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South Africa: Discovery Pushes Costs Down Further

Tamar Kahn

18 July 2008

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Johannesburg — Following its success in using its market dominance to persuade drug firms to lower their prices, medical scheme administrator Discovery Health now has its sights set on the medical device industry.

This week, Discovery announced it had taken steps to reduce unnecessary hospital admissions, negotiated with pharmaceutical companies to lower the price of medicines and tightened its oversight of consumables used in hospitals.

Discovery Health is a subsidiary of SA's biggest health and insurance company, Discovery Holdings, and administers the affairs of Discovery medical scheme and 11 other smaller schemes, which together account for 2,1 million beneficiaries - about 30% of SA's medical scheme members.

Against a backdrop of spiralling medical costs, healthcare funders around the world are trying to negotiate better rates with manufacturers of drugs and devices. Lower prices mean more medical scheme members can get the products, reducing the likelihood they will have to make co-payments.

Discovery Health estimated it would save R26m on drugs this year for the schemes it administered, resulting in savings of R80m to the industry as a whole, said its head of strategy, Jonathan Broomberg.

Pharmaceutical manufacturers are legally bound to sell their products at the same price to all their customers.

The biggest saving was on Pfizer's cholesterol-lowering drug Aspavor (R9,5 million), followed by Merck Sharpe & Dohme's hypertension drug Cozaar (R2,1 million).

Discovery Health based its negotiations with pharmaceutical firms on detailed clinical and economic analysis of their products before deciding whether to fund them, Broomberg said.

Few other administrators had the capacity to do this kind of analysis, he said, adding to Discovery's leverage with drug makers.

"Our sense is that many schemes follow Discovery's recommendations because they don't have the capacity to do their own evaluation," he said.

Unlike some countries such as the UK, there is no statutory body in SA tasked with assessing the clinical and economic benefit of new medicines.

In the UK, the National Institute of Clinical Excellence advises the National Health Service on which products to provide to patients.

Key drugs targeted by Discovery Health included drugs used by large numbers of patients, and costly new "biologics", such as those used to treat cancer and rheumatoid arthritis, which were used by far smaller numbers. Biologics are produced from biological processes using recombinant DNA technology, and are extremely difficult to copy, meaning there is little prospect of competition from cheap generic versions. Discovery Health estimated it would save R2,3 million on Revellex and Enbrel, two biologics used for rheumatoid arthritis.

Discovery Health was also working closely with private hospital groups to try to persuade manufacturers of medical devices and consumables to lower their prices, and limit price hikes to once a year, he said. Unlike medicines, which are tightly regulated, the thousands of new medical devices and consumables launched each year do not have to be registered, nor are they bound by price regulations.

Discovery Health was considering procuring some items directly to try to gain greater control over costs, said Broomberg. It was also trying to persuade suppliers to stop selling customised packs to doctors. "It's very easy to manipulate prices, as it's hard to know what's in them. Often the kit costs a lot more than the sum of its parts," he said .

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