| Fri 13 May 2005, 12:48 | | Netcare links R60m pharmacy sales dive to drug-pri |
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Netcare links R60m pharmacy sales dive to drug-pricing rules
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Tamar Kahn
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CAPE TOWN — SA’s largest private hospital group, Network Healthcare Holdings (Netcare), said yesterday that government’s measures to regulate medicine prices had taken a R60m bite out of its income over the past year, as sales in its retail pharmacies declined.
The loss of revenue is proof the medicine-pricing regulations, introduced by government and enacted into law last year, are cutting margins in the sector. Nu Clicks, with 78 pharmacies nationwide, recently reported a R38m dent in revenue because of drug-pricing rules.
Health Minister Manto Tshabalala-Msimang said in September last year that her department would reconsider the level of mark-up limits provided that hard evidence that business was being hurt was provided. Since then a number of pharmacies have closed.
The regulations, which have been fiercely contested by pharmacists and Netcare, seek to control the mark-ups on medicines at every stage of the supply chain, from factory gate to pharmacy checkout. They stop manufacturers giving discounts and rebates, and mark-ups are capped at R26.
Netcare was among the parties that succeeded in getting the regulations scrapped by the Supreme Court of Appeals in December last year, but the health department challenged the ruling in the Constitutional Court. A ruling is expected shortly.
Outgoing Netcare CEO Jack Shevel said yesterday that the controversial regulations had caused a R30m loss in revenue on the retail pharmacy side of the group’s business during the six months ending March 31.
Netcare owns 88 pharmacies, of which 40 are in its Medicross chain of medical and dental centres, with the others based in its hospitals.
Shevel said he hoped the company would see an increase in revenue in these pharmacies as more patients were attracted to Netcare’s network.
The company had spent R7m on legal fees in its bid to overturn the contentious regulations.
Shevel said Netcare had been able to compensate for revenue losses on medicines in the hospital side of the business by increasing ward and theatre fees in September.
He was optimistic about a less adversarial relationship with government, noting that Netcare had held meetings with health department officials over the past three weeks to discuss how to bring more low-income patients into the private health-care market.
Despite the turmoil in the private health-care sector, Netcare yesterday reported a 10,9% increase in revenue to R3,59bn compared with the corresponding period last year. Headline earnings a share rose 27% to 25,6c.
Shevel said he was pleased with the results, given that Netcare was trading in a low inflationary environment, the decline in retail pharmacy revenue, and the fact that Easter — a traditionally slow time — fell within the reporting period.
Netcare, which has 7400 beds in 62 hospitals, said it planned to add another 800 beds over the next two years by developing new hospitals in Western Cape and KwaZulu-Natal, and expanding existing facilities.
Growth in the group’s core hospital and trauma division raised revenue 9,3% as Netcare saw a “record number” of patients treated in its facilities.
The Netcare 911 emergency unit was on track to break even during the course of the year, and Netcare’s two five-year contracts with the UK’s National Health Service were expected to generate revenue of £125m over the contract periods.
