Friday, May 04, 2012

Fat-Free Econ 8: Drug Price Regulation is Wrong

This is my article today in TV5's news portal.

I sent this to two Senators who authored a Senate Bill creating the Drug Price Regulatory Board. See my email to them after this article.

FAT-FREE ECONOMICS: The folly of drug price regulation

Government regulation and control of the price of something that it has not produced or manufactured is wrong and parasitic. Drugs are "expensive" because of government taxes and fees slapped on the product and the producer as well as the seller.

The current drug price control policy will turn three years old in August. There are many indicators showing the policy is a failure in its stated goal of making certain drugs affordable to the poor.

Now some legislators want to compound the folly by creating a new layer of bureaucracy called the Drug Price Regulatory Board (DPRB) under the Department of Health (DOH).

Why is drug price control or regulation wrong? Here's why:

1. The policy contradicted, if not defeated, the goals of the Generics Act of 1988. That law was successful in promoting cheaper generics, off-patent drugs to the public. The drug price control policy however, encouraged people to shift back to the branded and innovator drugs made by multinational pharmaceutical companies as they have been coerced by the government to slash prices by 50 percent.

2. The policy benefited the rich and upper middle class who would be buying those drugs whether their price remained at prevailing or discounted levels. Many if not all of the 22 drug molecules that were covered by the policy have cheaper, off-patent competing drugs already available. The poor were patronizing the off-patent drugs, which are still cheaper than branded drugs even if their prices were slashed by half.

3. The policy has adversely affected many local generic manufacturers. If they were selling their drug at P8 per tablet vs. the multinationals’ P15, the locals would make enough profit as the poor will patronize their products because of the big price differential.

After the price control, the P15 becomes P7.50 and the local generics manufacturers now have the “more expensive” drugs. If they have enough leeway to further bring down their price to only P4 or lower without sacrificing the quality and safety of their drugs, fine. But if they do not have enough leeway, then they will be forced to pull out their drugs rather than sell at a loss. Or worse, simply close down if the affected drugs are the main products of that generic manufacturer.

4. The policy has introduced business uncertainty. Someone with a really innovative, creative and revolutionary product like a disease-killer drug, might hesitate bringing their products to the Philippines knowing that the politics of envy can hit them anytime.

5. Price control simply means price dictatorship. The government is dictating to the industry regardless of the cost of production and marketing, the cost of taxes and fees. Those companies must sell their products at a level that was set and dictated by the government. Otherwise, they will be penalized.

6. The policy did not recognize that government taxation of medicines - three- to five percent import tax, plus 12 percent value-added tax and local government taxes - is partly to blame for expansive medicine.

7. Competition among more drug manufacturers, drug retailers and pharmacies is the best price regulator, not more government regulation and coercion.

In this regard, the creation of the DPRB is also wrong for at least two reasons:

1. It will add another layer of bureaucracy in the government, which will require another set of budgetary allocation each year. With a P300 billion annual budget deficit, the government should think of how to reduce spending and eradicate the need for more borrowings.

2. The DOH Advisory Council on Price Regulation, the body that deliberated the implementation and monitoring of the price control since mid-August 2009, has been transformed into the Advisory Council for Healthcare because there is general recognition by the Council members, including the federation of local generic manufacturers, the Philippine Chamber of Pharmaceutical Industry (PCPI), that price control did not work.

The Advisory Council is not a permanent body although it may have permanent members. Thus it is easy to transform itself and focus its discussions and energy on more important issues like universal healthcare, not just drug pricing. A permanent drug regulation body will only become a white elephant implementing and monitoring a bad policy.

from: Nonoy Oplas
to: "Sen. Manny Villar" <>,
 "Sen. Villar" <>,
 "Sen. Loren Legarda" <>
date: Fri, May 4, 2012 at 2:03 PM
subject: On your SB, Drug Price Regulatory Board

Dear Sen. Villar and Sen. Legarda,

I have read from the news that you have authored a bill creating a new office called the Drug Price Regulatory Board. I think that  proposal is not wise. May I share with you my article today why price control/regulation is wrong, and why creating a new bureaucracy for this policy is equally wrong.

Should you have a Senate Committee Hearing on the said subject, kindly inform me and I would like to attend and verbalize this position. 

Thank you very much.

Sincerely yours,

Bienvenido "Nonoy" Oplas, Jr.
President, Minimal Government Thinkers, Inc.

FAT-FREE ECONOMICS: The folly of drug price regulation

Government regulation and control of the price of something that it has not produced or manufactured is wrong and parasitic....

See also:
Drug price control 18: Wikileaks and former US Amb. Kenney on price control, September 28, 2011
Drug Price Control 19: Why is the Policy not Withrawn Yet, November 08, 2011
Drug Price Control 20: Competition, not Price Regulation, November 10, 2011
Drug Price Control 21: Illegalities in the Implementation of the Policy, November 14, 2011
Drug Price Control 22: Comparing Prices of Drugs, Diagnostic Tests, PFs, December 24, 2011.
Drug Price Control 23: Greece's Pharmacy Nightmares, January 13, 2011
Drug Price Control 24: Forcing Drug Firms to Report Payment to Doctors, January 24, 2012
Drug Price Control 25: Top 10 Articles on Google Search, April 03, 2012

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