What happend to Batho Pele (people first) THE economic development ministry, which oversees the Competition Commission, would be well advised to take note of the Department of Health’s battle to close legal loopholes it says have enabled pharmaceutical companies to use perverse incentives to influence which medicines pharmacies dispense to patients. The department recently published draft regulations to clarify section 18(a) of the Medicines and Related Substances Act and to ban rebates, bonuses and other such incentives, which it believes result in consumers paying more for medicines than they should. Speaking at the Board of Healthcare Funders conference in Durban this week, the department’s sector-wide procurement head, Gavin Steel, said one of the biggest problems was data fees, where pharmaceutical companies offer pharmacies inappropriately large sums of cash for their sales data in return for stocking their products. These sums are estimated to total between R500m and R3.8bn a year on annual private-sector medicine sales of about R16bn. The draft regulations, the government’s second attempt in two years to eliminate creative ways to undermine the spirit of the act in the words of deputy director-general Anban Pillay, set out harsh penalties for breaking the rules. These include the possibility of executives going to prison or fines of up to 10% of annual turnover. The loophole exploitation was entirely predictable. Regulations, which are after all a euphemism for state intervention, invite creative means of circumvention. And, like plugging a hole in a dam wall, inserting a blunt object merely creates new leaks on either side. That is a sound argument against regulation in principle and, when such measures are deemed necessary, for their implementation to be considered carefully to avoid the perennial problem of unforeseen consequences. Governments, especially those of an interventionist bent, tend to assume regulation is the solution to any outcome they do not like, such as high medicine costs. But, as the Free Market Foundation points out, excessive regulation has the effect of deterring competition and putting upward pressure on prices in the long term. And while the economic development ministry clearly intends using competition law to justify ever-greater interference in the private healthcare market, the same rules do not seem to apply to the public sector. On the contrary, competition is actively discouraged, and the cumbersome centralised management that results invariably causes gross inefficiency and waste of public resources. Health economist Alex van den Heever’s warning at the same conference concerning the Treasury’s controversial proposals to regulate health insurance products is a good example of the kind of unforeseen, self-perpetuating — and potentially harmful — consequences that can arise when control-obsessed officials are let loose in a market. The aim of the regulations is to protect medical aid schemes, which are prevented by law from differentiating between members on the basis of age or health when it comes to contributions, and may not turn anyone away. Health insurance products undermine the cross-subsidisation that this approach depends on by giving younger, healthier people a cheap alternative to medical aid. Treasury’s draft demarcation regulations would scrap health insurance policies unless they register as medical schemes, and place restrictions on hospital cash plans and gap cover policies. But Prof van der Heever warns that this will merely provide an incentive for medical schemes to design gaps into their cover to be able to compete on cost, with consumers expected to buy insurance to fill the gaps. The long-term effect may be worse than the outcome the regulations are intended to prevent.
Posted on: Mon, 01 Sep 2014 19:24:46 +0000
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