Interview: How South Africa pushed through major reforms to make medicines more affordable

Anban Pillay of South Africa’s health department explains how the country regulated drug prices despite protests by doctors and pharmaceutical companies.

India has long grappled with inordinately high prices of medicines. Despite price control measures like Drug Price Control Orders and price caps on certain drugs and medical devices, Indians continue to spend about 70% of their out-of-pocket health expenditure on medicines.

But there are lessons to be learnt from other middle-income countries on how to regulate the prices of medicines.

A decade ago, South Africa instituted a major medicine price reform by amending its Medicines and Related Substances Act, 1965. Before the amendment, the South African pharmaceutical market was dominated by innovator brands and there were few generic medicines. Innovator pharmaceutical companies sent medicine samples to doctors as well as bonuses and incentives for them to prescribe more expensive drugs.

An innovator drug is a new drug for which the drug developer and manufacturer has a patent. Generics are medicines on which patents have expired. They are sold either as branded products or as unbranded products under their generic names and are cheaper than branded patented medicines.

South Africa’s amended law on drug prices prohibited pharmaceutical companies from offering bonuses, rebates and incentive schemes to doctors and pharmacists, and mandated that pharmacists substitute expensive patented drugs with the cheapest generic drugs.

In India, the National Pharmaceutical Pricing Authority has the power to cap prices of essential medicines. This year, the authority capped the prices of cardiac stents and knee implants. The Medical Council of India issued a circular asking doctors to write asking doctors to write generic names of drugs instead of brand names to allow patients to choose between expensive branded and cheaper generic versions of a medicine. But this has been difficult to implement so far.

South Africa passed its drug price reform in 2008 despite many trade barriers and strong opposition from the pharmaceutical industry. A year later, the prices of generic medicines came down by an average of 25% and the price of drugs under patent came down by an average of 12%. The South African government now only allows price change according to levels of inflation and fluctuations in currency. This year, the price of medicines increased by only 1%, said Anban Pillay, director of the South Africa’s National Department of Health. Pillay spoke to about how the reforms in medicine pricing has changed the landscape of health services in his country.

Can you take us through the set of measures that the South African government instituted to bring about this major price reform?
First, we introduced single exit pricing. A manufacturer should sell medicines at the same price to everybody who comes to buy. Earlier, a smaller pharmacy in a rural community would pay the drug manufacturer higher price while pharmacies in cities buying in volumes would pay lower prices as they would get discounts.

We have a single price that should be published and the medicines should be available at that price to everybody.

We also outlawed rebates and discounts. The prescriber or dispenser cannot ask a pharmaecutical company for rebates. Competition has to be on drug price, not on something else, because otherwise doctors would say to companies, “What will you give me to prescribe the drug?” and pharmacists would say, “What will you give me to dispense the drug?”

How did the government implement this law?
In South Africa, every pharmacy is a regulated. You cannot open a pharmacy without government authorisation. The store is licensed and inspected. Every store is linked to a national computer system. The price file is kept centrally and the price is sent to the pharmacy. [If the price changes], the price file gets updated automatically like an app.

In the private sector, most people have access to health insurance. The health insurer knows the price. You cannot charge him more.

Anban Pillay, director of the National Department of Health, South Africa.
Anban Pillay, director of the National Department of Health, South Africa.

In India, the Medical Council of India said that doctors should write the names of chemical formulations of of drugs and not brand names. Doctors have been protesting this rule for months now. In South Africa too, you have a rule that doctors must write the names of generic medicines on prescriptions. How do you deal with protesting doctors?
We also had that problem. We told doctors, “No, we told them we are not listening”. End of story. They say they want freedom but it was not about freedom to prescribe, but about who gets the biggest kickbacks.

But, the point is they are also not educated in how generics are made. If you ask them “How do you know the product is inferior?” they have no answers. They haven’t done any tests. They have not evaluated it. The fact that it’s cheaper is a big problem for them because they cannot get any margin on it. They really tell us things like “Look at the packaging” and we asked them “Do you really judge drugs by their packaging?”

But the doctors can always verbally tell patients to pick a certain brand from the pharmacy, right?
Yes, patients need to have confidence in the generic product. The doctors instill fear in the patient and tell them not to take the generic drug because it is inferior quality. We need to make sure the patient can argue back and say this is how generic is tested. We share with patients how generics are tested and we work with the generics companies to advertise the way their products are made.

One generics company has an advertisement with a picture of twins. And says what is the difference between the two twins.The drugs regulator is endorsing the campaign, not of the medicine, but of the system.

How does your price control mechanisms in South Africa work?
Unlike India, which can control only a basket of medicines, in South Africa we can regulate every medicine. We feel that price controls should should not be excessive. The moment you fix the price, everybody is required to sell at that price. We also have a mechanism that allows people to sell at a lower price and when they do, the market must give them volumes. They just chase that price.

How do you do that?

Basically, every six months you come up with a reference price, which is you advertise as the lowest price for the product. The people either ask for that price when they are paying out of pocket or the insurance company reimburses at that price. So pharmaceutical companies say that they want to sell at that reference price [at which they will be able to sell greater volumes because of demand at that price].

There were major stock outs of antiretroviral drugs in South Africa in 2014 and 2015. We have the same problem in India. How did the government try to tackle it?
There were a range of problems causing stock outs. We realised that sometimes supply from the company stops. Secondly, sometimes health facilities don’t order proper quantities of drugs. People who order do not take time to order the right quantity.

We first went to big companies like Coca Cola and asked them how they ensure that the product is always available, even in rural areas. They explained to us a simple thing called visibility that they have at various levels. They know every store that buys from them and makes sure that they get adequate supply.

With the Gates Foundation, we developed called a system called the Visibility and Analytics Network. Every drug has to have a bar code. A nurse scans the barcode of each drug. The bar code is programmed into the system, which recognises the product. The person manning antiretroviral centres enters in the system how many drugs of each kind they have in stock every week. Over time the system develops a history or memory of how many you actually utilise in a week. The people at the centre don’t have to tell the government the quantity of medicines they need. The computer works it out. We can tell that this facility needs so many for this month and it flags that. The supplier has to make sure that they top them up with the volume they need.

We have eliminated stock outs now.

In India, various state governments are trying to regulate the private health sector. Doctors are protesting against regulation. What has your country’s experience been in regulating the private sector?
All over the world, the private sector is heavily regulated. Even biggest capitalist countries of the world, like Germany, France, UK, prices are regulated. In developing countries, they hold us to ransom. We must be grateful to them for treating poor patients. That’s the message. Why do they want a premium for treating poor patients?

We are in the process of regulating the private sector, but it is not complete. We have done the first phase of creating a reference price list. We have a standardised template of what it costs a specialist to run his practice – the facility, equipment, staff, etc. We work out from that how much is the cost of a consultation using a particular method. We say this should be the cost of consultation should be. We allow some variance as to less or more than the reference price.

If the doctor charges too much outside the reference price, we subject them to an ethical review by a professional board. Both health insurance companies and patients can complain to this board.

The name of the doctor being reviewed is also published and doctors don’t want their names out.

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What hospitals can do to drive entrepreneurship and enhance patient experience

Hospitals can perform better by partnering with entrepreneurs and encouraging a culture of intrapreneurship focused on customer centricity.

At the Emory University Hospital in Atlanta, visitors don’t have to worry about navigating their way across the complex hospital premises. All they need to do is download wayfinding tools from the installed digital signage onto their smartphone and get step by step directions. Other hospitals have digital signage in surgical waiting rooms that share surgery updates with the anxious families waiting outside, or offer general information to visitors in waiting rooms. Many others use digital registration tools to reduce check-in time or have Smart TVs in patient rooms that serve educational and anxiety alleviating content.

Most of these tech enabled solutions have emerged as hospitals look for better ways to enhance patient experience – one of the top criteria in evaluating hospital performance. Patient experience accounts for 25% of a hospital’s Value-Based Purchasing (VBP) score as per the US government’s Centres for Medicare and Mediaid Services (CMS) programme. As a Mckinsey report says, hospitals need to break down a patient’s journey into various aspects, clinical and non-clinical, and seek ways of improving every touch point in the journey. As hospitals also need to focus on delivering quality healthcare, they are increasingly collaborating with entrepreneurs who offer such patient centric solutions or encouraging innovative intrapreneurship within the organization.

At the Hospital Leadership Summit hosted by Abbott, some of the speakers from diverse industry backgrounds brought up the role of entrepreneurship in order to deliver on patient experience.

Getting the best from collaborations

Speakers such as Dr Naresh Trehan, Chairman and Managing Director - Medanta Hospitals, and Meena Ganesh, CEO and MD - Portea Medical, who spoke at the panel discussion on “Are we fit for the world of new consumers?”, highlighted the importance of collaborating with entrepreneurs to fill the gaps in the patient experience eco system. As Dr Trehan says, “As healthcare service providers we are too steeped in our own work. So even though we may realize there are gaps in customer experience delivery, we don’t want to get distracted from our core job, which is healthcare delivery. We would rather leave the job of filling those gaps to an outsider who can do it well.”

Meena Ganesh shares a similar view when she says that entrepreneurs offer an outsider’s fresh perspective on the existing gaps in healthcare. They are therefore better equipped to offer disruptive technology solutions that put the customer right at the center. Her own venture, Portea Medical, was born out of a need in the hitherto unaddressed area of patient experience – quality home care.

There are enough examples of hospitals that have gained significantly by partnering with or investing in such ventures. For example, the Children’s Medical Centre in Dallas actively invests in tech startups to offer better care to its patients. One such startup produces sensors smaller than a grain of sand, that can be embedded in pills to alert caregivers if a medication has been taken or not. Another app delivers care givers at customers’ door step for check-ups. Providence St Joseph’s Health, that has medical centres across the U.S., has invested in a range of startups that address different patient needs – from patient feedback and wearable monitoring devices to remote video interpretation and surgical blood loss monitoring. UNC Hospital in North Carolina uses a change management platform developed by a startup in order to improve patient experience at its Emergency and Dermatology departments. The platform essentially comes with a friendly and non-intrusive way to gather patient feedback.

When intrapreneurship can lead to patient centric innovation

Hospitals can also encourage a culture of intrapreneurship within the organization. According to Meena Ganesh, this would mean building a ‘listening organization’ because as she says, listening and being open to new ideas leads to innovation. Santosh Desai, MD& CEO - Future Brands Ltd, who was also part of the panel discussion, feels that most innovations are a result of looking at “large cultural shifts, outside the frame of narrow business”. So hospitals will need to encourage enterprising professionals in the organization to observe behavior trends as part of the ideation process. Also, as Dr Ram Narain, Executive Director, Kokilaben Dhirubhai Ambani Hospital, points out, they will need to tell the employees who have the potential to drive innovative initiatives, “Do not fail, but if you fail, we still back you.” Innovative companies such as Google actively follow this practice, allowing employees to pick projects they are passionate about and work on them to deliver fresh solutions.

Realizing the need to encourage new ideas among employees to enhance patient experience, many healthcare enterprises are instituting innovative strategies. Henry Ford System, for example, began a system of rewarding great employee ideas. One internal contest was around clinical applications for wearable technology. The incentive was particularly attractive – a cash prize of $ 10,000 to the winners. Not surprisingly, the employees came up with some very innovative ideas that included: a system to record mobility of acute care patients through wearable trackers, health reminder system for elderly patients and mobile game interface with activity trackers to encourage children towards exercising. The employees admitted later that the exercise was so interesting that they would have participated in it even without a cash prize incentive.

Another example is Penn Medicine in Philadelphia which launched an ‘innovation tournament’ across the organization as part of its efforts to improve patient care. Participants worked with professors from Wharton Business School to prepare for the ideas challenge. More than 1,750 ideas were submitted by 1,400 participants, out of which 10 were selected. The focus was on getting ideas around the front end and some of the submitted ideas included:

  • Check-out management: Exclusive waiting rooms with TV, Internet and other facilities for patients waiting to be discharged so as to reduce space congestion and make their waiting time more comfortable.
  • Space for emotional privacy: An exclusive and friendly space for individuals and families to mourn the loss of dear ones in private.
  • Online patient organizer: A web based app that helps first time patients prepare better for their appointment by providing check lists for documents, medicines, etc to be carried and giving information regarding the hospital navigation, the consulting doctor etc.
  • Help for non-English speakers: Iconography cards to help non-English speaking patients express themselves and seek help in case of emergencies or other situations.

As Arlen Meyers, MD, President and CEO of the Society of Physician Entrepreneurs, says in a report, although many good ideas come from the front line, physicians must also be encouraged to think innovatively about patient experience. An academic study also builds a strong case to encourage intrapreneurship among nurses. Given they comprise a large part of the front-line staff for healthcare delivery, nurses should also be given the freedom to create and design innovative systems for improving patient experience.

According to a Harvard Business Review article quoted in a university study, employees who have the potential to be intrapreneurs, show some marked characteristics. These include a sense of ownership, perseverance, emotional intelligence and the ability to look at the big picture along with the desire, and ideas, to improve it. But trust and support of the management is essential to bringing out and taking the ideas forward.

Creating an environment conducive to innovation is the first step to bringing about innovation-driven outcomes. These were just some of the insights on healthcare management gleaned from the Hospital Leadership Summit hosted by Abbott. In over 150 countries, Abbott, which is among the top 100 global innovator companies, is working with hospitals and healthcare professionals to improve the quality of health services.

To read more content on best practices for hospital leaders, visit Abbott’s Bringing Health to Life portal here.

This article was produced on behalf of Abbott by the marketing team and not by the editorial staff.