Competition, Regulation and Excessive Pricing of Medicines by Thula Kaira of AB & David Zambia

About 40 years ago, on 5th December 1980, the UN General Assembly passed a Resolution ushering in what was later simply referred to as the UN Set of Principles and Rules on Competition [the UN Set]. After the Havanna Charter of 1955, which paved way for the multilateral trading system under the then GATT [now WTO], the UN Set was the most comprehensive multilateral persuasive document calling on UN Member States to adopt policies, laws and enforcement mechanisms to address any restrictive trade or business practices. The document went further to provide a general list of restrictive business practices [RBPs] or anti-competitive trade practices that affect optimal and equitable trade. The 5th of December has been celebrated every year by most competition enforcement and advocacy groups as “World Competition Day”. The theme for 2020 year was: Competition Policy and Access to Healthcare.

Following the example of countries such as Ghana, the Government of Zambia promoted the establishment of the National Health Insurance Management Authority [NHIMA] to spearhead universal health access, notably to the underprivileged. A common problem has been that the private health insurance providers [PHIPs] have not been able to guarantee universal and affordable healthcare. There is firstly a general perception that health insurance is expensive. In fact, most users of health insurance are those employed in formal sector jobs. From these formal jobs, they are able to access such as part of their conditions of service. This category of health insurance beneficiaries may not bear the full brunt of excessive prices of premiums or final additional charges or expenses that are not covered through insurance. The other problem is that health insurance is in its growth stage in Zambia, with a number of private enterprises struggling. A few have exited the sector within the last three (3) to five (5) years. The third problem is that there is a general perception of excessive pricing of medical services and medicines and other health services by private healthcare providers [PHCPs]. It is this last problem that is of concern in this article, because it has high stakes on competition policy and its application in Zambia through the Competition and Consumer Protection Act [CCPA] as well as general regulation of universal access to healthcare.

The Competition and Consumer Protection Commission [CCPC] Abuse of Dominance Guidelines of 2019 do not define ‘excessive pricing’ but indicate [at para.55 – 5] rather abstractly that only ‘disproportionate’ or ‘exorbitant’ prices and their derivatives that bear no relationship to the economic cost or “ordinary” observable trends will be considered as a breach of the CCPA. This statement does not assist the general reader much. An excessive price in its simplest form is a sales price that includes an abnormally high profit margin. Such an abnormally high profit margin is possible where the seller is exploiting a certain vantage point against that of the buyer/consumer. The buyer/consumer end up paying more than they ought to. This is a situation both the PHIPs and the healthcare consumers find themselves in at most PHCP facilities.

The charging of excessive prices on medicines and other services by most PHCPs is well known. This is despite their having integrated pharmacies, which would not be expected to have certain fixed cost obligations that stand alone pharmacies/chemist have to meet in shopping malls and other trading places. It is common to have a price of a general product like Panadol fetch three [3] times higher than the price at a local neighbourhood pharmacy. Could the problem be upstream such that the private hospitals are equally exploited by their suppliers? Would the independent pharmacies in non-hospital linked locations be dealing with fairer suppliers? This is unlikely. Firstly, PHCPs are vertically integrated with their pharmacies and arguably have higher turnover because most of them operate Twenty-Four (24) hours. Private pharmacies do not have these privileges. Secondly, suppliers of medicines are well known in any country, including wholesalers. Thirdly, there is the Zambia Medicines Regulatory Authority [ZMRA], which provides certification to all qualified dealers of medicines. The regulatory costs are therefore the same.

The effect of excessive pricing is that it is equally affecting the business of PHIPs. Sustainable premiums require a consistent and predictable outflow of payments from the PHIPS to the PHCPs. It is a usual question for PHCPs staff to ask a patient this question before billing: Are you paying for yourself or is it the insurance company? Why should this be a common question when the cost/price of serving a patient is or ought to be the same? The discrepancy of prices between non-insured and the insured is unacceptable and must be curtailed.

What is the solution? An investigation or market inquiry in the matter would be a good starting point by CCPC with the technical complements of ZMRA. The CCPA prohibits the fixing a resale price but a consideration of maximum prices would be a way to go. We have seen this work well in the petroleum sector through the Energy Regulation Board. Thus we need not get on planes for oversees benchmarking trips.

As we note the UN Set of Principles on Competition, CCPC and ZMRA are called upon to look into excessive pricing of medicines and other services in the healthcare sector in Zambia to ensure greater access to affordable healthcare. Other countries in Africa ought to equally review the existing prices of medical products and services that the insured and non-insured are paying.

About Thula Kaira: Head – Competition, Government Business & Regulation, AB & David Zambia. He worked as a competition law enforcer and regulator for 18 years rising to the peak of CEO at the Zambia Competition and Consumer Protection Commission (2007-2011) and founding CEO of the Competition Authority of Botswana (2011-2016). Thula is a member of the Institute of Directors and Associate Member of the Chartered Institute of Arbitrators.

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