The TAC and Section 27 do not support the current system by which the initial SEP is completely discretionary and untransparent – and whereby prices can be set at levels unaffordable to most of the population
Just because medicine prices are regulated, does not mean they are fair or competitive. The investigation into the pricing of cancer drugs, announced by the Competition Commission this week, has been met by an industry retort that drug prices are already regulated under the single exit price (SEP) system, meaning industry players cannot abuse pricing.
Speaking to City Press this week, Competition Commission head Tembinkosi Bonakele dismissed the apparent contradiction.
None of the three large pharmaceuticals being probed – Aspen, Swiss multinational Roche and US giant Pfizer – is alleged to have contravened the SEP system, but even a price lower than the regulated maximum can be “excessive” under competition law, he told City Press.
“We have investigated other sectors before, regardless of price regulation, such as telecommunications,” he said.
All medicines marketed in South Africa are subjected to a national maximum price that gets adjusted for inflation annually by the department of health.
However, activists and academics have pointed out for a long time that this system has a weakness: the initial price of a drug is set almost entirely at the discretion of the company selling it.
If a drug has no competition – thanks to patent regulation or the minute size of the market for a rare treatment – a company can set a regulated price as high as it wants.
“The initial SEP is at the discretion of the manufacturer or importer and is entirely based on their own commercial calculation, relative to possible competitors,” said Andy Gray, senior lecturer at the University of KwaZulu-Natal’s School of Health Sciences and a research associate at the Centre for the Aids Programme of Research in SA.
“There is no accounting for any costs incurred, whether in development, in manufacture or in marketing, and such costs are confidential,” said Gray.
The whole point of this system is to have only one price for private sector buyers – not to have a costreflective or fair price.
Civil society groups such as the Treatment Action Campaign (TAC) and Section 27, which helped bring at least one of the three cancer drugs in question to the Competition Commission’s attention, have long doubted the SEP system.
“The TAC and Section 27 do not support the current system by which the initial SEP is completely discretionary and untransparent – and whereby prices can be set at levels unaffordable to most of the population,” Section 27 told City Press via email.
The groups have called for the SEP system to incorporate reference pricing. This entails comparing the price set by companies to prices in other countries before sanctioning it locally.
Gray said a proposed system for this kind of international benchmarking was published years ago, but went nowhere.
Another option is doing a “pharma economic analysis” of the price, which means comparing the value of one pharmaceutical drug or drug therapy to another. South Africa has guidelines for this, but it is voluntary and has not yet been used to challenge a medicine price, said Gray.
IT HAS WORKED BEFORE
Competition law has been used to achieve massive gains for health activists in the past.
In 2003, the TAC and the Aids Law Project – the precursor to Section 27 – reported three overpriced antiretroviral medicines to the commission. The case was referred to the Competition Tribunal, which led to the pharmaceuticals involved settling in a deal that saw generic manufacturers receive licences to produce the drugs.
“The voluntary licences led to generic competition and much reduced prices which, in turn, helped facilitate the large-scale rollout of antiretrovirals in South Africa,” said Section 27.
Despite this, the organisation “felt that fighting on a case-by-case basis at the Competition Commission was not sustainable, given our limited resources”.
Instead, it has become part of the Fix The Patent Laws coalition, which is lobbying for generics-friendly reform.
“As it stands, though, people are dying because they cannot afford certain medicines, so we will use whatever law is available,” said Section 27.