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Question
Posted by: M | 2004/01/19

Savings on Medicine

1. Can you explain how the new regulations for a single exit price for all will lead to lower prices of medicine? Will the private patient feel the impact at all? Are the estimated drops op 40 - 70 percent in medicine prices realistic?
2. With the pharmaceutical manufacturer still establishing the net price for medicine, how can anybody be sure that the manufacturer will not just increase this net price to recover potential losses? I understand this net price is based on what the market can absorb and not on real R&D, and that even the net price can represent profits of 600 percent or even more.
3. How can/will pharmaceutical companies make sure that they do not take a drop in earnings? If I was head of such a company I would not be happy to make less profit, and would think of ways to sustain my high levels of profit. How can they go about despitte the new regulations? What are the loopholes?
4. What are the chances that pharmaceutical companies won't increase their tender price to state hospitals to recover any loss in income on the private sector side?
Thanks

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Our expert says:
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“Like your yourself, the pharmaceutical industry is grappling with the implications of the proposed changes to the costs associated with the manufacturing and distribution of medicines. The Department of Healthcare would on a regular basis investigate the manner in which the complete healthcare system works from manufacturers, suppliers, providers and those who require the care. One of these investigations has been into the relative cost of medicines. It is generally accepted that around 30% of the overall cost of medical schemes is associated with the provision of medicine. Medical schemes often therefore correctly justify increases in contributions on the basis of the costs in the different areas, like medicines. The Department is trying to deal with this issue decisively.

Until recently most medicines had in-force patents and the industry was to a large extent dependent the original developers and suppliers of these medicines, and the prices that they set. As these patents expired it has allowed other players to come into the market, resulting in generic medicines – almost identical in that they have a similar chemical make up, but at a substantially reduced price (no need for recovery of R&D). The biggest question of all is whether it is reasonable for companies to significantly profiteer from an enterprise that is so fundamentally social, in both its benefits (healing the sick) and the strains on the state, or product providers, (costs of these services). Perhaps if the state paid for R&D then all would be well – but then they would simply be transferring the cost from the private sector to the state sector.



The pharmaceutical industry have 3 months to respond to the proposals by the minister, and I am sure that while there will be some significant savings there will also be some significant compromises. This industry is big business and our tendency towards capitalistic values will not allow what is essentially a socialistic regime to succeed. Either they can make money or they invest their money elsewhere. Making some money is obviously better than making no money. The industry has employed financial specialists to model the value chain with the intention of producing a report that recommends not only how much can be trimmed but also the rate at which it can be trimmed.



The first of the actions to be implemented, from May, will be the banning of the discounting and promotion schemes on certain products whose prices in the past were recovered from the prices of other products.



Regrettably we are not going to see the benefits of the proposed statement for some time to come, and my guess is that it will be gradual.”



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