Author: Gary Moore

Date: 4 December 2016

The Medicines and Related Substances Act, 1965[1] provides for the registration of medicines and[2] the supply of “more affordable medicines in certain circumstances” and establishment of a Pricing Committee,[3] and regulates the sale of medicines.[4] The Act enables the Minister[5] on the Committee’s recommendation to make regulations on the introduction of a “transparent pricing system” for all medicines sold in the Republic.[6]

The transparent pricing system must include a “single exit price,”[7] which shall be the only price at which manufacturers[8] shall sell medicines.[9] (A wholesaler, distributor or pharmacist[10] must not sell a medicine for more than its Single Exit Price,[11] but may charge an appropriate fee: The Minister[12] may make regulations on an appropriate fee to be charged by wholesalers or distributors[13] and an appropriate dispensing fee to be charged by pharmacists[14]).

Anyone contravening the provisions commits an offence[15] and can be imprisoned for up to ten years[16] or fined.[17]

The Act is silent about whether the Single Exit Price of a medicine is to be determined by its manufacturer, or whether the Minister in regulations may prescribe limits on manufacturers’ Single Exit Prices.[18] To this extent, the Act arguably violates the Rule of Law requirement that laws should not be vague and should be written in a clear and accessible manner sufficient to indicate with reasonable certainty to those bound by it what is required of them so they may regulate their conduct accordingly.[19]

Even if the Act indeed gives the Minister the power to regulate how manufacturers must determine the Single Exit Price of their products, the Act contains no criteria to govern how he is to exercise that power. To this extent, the Act probably violates the principle that a statute should not confer a discretionary power in terms so broad and uncertain in scope that the authority to whom it is delegated is unable to determine the nature and scope of the powers conferred,[20] for this may lead to arbitrary exercise of the delegated power.[21] (Such a situation violates the precept that one should be governed by the Rule of Law, not the rule of persons.[22])

The courts have arrived at different views on the validity of these provisions of the Act regarding a medicine’s Single Exit Price:

The Cape high court full bench confirmed a manufacturer sets his products’ Single Exit Price,[23] and noted the term was not defined in the Act[24] but in regulations.[25] A majority rejected a contention that the regulations’ definition restricted the manufacturer’s right to determine a Single Exit Price for his products.[26] The dissenting judge was of a different view, that regulations cannot interpret the Act because it begs the question what the term “single exit price” in the Act means and concluded the term must be determined by its plain and ordinary meaning.[27]

On appeal, the Supreme Court of Appeal considered whether the provision[28] permitted price control by the State through the pricing system, and concluded that, since manufacturers were obliged to sell to all at a Single Exit Price that was transparent, the public would be able to know what the true price of the goods were. Since dispensers could only add a prescribed fee, the public could assess if the price paid was correct. Manufacturers would know prices charged by their competitors, so to compete they would have to reduce their prices and publish the reduced prices. That was the envisaged price-reduction mechanism: The provision did not contemplate the Committee, State or regulations fixing or limiting the manufacturer’s exit price. The Act contemplated downward pressure on medicine prices through a transparent pricing system, not direct price control.[29] The regulations invalidly restricted manufacturers’ right to determine Single Exit Prices. It was for Parliament to decide if medicine-price regulation was necessary and how it should be done; it was not for the Committee to pursue its own agenda (irrespective how commendable its motives may have been), and the Minister could not accept a recommendation that did not fall within the Act.  In a country struggling with limited resources to meet the needs of the poor it was laudable to strive to reduce the costs of medicines, but we were a nation subscribing to primacy of the Rule of Law. The Supreme Court of Appeal unanimously declared the regulations invalid, overturning the Cape high court judgment.[30]

The Constitutional Court on appeal to it departed from these findings, and held (on this issue, unanimously) that the Act permitted regulations providing for price control in the manner they did:[31] The fact the Act said no more about the Single Exit Price than that it was the only price at which the manufacturer may sell, did not mean its regulations could not deal with how the Single Exit Price was to be set or controlled. A statutorily mandated pricing system to be fleshed out by regulations inevitably contemplated a system with inbuilt controls. A thread running through the Act’s provision[32] was that the pricing system referred to in it had to contain measures that would enable control to be exercised over the price of medicines. The provision prescribed certain essential measures to be included in the system but did not say they were the only measures competent. There seemed no reason why that pricing system, which contemplated price controls throughout the distribution chain, should exclude controls over how the Single Exit Price should be set and increased. In the Court’s view, the regulations were not invalid simply because they included price control measures affecting the Single Exit Price.[33] The overt and legitimate purpose of the statute was to increase access to medicines by, among other measures, exerting downward pressure on their prices. The statute sought to achieve that purpose through a “pricing system.” That had to mean an organised scheme or method, which implicated prices of medicines. The scheme had be transparent. It had to include a single exit price, which had to be the only price at which manufacturers could sell medicines and an appropriate fee to be charged by retailers, distributors and wholesalers of medicines. The Minister and Committee were not only right but were obliged to consider and pursue the object of price reduction to advance greater access to affordable medicines.[34] The Constitutional Court held unanimously that the challenge to the regulations overall had to fail, and the Supreme Court of Appeal had been wrong in setting them aside as a whole.[35] However, the Constitutional Court considered a wide range of specific challenges to individual regulations, and the Court[36] declared certain of the regulations to be wholly invalid, ordered others to be read with the insertion or severing of specified words or phrases, and remitted yet others to the Pricing Committee and the Minister for reconsideration in the light of the Court’s judgment.[37] The Court ordered the Minister to republish the Regulations in sixty days amended to comply with the Court’s orders.[38]

The current Regulations[39] provide that a medicine’s Single Exit Price must not be higher than its 2003 weighted-average[40] net selling price. If sales started after 2003 the Price must be calculated by reference to its price in other countries where medicine prices are regulated and published.[41] The Single Exit Price may be increased once a year only[42] and the Minister on the Committee’s recommendation determines the extent of the increase with regard to the preceding year’s average consumer-price and pharmaceutical-products production-price indices;[43] changes in foreign-exchange and purchasing-power-parity rates; international pricing information relating to medicines; comments from interested persons pursuant to a gazetted invitation; and need to ensure medicine availability, affordability and quality.[44]

(With great respect to the Constitutional Court’s judgment, and to repeat what is discussed at the beginning of this document, the Act is silent about whether the Single Exit Price of a medicine is to be determined by its manufacturer, or whether the Minister in regulations may prescribe limits on Single Exit Prices.  To this extent, the Act arguably violates the Rule of Law requirement that laws should not be vague and should be written in a clear and accessible manner sufficient to indicate with reasonable certainty to those bound by it what is required of them so they may regulate their conduct accordingly.  Even if the Act indeed gives the Minister power to regulate how manufacturers must determine a Single Exit Price of their products, it contains no criteria to govern how he is to exercise the power. To this extent, the Act probably violates the principle that a statute should not confer a discretionary power in terms so broad and uncertain that the authority to whom it is delegated is unable to determine the nature and scope of the powers conferred, for this may lead to arbitrary exercise of the delegated power. Such a situation violates the precept that one should be governed by the Rule of Law, not the rule of persons.)

[1] Medicines and Related Substances Act 101 of 1965.

[2] Since Amendment Acts 90 of 1997 and 59 of 2002.

[3] The Minister appoints the Committee’s members. Medicines and Related Substances Act s 22G(1) inserted by Amendment Act 90 of 1997. The general regulations made under the Act provide for the Committee’s composition and functioning. General Regulations, Govt Notice R510 of 10 Apr 2003, reg 38(1)–(4).

[4] By manufacturers, distributors, wholesalers, pharmacists and persons licensed to dispense medicines. Medicines and Related Substances Act Long title as amended by Amendment Act 59 of 2002.

[5] Minister of Health. Medicines and Related Substances Act s 1(1) sv “Minister.”

[6] Medicines and Related Substances Act s 22G(2)(a).

[7] Which shall be published as prescribed by or under the Act. Medicines and Related Substances Act s 22G(3)(a) read with s 1(1) sv “prescribed.”

[8] Or importers.

[9] To any person other than the State. Medicines and Related Substances Act s 22G(3)(a).

[10] Or other health practitioner licensed to dispense medicines. Medicines and Related Substances Act s 22G(2)(b) read with s 22C(1)(a).

[11] Medicines and Related Substances Act s 22G(3)(b).

[12] On the Committee’s recommendation.

[13] Medicines and Related Substances Act s 22G(2)(c).

[14] Medicines and Related Substances Act s 22G(2)(b) read with s 22G(3)(c).

[15] Medicines and Related Substances Act s 29(k).

[16] Medicines and Related Substances Act s 30(1).

[17] The fine currently corresponding to ten years’ imprisonment is R400,000.00. Adjustment of Fines Act 101 of 1991 s 1(1)(a) read with Magistrates’ Courts Act 32 of 1944 s 92(1)(a) and (b) and Govt Notice 217 of 27 March 2014 under s 92(1)(b) of the latter Act (fixing R120,000.00 as the maximum fine a district magistrate’s court may now impose to correspond with the statutory three years’ maximum period of imprisonment it may impose).

[18] Presumably on the Committee’s recommendation.

[19] Affordable Medicines Trust and Others v Minister of Health and Another 2005 (6) BCLR 529 (CC) para [108].

(Also, if a statute is ambiguous (reasonably capable of more than one meaning), a court should give it the meaning which least interferes with the liberty of the subject: Arse v Minister of Home Affairs and Others 2010 (7) BCLR 640 (SCA) para [10], citing R v Sachs 1953 (1) SA 392 (A) (at 399F–H), among others.

(The liberty of the subject, in this context, is the freedom of a manufacturer to set his own price for his products.)

[20] Affordable Medicines Trust and Others v Minister of Health of RSA and Another, op cit, paras [33], [34].

[21] Discretionary powers may legitimately be broad in scope where the factors relevant to a decision are so numerous and varied it is inappropriate or impossible for the legislature to identify them in advance, or where the factors relevant to exercise of the discretionary power are clear, or where the decision-maker has expertise relevant to the decisions to be made. Dawood and Another v Minister of Home Affairs and Others; Shalabi and Another v Minister of Home Affairs and Others; Thomas and Another v Minister of Home Affairs and Others 2000 (8) BCLR 837 (CC) paras [53], [47]. But that exception justifying a broad discretionary power in certain instances does not clearly apply to the determining of a Single Exit Price, because factors to govern its determination have been identified, albeit by the Minister himself in his regulations under the Act (see below).

[22] Bertie Van Zyl (Pty) Ltd and Another v Minister for Safety and Security and Others 2009 (10) BCLR 978 (CC) par [102] (citing Canadian Foundation for Youth, Children and the Law v Attorney General in Right of Canada [2004] 1 SCR 76 (SCC) at para [16] per McLachlin CJC).

[23] New Clicks SA (Pty) Ltd v Msimang NO and another; Pharmaceutical Society of SA and others v Minister of Health and another [2005] 1 All SA 196 (C) (full bench), paras [70], [71.1], [74], and [89]–[91].

[24] New Clicks SA (Pty) Ltd v Msimang NO and another; Pharmaceutical Society of SA and others v Minister of Health and another op cit (per majority) para [89]; (per dissent) para [102].

[25] The then regulations required a manufacturer or importer to supply data about its Single Exit Price for the Director-General to determine whether it conformed to international benchmarks and was reasonable: Regulations relating to a transparent pricing system for medicines, Govt Notice R553 of 30 Apr 2004 (Gazette 26304), regs 19, 22–24.

[26] New Clicks SA (Pty) Ltd v Msimang NO and another; Pharmaceutical Society of SA and others v Minister of Health and another op cit (per Yekiso J, Hlophe JP concurring) para [92]. The majority found the provision’s purpose was the elimination of discounts and subsequent mark-ups which rendered medicine unaffordable and negated everyone’s fundamental right to health care: paras [85], [87]–[88]. Constitution s 27(1)(a).

[27] With appropriate regard to the context. New Clicks SA (Pty) Ltd v Msimang NO and another; Pharmaceutical Society of SA and others v Minister of Health and another op cit, paras [103] and [104] per Traverso J.

[28] Medicines and Related Substances Act s 22G.

[29] Pharmaceutical Soc of SA and Others v Min of Health and Ano; New Clicks SA v Tshabalala-Msimang NO and Ano 2005 (6) BCLR 576 (SCA) paras [57]–[59], [63], Harms JA (Navsa, Mthiyane, Brand, Cloete JJA concurring).

[30] Pharmaceutical Soc of SA and Others v Min of Health and Ano; New Clicks SA v Tshabalala-Msimang NO and Ano op cit paras [60]–[63], para [96].

[31] Minister of Health and Another v New Clicks SA (Pty) Ltd and Others (Treatment Action Campaign and Innovative Medicines SA as Amici Curiae) 2006 (1) BCLR 1 (CC) para [13] conclusion ad issue (6), per the Court (Chaskalson CJ, with Langa DCJ, Madala, Mokgoro, Moseneke, Ngcobo, O’Regan, Sachs, Skweyiya, Van der Westhuizen and Yacoob JJ concurring).

[32] Section 22G, under which the Regulations were made.

[33] Minister of Health and Another v New Clicks SA (Pty) Ltd and Others (Treatment Action Campaign and Innovative Medicines SA as Amici Curiae) op cit per Chaskalson CJ paras [189] – [207] and esp [208] – [210].

[34] Minister of Health and Another v New Clicks SA (Pty) Ltd and Others (Treatment Action Campaign and Innovative Medicines SA as Amici Curiae) op cit per Moseneke J para [734].

[35] Minister of Health and Another v New Clicks SA (Pty) Ltd and Others (Treatment Action Campaign and Innovative Medicines SA as Amici Curiae) op cit para [13] conclusion (8), per the Court.

[36] Unanimously or by different majorities.

[37] Minister of Health and Another v New Clicks SA (Pty) Ltd and Others (Treatment Action Campaign and Innovative Medicines SA as Amici Curiae) op cit para [13] conclusions (8)(a)–(e), (g) and (h) referring to applicable paragraphs of the eight individual judgments delivered.

[38] Minister of Health and Another v New Clicks SA (Pty) Ltd and Others (Treatment Action Campaign and Innovative Medicines SA as Amici Curiae) op cit para [20].

[39] Regulations relating to a transparent pricing system for medicines and scheduled substances, Govt Notice R1102 of 11 Nov 2005.

[40] Calculated by means of a formula in the regulations.

[41] Regulations relating to a transparent pricing system for medicines and scheduled substances, Govt Notice R1102 of 11 Nov 2005: reg 5(1)(c)(ii).

[42] Ibid reg 7.

[43] As determined and published by Statistics South Africa from time to time. Regulations relating to a transparent pricing system for medicines etc: reg 2.

[44] Ibid reg 8(1)(a)–(f).

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Gary Moore

Gary Moore BA LL.B. (Witwatersrand) LL.M. (UC London) is a South African lawyer and Senior Researcher at the Free Market Foundation.

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