SOUTH AFRICAN COURT ISSUES KEY PRICING DECISION

After 18 months of uncertainty, South Africa's Constitutional Court has finally delivered its judgement on the government's controversial drug pricing laws. The decision is a mixed result for the government and the pharmacy sector, which have both claimed victory.

The Regulation on the Pricing of Medicines and Related Substances has been in limbo following legal challenges from the pharmacy sector -- which succeeded in convincing South Africa's Supreme Court to throw out the legislation in December 2004. However, the Constitutional Court's ruling confirms that much of the law except the controversial dispensing fee regime will stay in place. This will include legal recognition of the Health Department's right to regulate prices.

The retail sector has been hardest hit by the new regime, which replaced a lucrative mark-up system with a fee-based structure. Under the law, dispensing fees for prescription drugs were set at a maximum ZAR26, or 26% of the manufacturer's selling price, while fees on OTC medicines are capped at ZAR16, or 16% of cost. This applies to all medicines over ZAR100, and the Single Exit Price was calculated according to the average 2003 manufacturer's price, value-added tax and a variable "logistics fee."

The government and industry players now have 60 days to agree a new pricing model, but the delay is likely to be longer, as it appears that the entire fee structure will have to be renegotiated. The final shape of the law is likely to include a better deal for pharmacists, and a mixed combination of a percentage of drug costs and flat dispensing fees would please most industry stakeholders. That said, the law has been characterised by bitter wrangling since its introduction.