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Methodology for conforming with international benchmarks, 2006

Submission on Methodology for conforming with international benchmarks of the prices of medicines

Government Notice 2007 of 2005 (Government Gazette No. 28214 of 11 November 2005) calls for submissions – amongst other things – on a methodology for conforming with international benchmarks of the prices of medicines. According to the notice, the methodology will be determined and published by the Minister of Health (“the Minister”) in terms of regulation 5(2)(e) of the Regulations Relating to a Transparent Pricing System for Medicines and Scheduled Substances (“the pricing regulations”). We welcome the opportunity to provide input into this important process and hope that our recommendations will assist the Pricing Committee and the Minister in their deliberations.

This joint AIDS Law Project (ALP)/Treatment Action Campaign (TAC) submission is based on our support for the development and implementation of the methodology as an integral component of a range of regulatory tools that are designed to ensure access to a sustainable supply of affordable essential medicines. We continue to welcome government’s efforts to increase access to medicines, an integral part of the right of access to health care services that is entrenched in section 27 of the Constitution. In particular, we recognise the importance of regulating private sector medicine prices. By expanding access to health care services through the reduction of medicine prices, appropriate private sector regulation has the potential to relieve the burden of disease on the public sector. This is increasingly important in the context of an expanding HIV/AIDS epidemic that is already placing extreme pressure on a weak public health system.

Following the Constitutional Court’s decision in Minister of Health v New Clicks SA (Pty) Ltd, in which former Chief Justice Chaskalson referred to the methodology as “an essential part of the pricing system”, regulation 5(2)(e) now provides as follows:

The Minister on the recommendation of the Pricing Committee must determine and publish in the Gazette a methodology for conforming with international benchmarks, taking into account the price, and factors that influence price, at which the medicine or Scheduled substance, or a medicine or Scheduled substance that is deemed equivalent by the Minister on the recommendation of the Pricing Committee, is sold in other countries in which the prices of medicines and Scheduled substances are regulated and published and the single exit price of each medicine or Scheduled substance must, within 3 months of publication of such methodology in the Gazette conform with international benchmarks in accordance with such methodology.

Regulation 5(2)(e) thus requires the development of a framework that will regulate the way in which the single exit price (“SEP”) of each medicine3 conforms with international benchmarks. But what is meant by the phrase “conform with international benchmarks”. To conform means to match, agree with, correspond, fit or be consistent with. Benchmarks are standards, yardsticks, levels, targets, scales or points of reference. In other words, SEPs will have to be set at levels that are consistent with relevant international pricing scales, assuming that such comparisons can indeed be found. The methodology to be adopted should therefore set out the ways in which this consistency should be achieved, taking into account the price – and the factors that influence price – at which a relevant medicine or equivalent is sold in other countries where medicine prices are regulated.

While some may question the wisdom of subjecting all medicines to an international benchmarking exercise, particularly in those circumstances where it is possible to ensure sufficient competition amongst pharmaceutical companies, regulation 5(2)(e) makes it plain that the “single exit price of each medicine or Scheduled substance must … conform with international benchmarks”. This does not mean, however, that the methodology should adopt a one-size-fits-all solution. Indeed, such an approach has the potential to fall foul of various provisions of the Constitution.

Because the call for input on the international benchmarking methodology was made in the absence of any draft proposals, it is not possible for this submission to be anything but limited in its focus. Instead of concrete proposals on a methodology, this submission will instead focus on the following:

  • The meaning and implications of section 25(1) of the Constitution, which protects against the arbitrary deprivation of property;
  • Unpacking the detail of regulation 5(2)(e); and
  • Pragmatic considerations for using international benchmarking.

In so doing, this submission aims to assist the Pricing Committee in developing a draft methodology that will be published for comment before it is finalised and presented to the Minister for her consideration. Given the partially successful constitutional challenge that followed the promulgation of the pricing regulations, resulting in the significant delay of the full and proper implementation of the Medicines and Related Substances Act, 101 of 1965 (as amended), we are of the view that every attempt should be made to ensure that this process runs as smoothly as is reasonably possible in the circumstances. In short, this means following fair, open and accountable processes, as well as adopting a methodology that is developed with the state’s constitutional obligations firmly in mind.

Methodology For Conforming with International Benchmarks – 2006 – TAC ALP