Single Exit Price Legislation: A Source of Harm to Competition

Background

At the time of formulating the Single Exit Price legislation in South Africa; medicine price inflation, medicine price transparency, and medicine price uniformity were all significant problems in an unregulated medicines market. Medicines price inflation was in the double digits during the 1990s and early 2000's; it was impossible to determine the true price of a medicine given the proliferation of discounts and rebates through private arrangements between medicine manufacturers, distributors, and retailers; and as a result patients were in reality paying different prices for the same medicines depending on where these were accessed. The Single Exit Price legislation has addressed each of these issues by reducing medicine price inflation, improving medicine price transparency, and ensuring patients pay the same price for medicines irrespective of point of access.

Price Negotiationpolicylaws

However, the Single Exit Price legislation limits price negotiation and as a result dampens price competition particularly for innovative medicines where no generic alternatives are available. A multinational pharmaceutical company typically sets the price based on international pricing standards, economic value propositions, and corporate pricing policies. At the time of launching the biologic medicine all companies are prevented by the Single Exit Price legislation to negotiate the single exit price.

Our experience suggests that biologic medicine prices could be lower if price negotiation between market participants were permitted. Some multinational pharmaceutical companies would be willing to accept a price lower than the suggested single exit price for its biologic medicine if it were reimbursed by large medical schemes such as Discovery Health, GEMS, Bonitas, and Momentum. That is, the manufacturer would be willing to accept a lower price in exchange for greater volume reimbursed by the medical scheme. However, the current regulatory framework is a significant deterrent to price negotiation and prevents patients from obtaining better prices for biologic medicines and potentially many other medicines on the market.

A Source of Harm to Competition?

We recommend that policy-makers consider introducing medicines price negotiation in its future work and investigate the unintended consequence of Single Exit Price legislation as a source of harm to competition. Mechanisms are needed that enable the whole medicines market from benefiting from a negotiated price between medicine manufacturer and large medical schemes. Meaning, the new negotiated price would "break the floor" beneath the single exit price and improve competitition.

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