Friday, July 12, 2013

Drug Price Control 36: Advisory Council, James Auste and China

Another long article as a result of some exchanges we have in our discussion within the Coalition for Health Advocacy and Transparency (CHAT) googlegroups. This is four pages long, enjoy.

After my reply to James Auste of the Cancer Warriors Foundation (CWF), contained in Drug Price Control 32: Policeman of Pharma Companies (June 04, 2013), then Drug Price Control 35: DOH Procurement Price and Lobbying for Another Price Coercion (June 29, 2013), James replied early this week.

He said that Unilab (while the biggest pharma company in the Philippines) and other local pharma, are not asking for a price increase of their products.


I replied that Unilab, Pharex, Pascual Lab, etc. were all affected by price control. That is why not one, not one, local pharma supported price control. Their prices are pulled downwards even if such prices are already low.

I remember from key leaders of local pharma, saying that some small local firms went bankrupt after price control, they could not bring down further their prices as these were already low due to competition among many players. Past President of the Philippine Chamber of Pharmaceutical Industry (PCPI), Edward Isaac, said in one  Advisory Council meeting that, 

This is the first time that we are united with PHAP in opposing a government policy. Before, it was easy for us to take a position. Kung saan sila, doon kami sa kabilang side. But this time, we are one with them in opposing price control.

James countered that the issue is the request by international pharma for a price increase, at least back to their levels before price control was imposed in mid-August 2009. And that there should be more  transparency in the health sector, that those multinational companies should open their financial statements (as submitted to SEC).

I think there are probably 200+ pharma companies in the country: PHAP members + PCPI members + non-members of the two federations.

The CWF data refers to the "top 25" taxpayers (in 2011 or 2012). But at the bottom of those 200+ pharma companies, these are the ones that can easily lose revenues and profitability in events of large price shocks, like the price control policy, and are likely to go bankrupt.

This situation can be illustrated by this hypothetical scatter plot below. Each point represents profit rate of each player. I made this illustration myself.

Before price control, companies have wide price ranges and hence, have wide range of profit margins among themselves for a particular drug molecule,. There is competition among them say in the 100-200 percent profit rate per tablet, another set of competition in the 50-99 percent profit rate, in the 5-49 percent margin.

After price control, the upper ranges were abolished and players have to adjust at lower profit rates, affecting everyone else. Those that used to make 10 percent profit rate must deal with just five percent and those that used to have net income of just 5 percent or less will suffer a loss, be in the negative territory. Some of these players may be able to float for sometime while others will simply have to close shop.

During the February 14, 2013 meeting of the Advisory Council, , I think only one or two affected multinational pharma requested for price increase.

I have not explored yet where to get the list of all pharma companies in the Philippines. Members of PHAP (mostly multinationals) and PCPI (all Filipino pharma companies) can be found in their respective federations, but I think there are many small companies that do not belong to either PHAP or PCPI.

Thus, I think there are many unregistered or “colorum” pharma companies here. Their products are sold house to house or in public markets, transported inside the bags dealers who may walk under the heat of the Sun. Or are sold under direct sunlight in public markets, meaning zero temperature control, affecting the stability and efficacy of those drugs, assuming that they were well manufactured and not substandard in the first place. 

People respond to incentives, like profitability incentives. If certain industries like pharma, hospitals and food manufacturing are heavily regulated so that profit rate of all companies in these sectors are heavily monitored and pegged at say, only 10 percent or lower, then many people would rather invest and work in real estate, telecoms, airlines, shipping lines, electricity and other sectors where profit rate is not regulated. This will result in under-investment and hence, under-supply of important and life-saving medicines, health facilities and food. And public health will be drastically compromised and adversely affected.

The main function of government is to ensure that health and medical products and services are provided  by as many players as possible at good quality. Price setting should not be a function of government as competition among many players will take care of that. Thus, a company that sells very cheap drugs but turn out to be fake or substandard, government should penalize the people behind this company. Ensuring the availability of certain useful goods and services at good quality, not the pricing of those commodities, is the main function of government. Violators will be penalized heavily for risking public health. The rule of law is promulgated and implemented in this set up.

Promoting only local companies and having an adversarial attitude, explicit or implicit, towards foreign players, is cronyism and protectionism. Consumers and patients have one “vested interest” that must be guarded always: more choices, more options. Whether the supplier to a particular group of consumers or patients is foreigner or Filipino is a secondary issue if not non-issue. What is important is that the consumers have 10, 30 or more potential sources or suppliers of a particular product or service.

Meanwhile, the DOH has not produced yet, or at least has not publicized yet, its own study or commissioned study on the effect of drug  price control since August 2009.

Sec. 30  under Chapter 3, Drugs and Medicines Price Regulation, of RA 9502 states that:

SEC. 30. Reportorial and Public Notice Requirements. – (a) The Secretary of the Department of Health shall submit a bi-annual Monitoring Report of its performance on the implementation of this Act to the Office of the President. This report submitted to the Office of the President shall be published in a newspaper of general circulation within thirty (30) days upon submission. 
 (b) It shall also submit annually a report of its performance on the implementation of this Act to both Houses of Congress, within fifteen (15) days from the opening of the regular session.  It shall also regularly report  and comply immediately to any order of the Congressional Oversight Committee.

To my knowledge and observation, the DOH has possibly violated this. I have not seen yet any such (a) Monitoring Report on MRP implementation to the President, published in a newspaper, and (b) Annual Report submitted to the Congressional Oversight Committee on RA 9502 implementation. The drug price control policy will turn four years old this coming August 16, 2013 or just one month from now.

A friend in CHAT, Fe Remotigue, head of an NGO,  National Pharmaceutical Foundation (NPF), observed that

The sad reality is that the Philippines is importing raw materials as we do not have chemical plants where active Pharma Ingredients (API) are manufactured.  This in itself is a disadvantage in the local pharma manufacturing industry as we are very far from the raw materials.  So as a given, our local manufacturers face this challenge.    The smaller players certainly cannot put up with the bigger players unless the small players cooperativize or form business alliances.  The growing demand due to the government Medicine entitlement programs should be an opportunity for the small pharma companies to band together to survive.  Or better yet, they form alliances with the distribution chain of those civil society groups who are joining the government Medical Access programs and deepen the value chain for competitive edge.

It is an important point, thanks Fe.

In another blast email including CHAT googlegroups, James Auste made this weird announcement, “Kakampi Natin ang China!” (China is our ally). He was referring  to the China government’s investigation on drug pricing by 60 pharma companies in their country. He wrote,


Chinese regulators have launched an investigation into production costs and price setting practices at 60 pharmaceutical companies, an effort likely aimed at lowering drug costs in the country.  
In a statement posted online, the National Development and Reform Commission said 33 companies will be investigated over pricing, while 27 more face inquiries over input costs. 
Among the companies targeted are the China operations of GlaxoSmithKline(GLAXF), Astellas (ALPMF) and Sandoz. The NDRC is China's central economic planning agency. The group regularly reviews drug prices, and periodically implements price ceilings that apply to government reimbursement levels. The agency also directs bulk purchases of pharmaceuticals by local and provincial governments. 
The investigation is the second price-related inquiry launched by the NDRC in recent data…

I replied to him in the CHAT groups. I said that he obviously advocates socialism. China is a semi-capitalist economy under a communist (China Communist Party) government with zero political opposition, zero citizens' right to demonstrate or rally against the government. While there are many private capitalist enterprises there, the bulk of the economy is controlled by the communist government as almost all the big companies in important sectors -- electricity, power generation, telecommunication, airlines, shipping lines, bus lines, etc. -- are owned by the government.

Socialism is all about control. For instance, facebook, youtube, twitter, blogger, wordpress, etc. are not allowed in China. All tv stations, all radio stations, and I think all national newspapers, are owned and controlled by the communist government.

Now he says that "Kakampi natin ang China!"

Price control is a threat, or a reality, that any private company -- whether in healthcare, education, housing, agriculture, fishing, retailing, malling, etc. -- will face being located in a country under a communist government.

The socialist and communist dictators in China can actually nationalize and confiscate ownership of some private companies there if they want to, they are just not doing it always because they want to attract more private and foreign investors. These companies pay lots of taxes and fees to the communist government anyway.

The Philippine government, through the DOH and Congress, should not follow a communist government’s appetite for more price dictatorship. The President and key House leaders and many LGU officials who belong to the Liberal Party (LP) should advance the superior ideology of liberalism and non-interventionism in issues that are better left to the private sector and civil society.

See also: 

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