State control cut medicine costs significantly, study shows

The government’s controversial controls on private-sector medicine prices delivered immediate and sustained savings after they were implemented in 2004, according to research published earlier this week in peer-review journal PLOS ONE.

The study found there was a significant drop in prices of innovator drugs and generic copies of those that were no longer patent protected

The health department introduced the single-exit price (SEP) regulations in an attempt to make private-sector medicines more accessible by regulating prices and introducing transparency along the entire supply chain, from manufacturer gate to pharmacy shelf. The SEP is the ex-manufacturer price of a medicine combined with the logistics fee and VAT, and is the same for all customers, regardless of volume bought. The regulations also cap dispensing fees pharmacists and dispensing doctors may levy.

When the SEP regulations came into effect, a new price was calculated for each private-sector medicine, based on the weighted average of all of the previous year’s sales, including all the discounts and off-invoice rebates enjoyed by key customers. Since then, manufacturers usually get only one price increase a year at a ceiling set by the pricing committee that advises the health minister.

Until now there has been little hard evidence of the effect of this policy. But in a study published in PLOS ONE this week, researchers showed that there were significant and immediate price cuts for the majority of medicines, and that in many cases prices continued to fall.

“This research shows the SEP had a real impact, even on generic pricing, which came down remarkably,” said study co-author Fatima Suleman, who is professor of pharmaceutical sciences at the University of KwaZulu-Natal.