement as early as June 2009.

Source: 

University of Cape Town

CENTRE FOR SOCIAL SCIENCE RESEARCH

Aids and Society Research Unit 

The Dispensing Fee for Medications: The Negative Effects of Pricing Uncertainty on Pharmacy Practise in South Africa 

Alexander Andrews

CSSR Working Paper No. 261
September 2009

Mozambique Doing Business - South Africa

2025

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