FIFI PETERS: If you chose a PCR Covid-19 [polymerase chain reaction] test in a Lancet or Ampath lab today, you probably would have paid around R500 for the test, as opposed to R850 before the Competition Commission’s announcement yesterday that it had struck a deal with these two labs to lower Covid prices. -19 PCR tests. Prices have dropped about 42% as a result of this deal.
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To discuss all of CompCom’s actions to make Covid-19 testing cheaper and more accessible, I am joined by James Hodge, the Chief Economist of the Competition Commission. James, thanks once again for your time. First of all, remind us how we got to R850 to get started with a PCR test.
JAMES HODGE: Perhaps before doing that quickly, Fifi, I should announce that we have also reached an agreement with Pathcare. Hopefully from tomorrow you will also pay R500 in Pathcare. That’s good news.
But, back to your question, at the beginning of the pandemic, the prices for Covid tests ranged from R1,000 to R1,500. There, the Department of Health requested that we grant a waiver to allow negotiation to reduce that price. That negotiation resulted in the price of R850. That may have been a good price at that stage. The volumes were quite low and everything was quite new. So I think the quantity of supplies of test kits and the like would have been more limited.
But over time, the cost of those test kits has dropped. Volumes have skyrocketed in terms of tests and surveys. There have been …… .1: 59 economies of scale for pathology labs, and that’s what slowly lowered costs over time; but that price never moved. And so we end up with a huge gap and the need to intervene.
FIFI PETERS: Regarding the announcement about Pathcare, which perhaps until this afternoon or today was not part of the agreement to lower prices by 42%, what did the agreement with them finally achieve?
JAMES HODGE: Well, I think they are facing the reality that their two biggest competitors are down to R500. The public now knows what the proper cost of testing should be, so they’d have to cut it anyway. The fact is that if you do not reach an agreement, you are exposed to possible litigation, where they could be paying a fine of up to 10% of the turnover and a final excessive pricing decision against you, which the parties could use to claim. . It looks pretty bleak when faced with that prospect. So I think they did the sensible thing and came together and achieved an immediate reduction with a good price cut.
FIFI PETERS: From the work you have done as a Competition Commission so far, can you give us a breakdown of the old R850, in terms of how much of that was cost and how much was benefit?
JAMES HODGE: Well I think, as we indicated, R500 is now the correct price if, for example, last week it included an excess of R350, or probably around R300 when taken as an expat. We would say that the difference has obviously increased slowly over time, as indicated. [when] prices went down.
But the price of test kits: There are a variety of kits on the market. You basically have field test kits, reagents, I think they call them, and some of your swabs and PPE to take the sample. That is a cost. You have the cost of the lab, which is a second cost, and then you have your collection. But those costs can vary depending on the tests you’re running and also the situation. In the hospital, you are not necessarily collecting and transporting a sample to another location; you are doing it on site. So national labs that have a variety of those kinds of tests look at an average cost when looking to establish a national price.
FIFI PETERS: But on this R500, are these labs still making a profit?
JAMES HODGE: Yes. In our estimation they are. Obviously we want to make sure the testing continues so it is important that they be allowed to make some profit. Obviously, in the discussion of the agreement they were able to go deeper, but their costs should continue to fall. That’s why we’ve also built in a provision to review their costs and have them report their costs every quarter.
FIFI PETERS: Usually when you have more time and have done all the research, which ends up happening, if you find that companies are overcharging for their product, I think there is a penalty imposed on these companies as a result of their excessive prices. and the benefit that has accrued to them over a period of time. In this case there are no fines involved. Can you explain why?
JAMES HODGE: Sure. From the moment the complaint was filed, it took two months to reach an agreement. Now if we were to litigate, we would probably be waiting at least another year to go through court; through appeals it could take even longer. Because a fine of up to 10% of the turnover is at stake, the respondents are going to litigate hard, so you face this compensation. Whenever you look at a settlement, there are uncertainties about how long it will take, how big the cut will be, [and] if you will be successful or if you will get an immediate cut. In our view, getting the immediate cutoff is important now given the fourth wave, given the high transmissibility of this Omicron variant, even the fact that we are probably going to a fifth and sixth wave and testing will be an important part of the Omicron industry. travel, which we are trying to evaluate.
It is not necessarily a decision that everyone will agree on. We don’t mind saying that. It is a pragmatic decision that we believe is ultimately in the best interest of consumers and the economy.
FIFI PETERS: I know you are working on pricing for other tests. When can we expect a ruling from the Competition Commission on the agreement reached there?
JAMES HODGE: Well we haven’t really formally started [that]. We have had discussions with the Department of Health because they have expressed some concern about the antigen test. So that may be something that we see, that we would still need to initiate a complaint or have a formal complaint filed.
FIFI PETERS: Is that the test for the R350 in most places?
JAMES HODGE: Yes. I think people are starting to say that it should be much lower than that, but it gives you a result in 15 minutes. As I understand it, it is clearly accurate with a high type of transmissibility or phase of your infection. That too we think should be used more anyway. One way to put pressure on PCR testing is to present alternative tests. I think if they become more frequent, as they have in other countries, we need to make sure that the price is low enough. They are not being used much at the moment, but certainly if there are concerns from the Department of Health and complaint instructions, we will obviously go into that in much more detail.
FIFI PETERS: Alright James, thank you very much for that update. We leave it there. James Hodge is the Chief Economist for the Competition Commission.