Shoprite hit by dispensing fee pricing system

Shoprite has lodged a complaint with the Competition Commission, asking it to probe the pharmaceutical supply chain in its healthcare inquiry after it was not fully reimbursed for its dispensing fees in its 150-strong MediRite chain.

This is based on concern over the effect of pharmaceutical dispensary agreements between chemists and medical aid schemes and administrators.

Government sets a four-tier pricing system and recommends particular dispensing fees, but it is up to medical scheme administrators to negotiate with pharmacy chains as to what they will pay.

Shoprite's chief executive, Whitey Basson, said recently at the group's results presentation that not applying the full four-tier dispensing fee had a R98-million effect on the group.

This would have been for dispensing fees, the fee pharmacists are paid for putting together medication for scripts, from medical scheme administrators.

Basson has voiced concern about the sustainability of pharmacies in the country and the balance of power in negotiating medicine fees. Three medical schemes, Discovery Health, Metropolitan and Medscheme, comprise about 85% of MediRite's transactions.

Pharmacies have to sell medicines at single-exit prices, which does not allow the company to negotiate with suppliers to reduce the price of drugs and which caps prices.

Clicks Group CEO David Kneale said the actual fee paid to pharmacies was negotiated between pharmacies and medical aids. "Medical aids pay up to double the dispensing fee to independent pharmacies than to Clicks," he said. Those fees come out of members' medical savings accounts.

Rejected claims represent more than R10-million of Clicks' operating profit, which Clicks needs to cover. "Pharmacies are financially challenged in that they are low-margin businesses. We're operating a low-margin business in a context where there's a shortage of qualified pharmacists. In addition, we're operating in what is a highly regulated market."

Kneale said the Department of Health controlled how many pharmacy licences it issued.

"We would open more pharmacies if we could obtain more licences."

For example, Clicks has 65 pharmacies in the 11 National Health Insurance (NHI) pilot districts, "but we could operate 90 pharmacies in those districts, improving access to medicine, if we could get the licences".

"All over the world, pharmacies play a vital role in delivering medicines. The question in South Africa is not whether the role will always exist, but how much bigger could their role be in delivering better primary healthcare."

Niall Hegarty, a director at Dis-Chem, said competitive pressure had kept many of the bigger chains at lower dispensing fees in the hope of bringing customers to the pharmacies.

"The medical aids are generally good payers, and do pay at the negotiated, albeit lower rates. The advantage to the medical aids and the patients is their medical benefits will last longer with lower amounts claimed from the funders.

"The retail pharmacy industry is not an easy place to be. The margins in the dispensary are very low, with expensive overheads and increasing pressures to reduce the price of medicine."

Dis-Chem also wants to be involved in the department's health plans to roll out NHI, and Hegarty said they were to a limited extent working with the Western Cape government in this regard.

The country's largest medical scheme Discovery Health pays a negotiated dispensing fee rate to corporate and community pharmacies. Corporate and independent pharmacies are paid different negotiated dispensing fee structures, and corporate fees tend to be lower.

Jonny Broomberg, CEO of Discovery Health, said the scheme did not pay full dispensing fees where a pharmacy was not part of the Discovery network and charges dispensing fees higher than schemes' network dispensing fees.

The Competition Commission has launched an inquiry to determine causes of price increases and spending that tend to be above inflation in private healthcare to understand what features prevent, distort or restrict competition, to promote competition in the sector.