Pharmaceutical Industry Funding Challenges Val Beaumont July 07

Medicine Expenditure Trend Declining Back To 1990’s Levels True Cost Reflection Of Medicines As A Component Of Healthcare Expenditure Total Meds Incl. Disp Fee R bn. Total Meds Excl Disp. Fee CMS Annual Report 2000-6 Disp Fee 2000-2003 = +50%-30% Disp Fee 2004-2005 = Max 26% Medicine Expenditure Trend Declining Back To 1990’s Levels

Regulatory And Managed Care Impact On Medicine Expenditure – 1997 To 2005 R 16 bn. Managed Care Interventions Drug Utilization Review/Clinical Entry Criteria Regulatory Interventions Medical Schemes Act PMB’s Solvency Requirements Single Exit Price PMB CDL IBP Medicines Expenditure Unregulated Regulated 1997 1998 1999 2000 2001 2002 2003 2004 2005 SA Spend On Medicines In Line With International Benchmarks & OECD Benchmarks Medicines No Long A Cost Driver In Private Sector

SA Spend On Medicines In Line With OECD Benchmarks Benchmarking Medicines As A Percentage Of Healthcare Spend. (2004 OECD Data) * Including Dispensing Fees Sources: OECD Health Report 2006 (Data 2004), *South Africa 2005-6 CMS Annual Report Figure 12, Pg 50 (Includes Dispensing Fees), ** South Africa 2005-6 CMS Annual Report Pg 88,89,90 Annexure I, Pg 99 Annexure K (Includes Dispensing Fees) SA Spend On Medicines In Line With OECD Benchmarks

Medicine Expenditure Benchmarked Against Other Healthcare Expenditure Components If We Include Non Healthcare Expenses In The Healthcare Pie For 2005 **( 2005-6 CMS = 15.70%) CMS Annual Report 2005-6 Non Healthcare Costs Consume More Than Medcines

Complexity Of Member Access To Medicines - Influencers Of Patient Medicine Choices 381 Plan Options 139 Medical Schemes Each With Different Benefits & Rules Formulary’s Co-Pays Clinical Entry Criteria DSP’s Chronic Application Forms Clinical Motivation Forms Do These Member Access Barriers Lead To Healthier Members?

Key Challenge For Entire Healthcare Sector - Focus On Cost Versus Clinical Value SEP Provider Tariffs Per Diems More Co-pays for members Patient Outcomes Healthcare Outcomes Healthcare Quality Pharmaco - economics Who provides The Balance For Members? Does Competing On Cost Alone Lead To Healthier Members? * Footnote Source: Source

Interests Should be Aligned For The Benefit Of Healthy Members Provider Managed Care Scheme Patient Can We All Do A Better Job In Ensuring Members Are Experiencing Value from Our Products And Services?

Conclusions: A More Member Focused Approach Medicines No Longer A Cost Driver In SA Market Due To Regulatory And Managed Care Interventions Medicines Costs In Line With International Benchmarks Members Access To Life Saving Medicines A Complex Process Which Might Not Be Incorporating The True Value Of The Medicine New Innovative Medicines Have Been Proven Not To Drive Total Medicines Costs For Schemes Balancing Cost With Clinical Value For Members Best Interest Should Be The Focus Area For All Stakeholders