Medicine prices set for 6.8% rise
The health department has told pharmaceutical manufacturers they will be permitted an aboveinflation 6.79% hike for private sector medicine sales in 2024, offering drugmakers some relief from rising input costs, but piling pressure on cash-strapped consumers and medical schemes.
The SA Reserve Bank put inflation at 5.8% in November and expects it to average 5% in 2024. This year’s increase is above inflation for the first time since 2020, and comes in the wake of 2023’s relatively low hike, which triggered intense pushback from the pharmaceutical industry.
Private sector medicine prices are tightly regulated, and the health minister usually announces only one upward adjustment to the single exit price (SEP) each year, after consultation with the medicine pricing committee. This committee seeks industry input before making its recommendations to the minister but does not make its guidance public.
Last year’s SEP adjustment was set so far below consumer price inflation — at 3.28% — that the pharmaceutical manufacturing industry successfully lobbied for an extra, in-year price increase of 1.73% in July.
The Bank’s November 2022 forecast for consumer price inflation was 6.7%.
Pharmaceutical task group chair Stavros Nicolaou welcomed the 2024 SEP adjustment, describing it as a “significant improvement” on the 2023 increase. “It is slightly lower than we anticipated, but we are pleased that there is a more rational and scientific determination (of the increase),” he said. “We have to strike a balance between patient access and a sustainable industry.”
The task group had anticipated a SEP increase of 8%-9%, based on a formula that incorporated inflation and exchange rate fluctuations in the previous year, Nicolaou said.
Insight Actuarial Solutions CEO Christoff Rath said many of the company’s medical scheme clients had budgeted for a SEP increase of 5%-5.5% in 2024, as they had based their assumptions on the historical relationship between inflation and the SEP.
“The difference translates to approximately 0.2% to 0.4% of scheme contributions, depending on individual schemes’ circumstances. While these percentages may appear small, one must bear in mind that this comes at a time when medical schemes are doing their utmost to shave fractions of percentages from their announced contribution increases to assist consumers,” Rath said.
‘UNUSUALLY HIGH’
The Board of Healthcare Funders (BHF), an industry association for medical schemes and administrators, said the inflation increase in the SEP was concerning. “It is unusually high and is going to have a huge impact on schemes,” said BHF head of research Charlton Murove. “If schemes were operating in an environment that was better regulated they would be in a better position to absorb it.”
Medical Scheme administrator Discovery Health said the SEP increase was in line with its expectations and budgets for 2024, but warned the higher-than-inflation increase would have a knock-on effect and lead to higher medical inflation.
“To mitigate the effects of medicine price increases on medical scheme members, Discovery Health has a range of protective mechanisms in place and arrangements with pharmaceutical suppliers across the industry, and we remain optimistic that not all pharmaceutical suppliers will take the maximum allowable SEP increase for 2024,” Discovery Health CEO Ron Whelan said.