Introduction

The South African minister of health has called for public comment on the Draft General Regulations Relating to Bonusing, which were published on December 1 2017. The draft regulations aim to flesh out Section 18A of the Medicines Act, which prohibits the supply of any medicine, medical device or in vitro diagnostic medical device (IVD) that is subject to a bonus system, rebate system or any other incentive scheme. The publication of the draft regulations comes more than three years after the minister published for public comment the previous draft General Regulations Relating to Bonusing and Sampling, which were not brought into operation.

The draft regulations have been published for comment at a time of large-scale confusion in the South African medical device and IVD industry. Medical devices and IVDs only recently became subject to full regulation in South Africa with the publication of the Regulations Relating to Medical Devices and IVDs on December 9 2016 and the subsequent amendments of certain provisions of the Medicines Act with effect from June 1 2017, although the legal status of many of the provisions was subject to debate before then. However, medical devices and IVDs were recently formally exempted from the provisions of Sections 18A and 18B of the Medicines Act for a period of one year from December 29 2017. Thus, until December 2018, medical devices and IVDs are exempt from the provisions of Section 18A of the Medicines Act, as well the draft regulations (should they be published in their final form before then).

Provisions

The draft regulations provide, among other things, the following:

  • Draft Regulation 3 defines a 'bonus system' as any practice which gives a customer a fee or a benefit over and above what is due and which has the effect of inducing the purchase, prescription, use or supply of a particular medicine, medical device or IVD.
  • Draft Regulation 4 defines a 'rebate system' as a practice which facilitates a payment to a customer in relation to the purchase of a medicine, medical device or IVD – usually after the sale has occurred – either directly to the customer or to a related entity, which has the effect of reducing the cost of the medicine, medical device or IVD.
  • Draft Regulation 5 defines an 'incentive scheme' as any practice which encourages or rewards a customer for the use, prescription, purchase, order or reimbursement of a medicine, medical device or IVD, which may include:
    • a discount (which, in turn, is broadly defined);
    • payment for marketing, promotion and advertising;
    • fees for shelf space;
    • data fees and registry fees;
    • loyalty fees or similar fees; and
    • directors' fees.
  • Draft Regulation 6 relates to penalties and prescribes that contraventions of the regulations may – if the transgressor is found guilty – result in a fine or imprisonment for up to 10 years. Draft Regulations 6.3 and 6.4 provide that a maximum fine of 10% of the supplier's turnover may be imposed.

Comment

The draft regulations arguably contain a number of flaws.

As medical devices and IVDs are not subject to the provisions of Section 22G of the Medicines Act (which applies a single exit or single supply chain price (SEP) to medicines), a number of the draft regulations are inappropriate to medical devices and IVDs. The definition of 'incentive scheme' is exceptionally broad and includes 'discounts' per se – which, as mentioned above, is also broadly defined. A 'discount' would therefore include price reductions for early settlement and volume discounts which, if reasonable and rational, are purely commercial terms and do not necessarily amount to an 'incentive scheme' in the true sense of the words. As medicines are subject to SEP in South Africa, these provisions would be unlikely to affect the sale of medicines. On the other hand, the seemingly outright prohibition on the payment of fees to a customer for bona fide marketing or advertising services and data will affect medicines, medical devices and IVDs. Again, such fees are not necessarily incentives in and of themselves. Accordingly, the question will be whether the minister of health has attempted to craft regulations which extend beyond the ambit of Section 18A of the Medicines Act.

The imposition of a penalty in terms of Draft Regulation 6.4 is also likely to be outside the scope of the Medicines Act. Section 29(b) read with Section 30(1) of the Medicines Act provides that anyone found guilty of a contravention of Section 18A shall be liable to a fine or to imprisonment for up to 10 years. In terms of Section 1(2) of the Adjustment of Fines Act (101/1991), the maximum fine equates to R400,000. Draft Regulation 6.4 provides that a maximum penalty of 10% of the supplier's turnover in its most recent financial year may be imposed. This is potentially much more severe than the provisions contemplated in the Medicines Act, which is the primary empowering legislation.

The public and industry have until March 1 2018 to submit any comments regarding the draft regulations to the Department of Health.

For further information on this topic please contact Altair Richards at ENSafrica by telephone (+27 11 269 7600) or email (arichards@ensafrica.com). The ENSafrica website can be accessed at www.ensafrica.com.

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