Letter from South Africa

The livelihood of South Africa's pharmacists are under threat due to recent ill-conceived government legislation, the knock-on effects of which could prove disastrous. Amanda Vermeulen writes

At the end of 2002, the entire graduating class of 600 pharmacists of one of South Africa�s leading universities left the country for greener pastures. This was ahead of new regulations promulgated by the SA Parliament earlier this year, but highlighted a problem in the retail pharmacy sector that in 2004 became critical under the new laws spearheaded by the country�s controversial and unpopular health minister, Manto Tshabalala-Msimang.

New dispensing laws came into effect on 2 August, but are currently the subject of a major court battle. The SA Government introduced a mandatory �single exit pricing (SEP) mechanism�, which in essence prohibits drug makers from negotiating any prices with the country�s roughly 3,000 pharmacies.

Furthermore, the Government has imposed a cap on the pharmacies� dispensing fee of R26 (just over £2 sterling) for any prescribed medicines over R100, which is, in effect, the gross margin the pharmacy may make.

There are other aspects to the legislation as well. Doctors may no longer dispense medication without a licence, and the 1,500 community pharmacies that service large populations will also in effect not be able to service sick people.

The theory behind the Government�s thinking was to make healthcare more affordable but it is, without question, a disastrous piece of legislation.

The upshot is that with the single exit price, the large pharmaceutical groups, who are in the Government�s crosshairs over the provision of generic drugs, have not been able to pass on heavily discounted prices to pharmacies, who previously passed these prices on to consumers.

The end result has been two-fold: for consumers, their prescription drug prices have increased several hundred percent (excluding that not covered by their medical schemes); and for the pharmacies, a margin squeeze which, if unchallenged, will undoubtedly put the majority out of business.

Naturally, the issue has not gone unchallenged. The Pharmaceutical Society, a JSE Securities Exchange-listed company, New Clicks Holdings (the SA equivalent of Boots), and six other applicants launched a legal challenge against the health minister, who has also faced various other court actions in her time for her bizarre stand on HIV/AIDS, claiming at one point this year that lemons, olive oil and beetroot should replace anti-retrovirals.

The coalition challenging Tshabalala-Msimang claims that its objections were never heard, and that 50,000 jobs in SA are at stake over her ministry�s unilateral decision. Counsel has provided evidence of the pharmacy sector�s margin pressure, saying that since 1990, 13% had gone out of business, and 24% of community pharmacies are currently operating at a loss.

While there is little argument that drug prices are high in SA, the Government�s policy of throwing the baby out with the bath water is about to claim yet another casualty. By making prescription drugs even more expensive thanks to the single exit pricing mechanism, an increasing number of people will be forced to use SA�s crippled public healthcare system which is rapidly disintegrating thanks to lack of skilled physicians (many continue to leave the country), poor facilities (hospitals and clinics are closing), the high incidence of corruption and theft, and lack of spending of available budgets.

At one of the country�s biggest public hospitals, the huge Johannesburg General Hospital, getting a prescription filled can take two to three days of sitting in queues, due to the shortage of qualified pharmacists.

The consequences of this poorly thought-out legislation go well beyond just the pharmacies, of course. Many are owned by retail chains that sell a broad range of other consumer goods and, of course, rent large premises in major shopping malls. A decline in their numbers means a contraction in this retail sector, with a knock-on affect on property and, of course, employment numbers, in a country where 40% of the country is officially unemployed and has one of the highest HIV infection rates in the world. And that is enough to make you really sick.

Amanda Vermeulen is the deputy editor of South African magazine, Finance Week.