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 Scroll.in 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.