The companies that could be big winners with the NHI

 ·24 May 2024

Pharmaceutical companies and big pharma retailers stand to gain from the immense buying power of the National Health Insurance Fund once it is in operation – but contracting will need to be negotiated, and doubt remains about the state’s capacity to pay on time.

Since the drafting of the National Health Insurance (NHI), questions have arisen about the impact that the legislation would have on pharmaceutical companies and retailers.

In South Africa, around 80% of the population uses public healthcare, with the more affluent 20% opting for private healthcare, while it is estimated that up to 79% of doctors work in the private sector.

Very broadly, the NHI legislative framework, which has been met with fierce opposition from various business, medical and political groups, is designed to establish a universal healthcare system, promising to provide equitable access to quality healthcare services.

The expected impacts of the NHI on pharmaceutical companies and retailers include concerns over pricing regulations, procurement models, potential reductions in earnings for suppliers, and the need for collaboration between the public and private sectors to ensure a sustainable healthcare system.

NHI reaction

One of the country’s biggest pharmaceutical manufacturers, Adcock Ingram, wrote before the NHI was signed that “the impact on pharmaceutical companies is not explicitly outlined in the Bill, relative to how other stakeholders will be impacted.”

However, “the NHI pharmaceutical procurement model is expected to be based on negotiated central pricing, combined with balancing of government policy which prioritises reduced medicine costs,” said Adcock Ingram.

As a result, “the presence of a single purchaser of scheduled pharmaceutical products (Schedule 3 upwards) may give the NHI Fund significant buying power,” the company added.

However, “lower pricing for pharmaceuticals suggests lower earnings for suppliers (local and international), particularly those that serve South Africa as a primary market,” wrote Zivai Mukorombindo.

Pharmaceutical retail brand Dis-Chem said that “the NHI has attracted criticism since it was first introduced… [and] Dis-Chem remains concerned about the ability to fund this bold initiative, but supports the need to make quality healthcare accessible to all South Africans.”

“A workable NHI requires a strong private sector that works effectively and collaboratively with the public sector, to build a strong and sustainable healthcare system that is national asset,” added the company.

What are some of the expected impacts?

Speaking about how the NHI would affect the pricing and market access of pharmaceutical products, Dis-Chem CEO, Rui Morais said that “the regulatory environment for medication pricing will govern this to a large degree – specifically single exit pricing (SEP) regulation.”

Broadly, SEP regulation mandates that pharmaceutical companies (manufacturers) set a single maximum price for each medicine, encompassing both the manufacturer’s price and the mark-up by wholesalers and retailers to ensure transparency and affordability in the pricing of medications.

Healthcare providers (e.g., Dis-Chem as a pharmaceutical retailer) with scale and a proven track record at offering lowest cost equivalent medication (generics) to patients will be well placed to contract the government under NHI,” said Morais.

On the potential financial implications of the NHI for pharmaceutical retailers, Morais said that retailers will play a crucial key role in providing access to primary healthcare services with the rollout of the NHI, notably access to medicine and primary healthcare clinics.

“Notwithstanding contracting discussions that have yet to commence, Dis-Chem’s national network of dispensaries and health clinics positions the group ready to provide access to primary healthcare for all South Africans,” said Morais.

Speaking about how the changes in reimbursement mechanisms or pricing policies may affect revenue and profitability, Morais said that contracting discussions have yet to commence, so it is not possible to offer a formal view.

However, assuming that “market-related commercial terms are agreed, and given Dis-Chem’s established infrastructure and scale, being a participating private sector service provider should not be revenue or earnings dilutive,” said Morais.

“The big unknown is NHI’s ability and reliability to pay providers,” he added

The CEO said that the rollout could be effective, but he believes that it “will only work in an environment of deep collaboration, partnership, and trust between the public and private sectors.”

Read: It will be different this time: Ramaphosa promises NHI won’t be looted like the R500 billion Covid fund

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