Thursday, February 07, 2008

Taxes and Hypertension: How to reduce medicine prices

Sir Isaac Newton’s 3rd law of motion states that for every action, there is an equal and opposite reaction. When government intervenes to reduce the price of something, it imposes taxes or fees/ charges to finance whatever price subsidy and the salaries and perks of personnel who will do the price and income redistribution. Those taxes and fees raise the price of those things and services that government says it wants the price to go down. Sort of unintended consequence. And this affirms Newston’s 3rd law of motion.

In the on-going discussions and debates about “quality affordable medicines” or “cheaper medicines” bill, to the point of developing or aiding hypertension to some actors or players or would-be interventionists, various factors suspected of contributing to the high price of medicines have been identified and diagnosed with more government intervention: amendment of the law on patent system, price regulation and control, parallel importation and disrespect patent rights, “generics only” prescription by doctors. It is notable that government intervention itself – those high and multiple taxes and fees on medicines and medical products, bureaucratic regulations, attempts at price control – has never been identified as among the suspects. Why?

Blaming the multinational corporations, especially those in the petroleum, pharmaceutical and transportation sectors is always a convenient excuse for policy makers and implementers and their allied pressure groups. Thus, legislators and politicians can always impose various taxes (import tax, value added tax, documentary stamp tax, patent tax, other regulatory steps and fees) on those commodities and services, then blame the producers themselves, especially if they are multinationals.

People aspiring cheaper price of anything – cellphones, house, car, medicine, hospital stay, shoes, and so on – is a perfectly rational behavior. The assumption is that people should get good quality and safe products. After all, all fake, imitation and dangerous products are sold cheap compared to their original counterparts so that they can easily be sold. Producers and sellers are happy, buyers are happy, except when some of them will develop adverse effects if not die later, in the case of those taking counterfeit medicines.

One time-proven mechanism to reduce the price of something is to have as many producers and innovators of good quality products and let them compete with each other. And don’t impose high and too many taxes on the players so that they can compete more fairly. Some players will expand while others will fail. That’s the sad but necessary result when informed consumers make their decisions whom to patronize and whom to evade. Unfortunately, what the two versions of “affordable/cheaper medicines” bills, is to discourage entry of innovator companies and have more generics companies that do not engage in very expensive and time-consuming R&D and clinical trials. In addition, importers and distributors of locally-patented drugs other than the patentees are encouraged, under the “parallel importation” scheme.

One question that can be asked under this scheme is this: Supposing a patient develops bad allergies, if not died, after taking the imported medicines (maybe it’s a fake or mislabeled or mis-stored or mishandled that reduced or negated their effectiveness) from abroad by non-patentees, who will be accountable? (a) The physician who gave the prescription, or (b) the importer who brought the medicines, or (c) the drug manufacturer abroad, or (d) the local patentee who sells the same drugs domestically, or (e) the local drug store that stored and sold the medicine, or (f) the government which allowed and encouraged the entire scheme?

Unfortunately, the answer of who could be accountable could not be determined from both the Senate and House versions. What the two bills intend to achieve is to have cheap/affordable medicines at all cost. And at no cost to the government – ie, government tax collections should never be reduced because there are billions of pesos of pork barrel projects to finance every year.

So why can’t we start with drastically reducing if not abolishing the taxes and other regulatory fees imposed on medicines? Then encourage the entry of more innovator companies into the country, or the importation of those medicines at zero import tax and zero trade barriers by their local patentees who should be the sole accountable entity to the patients should they experience any adverse reactions later.

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