South Africa: Judgment By The Constitutional Court In Respect Of The Medicine Pricing Regulations: A Recipe (Perhaps)?

Last Updated: 2 November 2005
Article by Neil Kirby

There has been much comment in the media following the judgment by the Constitutional Court on medicine pricing. The judgment was decided on 30 September 2005 and during October 2005 newspapers, magazines and the Internet have been inundated with commentary and analysis concerning the effects of the Constitutional Court's judgment.

Much of what has been stated concerns, I suppose what people usually worry about when it comes to a judgment, who won? The question is misconceived in so far as medicine pricing was never about any of the parties who ultimately went to court. Medicine pricing, as a component of the national health policy in South Africa, was designed to benefit the consumer. Therefore, the question is whether or not the man and woman in the street won in relation to medicine pricing. The answer to this question is determined with reference to whether or not the man and woman in the street is, as a result of the judgment, going to be paying less for medicine?

The effect of the Constitutional Court judgment is that prescribed dispensing fees, which were to be charged by pharmacists for the purposes of dispensing medicine, were held by the Court to be not "appropriate". This is the only aspect that was removed in its entirety from the medicine pricing regulations ("the regulations"). In effect, the prescribed dispensing fee, which previously existed in the regulations, was removed and replaced with the individual pharmacist's discretion in so far as he or she wishes to charge a dispensing fee for rendering his or her professional services. What is not reported in the press, with any degree of conviction, is the Court's statement that: "[it] holds unanimously that the challenge to the regulations overall must fail and that the [Supreme Court of Appeal] was accordingly wrong in setting aside the regulations as a whole."

Importantly, the Court went out of its way to preserve as much of the regulations as it was able. It did so by exercising its powers to amend the wording of the regulations in certain respects so as to align the regulations with the provisions of section 22G of the Medicines & Related Substances Act No. 101 of 1965, as amended, which gives the Minister of Health the power to promulgate the regulations and bring them into law.

What then remains, once the Court furnished its de- and re-construction, is a system of regulating the pricing of medicines and not the dispensing of them. Therefore, the concept of a "single exit price", which is applicable to all medicines in the country but for Schedule 0 medicines that are exempted by the Minister of Health, remains applicable:

"Wholesalers, distributors and retailers may not sell medicine at a price higher than the single exit price. Wholesalers and distributors may charge only an agreed logistics fee subject to the controls imposed by the regulations. That is a coherent system, consistent with the Medicines Act, that gives effect to the main object of section 22G."

The Court therefore endeavours to expose the regulations to a legal analysis in order to ensure that the regulations pass constitutional muster and remain part of South African law. This, the court holds, is consistent with the objectives employed by the Medicines Act in order to ensure that medicines become more affordable for the public at large:

"In this regard, it should be emphasized that the regulations seek to introduce a new scheme with the purpose of enhancing access to affordable medicines, a goal to which all the parties to this dispute subscribe and which is in the interest of all consumers of medicine. For this goal to be achieved, the co-operation of all interested parties in both its establishment and implementation is required. Interested parties should therefore provide any information required by the Pricing Committee or the Minister as fully and timeously as possible."

The effect therefore of the judgment is that new regulations must be published within sixty days of the judgment being delivered.

The majority judgment was handed down by his Lordship Mr Justice Chaskalson. The Court was concerned primarily with two issues: the role of administrative justice in relation to the regulations and the constitutionality of the regulations.

The basis upon which the court decided that the dispensing fee, prescribed by the regulations, is "not appropriate" is based on the principle of reasonableness. In so far as decisions by administrators, in case the Minister of Health and the Pricing Committee, are concerned, these decisions must be made in an acceptable way. Chaskalson CJ states that in so far as the dispensing fee is "appropriate", it will then be reasonable within the meaning of the phrase used in the Promotion of Administrative Justice Act No. 3 of 2000 ("the PAJA"). The PAJA requires all administrative action to be reasonable. The dispensing fee was found to be "not appropriate" as it was unreasonable and contravened the provisions of the PAJA. Close examination by the Court of the issue of a dispensing fee, in the light of the prevailing principles of South African administrative law as cast in terms of the PAJA, resulted in the finding that the dispensing fee was "not appropriate". The approach by the Court is a useful recipe that should be followed, during the process that is to occur within the sixty days following the judgment, for the purposes of revising the regulations.

The starting point for the recipe is section 27 of the Constitution, 1996. Section 27 guarantees to all South Africans the right to access of reasonable healthcare services including reproductive healthcare services. The court re-states this as an obligation of the State that, in terms of section 27 of the Constitution, obliges the State to take reasonable measures to enhance access to healthcare. The Court then relates section 27 directly to section 22G of the Medicines Act, stating that "[s]ection 22G requires the measures taken to achieve this end to be 'appropriate'. The cost of medicine is relevant to accessibility, but it is not the only factor. The medicine must be available to those who require it. Pharmacies are an essential component of the distribution chain. If pharmacies go out of business the accessibility of medicines will be impaired. An appropriate fee is thus one which at least strikes a balance between these requirements of cost and availability." This appears to be the formula for reaching or determining an appropriate dispensing fee. Even after all the representations are made again and the information is re-read, re-examined and received, re-analysed and unpacked once again, the formulation of an appropriate dispensing fee will and must ultimately be based on a formula that demonstratively "strikes a balance between" the requirements of section 27 of the Constitution, essentially, and "cost and availability". The two competing interests therefore are those of the public, in so far as it is able to access affordable medicines, and the financial, long-term viability of pharmacies.

The Court then examined the expert evidence contained in the papers. In its comments, the Court points to the second part of the recipe. This part of the recipe requires the powers that be to consider that "the only way that compounding and admixing can be dealt with, if regard is had to the provisions and purpose of the Medicines Act, is to treat these functions as being an aspect of the dispensing function for which special provision has to be made in addition to the basic 'dispensing fee'. And this, the regulations fail to do. This omission is a factor relevant to the issue of the appropriateness of the dispensing fee." Clearly therefore, any revision of an appropriate dispensing fee must include aspects concerning compounding and admixing as well as any other professional services rendered by a pharmacist when dispensing medicine.

The third part of the recipe is a recognition of the distinction amongst four groupings of pharmacies: community pharmacies, hospital pharmacies, rural pharmacies and courier pharmacies. This is not the legal distinction that is drawn in the regulations promulgated in terms of the Pharmacy Act No. 53 of 1974. The distinct categories recognised by the Court all play a particular role in the provision of medicines to the public at large. Bearing in mind, that the accessibility of medicines is a battle fought mostly in under-serviced rural areas, the ability of courier and rural pharmacies to fulfil the role of the accessibility of medicine becomes important.

Whilst there are a number of judgments that are published, which form the whole of the judgment by the Court, there is consistency in the judgments recognising the four categories of pharmacies to which I have already referred. Therefore, this recognition may require the Pricing Committee to examine whether or not it is indeed feasible to apply one dispensing fee to all pharmacies irrespective of their location and the particular role that they play in promoting the accessibility of medicine. The idea is not to make dispensing fees uniform and apply them to all pharmacies irrespective of the nature of the pharmacy concerned but to take into consideration the context the role that a particular pharmacy plays in a particular community in relation to the making available medicines to the community it serves. Whilst the Court makes no comment on what the dispensing fee should be in respect of courier or rural pharmacies or how that fee should be established, the Court does say that the representations that were made to the Pricing Committee concerning the distinctions that it should draw in the compilation of a dispensing fee were not heeded. In this regard, the Court states that: [t]here is nothing to show that the concerns expressed by the Pharmacies at the oral hearings or the information provided by them at the hearings was taken into account by the Pricing Committee." Listening to people is an important component of administrative justice. Taking into account what is said, how it is said and what information is used to support what is said, form an integral component of what ultimately amounts to procedurally fair administrative justice for the purposes of South African law:

"'Accountability, responsiveness and openness' on the part of government are foundational values of our Constitution. An allegation has been made by professional organisations representing pharmacists that the dispensing fee will destroy the viability of pharmacies, and impair access to health care. That allegation is supported by a sufficient body of evidence to show that this is a real possibility. In the circumstances the applicants were under an obligation to explain how they satisfied themselves that this would not be the result of the dispensing fee prescribed in the regulations. They were the only persons who could provide this information. They did not, however, do so. Absent such explanation, there is sufficient evidence on record to show that the dispensing fee is not appropriate."

The result is that the Pricing Committee did not listen and consequently could not explain, in light of what it was supposed to have heard, why it imposed the dispensing fee that it did. This may be the most important part of the recipe: to listen. In so far as a public body invites comments from the public, in relation to the formulation of a law, albeit in the form of a regulation or a recommendation, then the public body must listen to the representations that are made. Now that the Pricing Committee has been granted a reprieve, in so far as it has been requested to re-consider the issue of a dispensing fee, it may be worth its while not only to listen but to read: the judgment by the Court is, with respect, well considered and operates almost as an instruction manual to the Pricing Committee for the purposes of getting it right this time. The evaluation of the expert evidence by the Court, more particularly in paragraphs 389 to 403, is instructional, at least, in relation to what it is that the Pricing Committee should be doing when re-formulating an appropriate dispensing fee.

The single exit pricing of medicine remains part of our law and always will. The formulation of a single exit price for medicine may reduce the price of medicine in the hands of the consumer. Bear in mind, however, that the single exit price of a medicine is not what you will be paying when you buy your medicine in a pharmacy. You will be in a position to assess whether or not you have been charged a single exit price but, in addition to the single exit price, you will be charged additional fees by the pharmacist for the various professional components that he or she has employed in dispensing that medicine to you. In so far as most manufacturers, wholesalers and distributors of medicines in this country have already adopted the single exit price, and the Minister has already commented that medicines are becoming cheaper, the ultimate commercial and practical effect on your pocket may not be all that it is promised to be and cheaper medicines may ultimately remain more an idea of law than a function of commerce.

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