NOTE ON SEP INCREASE
Towards the end of last year, the Minister of Health announced an increase in the Single Exit Price (SEP) of 1.26% for 2018. The pharmaceutical sector highlighted their disappointment at this increase, citing inflation as a baseline, which is closer to 5%.
This arguably low increase, however, provides some much-needed relief to a private health care sector struggling to contain costs. The average annual medical scheme increase typically exceeds inflation by 3% to 4%, and thus any reductions in expenditure will support lower increases for medical scheme members in subsequent years. In 2016 outpatient medicine expenditure totalled R24 billion, accounting for almost 16% of all private health expenditure. In spite of this, the actual medicine-related revenue from the private sector is in fact even greater than this figure, which does not account for inpatient expenditure, nor out-of-pocket costs incurred by members (in form of co-payments, for example).
From 2011 to 2016, total medicine expenditure has increased by 8.4% despite an annual effective SEP increase of approximately 5.8% over this same period, which implies an increase in utilisation. With 8.4% annual revenue growth for pharma, it is likely that the sector is already realising the benefits of economies of scale. A decrease in margins, justified by the observed increase in utilisation, could ameliorate the existing affordability issues by reducing out-of-pocket expenditure and improving access to medication. These outcomes support the principles of universal health coverage, a goal which all stakeholders should be striving towards.
Although the prices of each medicine are publicly available, one needs to question the degree of transparency involved in the initial registration of each product, based on underlying input costs for example. Should this black-box approach hold true, any subsequent increase controls are in fact redundant. The resistance to a low increase should also be weighed up against the significant discounts which are typically inherent in tender contracts with the State. In some instances, discounts of 90% are applied to medication accessed within a public setting. This also brings into question the pharmaceutical sector’s consistency and integrity, since prices significantly below SEP are deemed acceptable for the public sector.
The above considerations therefore beg the question as to whether pharmaceutical companies should more critically be considering their role in the national drive to promote affordable access to health care and universal health coverage, and to protect the sustainability of South Africa’s private health care system.
What are your thoughts?
