Netcare calls for medicine price inquiry

Published May 21, 2013

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Londiwe Buthelezi

Medicine pricing should be the first factor that the market inquiry into the private health-care sector looked at, Netcare chief executive Richard Friedland said, decrying that the group paid 40 percent more for medicines in South Africa compared with those overseas.

“There is a view that we are subsidising government drugs procurement, but that’s pushing our costs,” Friedland told Business Report after the release of Netcare’s financial results for the six months to March.

Friedland’s statement supports recent claims by Médecins Sans Frontières (Doctors Without Borders) and Treatment Action Campaign that medicine prices in South Africa are among the highest in the world because of the country’s patent laws.

In December last year, the Department of Health published draft regulations on a proposed methodology for controlling drug prices. It proposed that medicine prices in the private sector be determined by choosing the lowest price among five countries – South Africa, Australia, New Zealand, Canada and Spain.

But pharmaceutical firms warned this could bury their local operations. When the Department of Health approved a 5.8 percent medicines single exit price (SEP) increase at the beginning of the year, local manufacturers said they were already struggling with the escalation of input costs and warned that any further deterioration of the rand was going to suppress their margins.

Since the government introduced the SEP in 2004, the regulation has slashed drug prices significantly. In 2004 alone, the SEP directly cut medicine prices by 19 percent.

But Friedland said it was worrying that private health-care companies were still paying that much more locally. “It’s up to the Competition Commission to identify structural issues, but they must look at the drug prices.”

He said other structural challenges the market inquiry should look at included the fragmentation of care as hospitals were not allowed to employ doctors. He said the reviewing of this policy would lead to the alignment of outcomes by all players in the sector.

Netcare posted R4.1 billion profit for the six months to March. The company received a non-cash profit of R3.27bn from the deconsolidation of the General Healthcare Group property businesses, PropCo 1.

As such, Netcare’s diluted earnings a share jumped to 306.1c from 52.8c last year. But adjusted headline earnings a share from continuing operations rose 21 percent to 62.7c.

Netcare decreased its beneficial interest in PropCo 1 to 50 percent in January.

In the period under review, Netcare generated revenue of R13.3bn, up 8.5 percent from R12.29bn in March last year. Currency conversion contributed R631 million to the revenue increase as the rand was 11.8 percent weaker than the UK pound. The group attributed this performance to strong trading performance from both South African and its British operations.

The South African operations grew operating profit by 7.9 percent to R1.23bn. The earnings before interest, taxes, depreciation and amortisation (Ebitda) margin widened to 20.1 percent from 19.6 percent.

The hospitals division grew patient days by 2.3 percent. Revenue from hospitals and emergency services grew 7 percent to R6.77bn, while Ebitda rose 9 percent to R1.44bn.

UK revenue rose marginally to £430m (R6bn) from £427.9m last year. But its net financial expenses decreased significantly to £23.9m from £69.3m.

The UK also managed to grow public sector patients from the National Health Service (NHS) by 9.5 percent. In 2006, only 3 percent of Netcare’s patients came from the NHS.

“[In the UK] Over 30 percent of our patients now come from the NHS and that is a great achievement for us,” Friedland said.

Netcare declared an interim dividend a share of 27c, up 22.7 percent from March last year. Shares lost 2.94 percent to close at R22.13 yesterday.

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