State looks to close incentivising loopholes for drug makers

The Department of Health has revived its attempt to close legal loopholes that it says allow drug makers to incentivise pharmacies and medical schemes to promote their products, contrary to the spirit of existing regulations.

The growth in incentives is an unintended consequence of the medicine pricing regulations introduced in 2004. These stipulate that pharmaceutical manufacturers must sell medicines at the same prices to all their customers, regardless of the volume purchased. These regulations control all the markups added along the supply chain, from factory gate to pharmacy checkout.

In a bid to crack down on pharmaceutical companies that have found legal ways to get around these rules to boost their sales, the Department of Health last week published an updated set of draft regulations to section 18a of the Medicines and Related Substances Act, proposing a ban on bonuses, data fees and a host of other incentive schemes. The revised version fine-tunes draft regulations published three years ago, which elicited extensive comment, said the department’s head of sector-wide procurement, Gavin Steel.

“We had very complex input from a variety of stakeholders. Clearly, there are those who are gaming the system who want the status quo to be maintained, but others had legitimate business practices that would have been affected,” he said.

The new draft regulations incorporated medical devices for the first time, but since these products were currently not governed by the pricing controls imposed on prescription medicines, this had little immediate effect, said Steel.

The draft regulations aimed to ban activities that provide discounts to middlemen rather than patients, Steel said.

“There are medical schemes [that] will only list medicines on their formulary if they [the pharmaceutical manufacturers] pay a formulary fee. It’s not clear that those savings are passed on to the patient,” he said.

The department was also concerned about data fees that were structured to reward higher sales volumes, Steel said. He previously told Business Day that these fees could amount to as much as R3.8bn a year.

The draft regulations include harsh penalties for firms that break the rules, including imprisonment of up to 10 years or a fine of up to 10% of annual turnover. The proposals are the department’s third attempt in the past five years to eliminate a host of mechanisms allegedly used by pharmaceutical companies to boost their sales.

Generic and Biosimilar Medicines Southern Africa’s Vivian Frittelli welcomed the draft regulations, saying they would level the playing field.

The Innovative Pharmaceutical Association of SA, a trade body representing multinational drug firms that hold the patents on branded products, said it was studying the draft regulations and would submit its comments in due course.

“Our assessment of these proposed regulations will be based on the potential benefits it will bring to patients,” said CEO Konji Sebati.