TCS Daily

Who is Bullying Whom?

By Richard Tren - March 30, 2004 12:00 AM

"Bully tactics adopted by the company will not undermine our effort to make medicines more affordable." These are the words of South Africa's Minister of Health, Manto Tshabalala-Msimang in reaction to a comment made senior drug company executive. The supposedly "bullying" comment was merely that the company in question (German drug manufacturer Boehringer Ingelheim) could not justify continued investment in South Africa in the face of the proposed draconian drug price regulations. The comment was far from threatening; I know because I was there when it was made.

The comment and the drug price regulations have to been seen in some sort of context. Since the first democratic elections ten years ago, the ANC government in South Africa has been largely anti-drug company. Healthcare legislation and regulations since 1994 have undermined intellectual property rights and have in general treated the private healthcare industry as a healthcare problem rather than part of the solution. Government's stance has meant that since 1994 around 30 companies have closed down their manufacturing plants in South Africa. Some of this has been due to mergers and some due to increased production in centres of excellence around the world. One thing is sure though, South Africa was never (and probably will never be) a candidate for a centre of excellence.

In January the Minister published her proposed regulations on drug price transparency. Among other things the regulations require drug companies to cut the prices of all current products by 50%, impose stringent rules on price increases and require drug companies to reveal their most secret information on drug development. The regulations also impose mark up rules on drug wholesalers, distributors and retailers that are so unrealistic and ill conceived that it will drive most of the downstream industry out of business.

Interestingly, Leon Louw from South Africa's Free Market Foundation explains that the regulations are in fact ultra vires -- they exceed the authority of the Minister as the Medicines Act doesn't give the Minster the power to demand the price cuts. The Act empowers the Minster to determine a transparent pricing system and to prescribe ways in which prices should be published. Nowhere is the Minister or anyone else granted powers to cut prices by 50% nor to impose regulations on price increases. Yet seemingly unbothered by the niceties of the Constitution and the rule of law the Minster bulldozers ahead.

It's a topsy turvy world when the government so blatantly ignores the law (to say little of plain common sense) and threatens to destroy an entire industry and yet manages to portray itself as the victim and the industry as the bully. Of course if the Minister can ignore the Constitution, the irony of the situation will most certainly be lost on her.

According to some industry insiders, the regulations will be amended to be less draconian and the 50% price reduction will probably not be written into the final regulations. Yet the entire concept of regulating prices is wrong and the regulations shouldn't be amended, they should be scrapped in their entirety. It is depressing to be living in a country where people still think price controls work. They don't. Price controls hurt consumers and hurt poor consumers most.

At a recent panel discussion in Johannesburg, Dr. Kgosi Letlape head of the South African Medical Association explained how the regulations would be disastrous for patients, particularly poor patients in rural and impoverished areas. Even if drugs are still available in the country (and that is seriously in doubt), the regulations on distribution and retailing will mean that it will only be financially viable to distribute to the major urban centres.

Successive Apartheid governments regulated the prices of thousands of goods and all they ever did was reduce supply, increase demand, restrict competition and hurt the consumer. Again, no doubt, the irony that the ANC government is using Apartheid government price control regulation will be lost on the Minister.

It is an outrage that the Minister should be accusing the industry of bully tactics. It is only acting rationally and courageously expressing what many of us know to be true. When the regulations were first published, the drugs industry on the whole tried to cooperate with government and publicly stated that it agreed with the objectives and intentions of government. One should be sceptical about this stance as if industry agreed with what government was trying to do, it would have cut its prices and revealed its secret information anyway. The pity is that when one drug company executive told the truth and warned of the effect on his industry, he was castigated.

Perhaps the South African government thinks it can get away with regulations such as these because it can bank on its "rainbow nation" goodwill. Yet that time is past and perhaps the drug companies should withdraw and send a clear message to government: It will invest where it is made welcome and not where it is bullied and harassed.

Richard Tren is a regular contributor to TCS and director of the health NGO Africa Fighting Malaria. He recently moderated a panel discussion in Johannesburg on the proposed drug price regulations.


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