The promotion, marketing and sale of medicines, medical devices and related products is regulated in South Africa. It is governed by the Medicines and Related Substances Act, 101 of 1965, as amended ("the Act"), and the following regulations promulgated in terms of it:
- Regulations relating to a transparent pricing system for medicines and Scheduled substances, dated 11 November 2005 ("the Pricing Regulations");
- General Regulations dated 25 August 2017 ("the General Regulations").
The laws and regulations around the marketing and sale of medicines, Scheduled substances and medical devices are highly technical and aimed primarily at achieving the objectives of the National Drugs Policy of the Department of Health. For this reason, they may clash with the commercial interests of suppliers, and for that reason, despite that they have been in effect for several years, continue to be a source of frustration to some. Participants in the supply chain must be sure that they are well acquainted with these laws and regulations and structure any transaction related to the supply of the affected products so as not to contravene the law.
Section 22H(1) of the Act provides that a wholesaler may only purchase medicines, Scheduled substances, medical devices or IVDs from the original manufacturer or from the primary importer; and may only sell them into the retail sector.
The Act does not prohibit an original manufacturer or primary importer from selling products to another manufacturer or importer, or to a retailer.
However, the Act and Pricing Regulations place restrictions on the prices at which products may be sold, and what other amounts be charged in connection with the purchase and sale of such products, which may affect the commercial viability of such transactions.
- Section 22G(3) of the Act requires the Minister to prescribe by regulation a "transparent pricing system", which is to provide for a "single exit price" ("SEP") to be published for every product. The SEP is the price set by the manufacturer or importer of a medicine or Scheduled substance in terms of the Pricing Regulations combined with the logistics fee and VAT;
- Regulation 6 of the Pricing Regulations amplifies the provisions of section 22G, providing that "[a] manufacturer, importer, distributor or wholesaler may not charge any fee or amount other than the single exit price in respect of the sale of a medicine or Scheduled substance to a person other than the State".
- The "logistics fee" is defined in the Pricing Regulations as "the fee, inclusive of VAT, that is payable in respect of logistical services". "Logistical services" are "those services provided by distributors and wholesalers in relation to a medicine or scheduled substance including but not limited to warehousing, inventory or stock control management, order and batch order processing, delivery, batch tracking and tracing, cold chain storage and distribution".
- Section 22G(2)(b), read with section 22G(3)(c), permits a retailer to charge a dispensing fee, determined by the Minister. The dispensing fee is not charged to the retailer's direct supplier (i.e., the wholesaler) and included in the SEP, but is charged to the consumer, over and above the SEP.
The cumulative effect of these provisions is:
- A manufacturer, importer or wholesaler may not sell medicines or Scheduled substances to any other party other than the State (whether that party is another manufacturer or importer, a wholesaler or a retailer) at any price other than the SEP.
- A wholesaler who renders logistical services may charge the manufacturer or importer a logistics fee. The amount of that fee must be equal to the logistics fee published as a component of the SEP.
- A retailer, such as a dispensing pharmacist, must charge the consumer the SEP for the medicine or Scheduled substance, but may also charge the consumer a dispensing fee. The dispensing fee is therefore the only "margin" the retailer may make on the sale of the product.
- Section 18A of the Act provides that "[no] person shall supply any medicine... according to a bonus system, rebate system or any other incentive scheme". The effect of section 18A is that no transaction in terms of which any medicine is sold may be structured in such a way that the purchaser is incentivised to purchase greater quantities of those products.
- Selling a product subject to a rebate may amount not only to a contravention of section 18A of the Act, but also of section 22G, read with regulation 6 of the Pricing Regulations, as selling a medicine at a discount will amount to a sale at a price lower than the single exit price.
The following general principles may be derived from the legislation:
- A manufacturer or importer may sell products to another manufacturer or importer;
- A manufacturer or importer may sell products to a wholesaler. However, unless it is licensed to act as a wholesaler, it may not sell products to retailers;
- A manufacturer or importer may not sell products to any other party in the supply chain at any price other than the SEP. The manufacturer or importer may not offer a purchaser preferential pricing in the way that a supplier of a product not falling within the purview of the Act might do, e.g., in return for purchasing larger quantities of a product or for paying the purchase price promptly;
- A wholesaler may not sell products at any price other than the SEP. The wholesaler may charge the manufacturer or importer from which it purchased the products the published logistics fee forming part of the SEP, in return for rendering logistical services;
- A manufacturer or importer, a wholesaler or a retailer may render services not falling within the definition of "logistical services" and may charge a fee for doing so. The fee should be calculated according to the value of the services actually rendered and should not be linked to the price or quantity of any products.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.