Saturday, July 11, 2009

Discount card vs. discounted competition

In a competitive business environment, enterprises resort to various forms of competition in terms of (a) quality (who has the most durable, most reliable, most effective, safest, and so on) and (b) price (who has the cheapest, most cost-effective).

More players, more competition, more marketing schemes and more price discounts promo. Ultimately, the consumers will benefit because they will have lots of options and choices among the various producers and suppliers of the products that they need based on their particular tastes, preferences, needs and budget.

The proper role of the government therefore, is to encourage more competition among different enterprises and producers, not stifle it. And for government to successfully encourage competition, all it has to do is practically do nothing. Do not over-regulate. Do not bureaucratize. Do not impose high and multiple taxes and fees. Do not intervene anytime for any alibi. Just step back and watch for whoever is doing foul and harmful schemes. Like producing cheap but poisonous food and drinks, cheap but structurally defective houses, cheap but fake and substandard drugs, those resorting to arson and sabotage against competing firms, and so on. People will really appreciate it when government comes in and intervene in cases like these because there is physical harm being done or about to happen to the public.

Recently, discount cards and coupon promos by some drug manufacturers became a negative public issue. The issue is that if those pharmaceutical companies are capable of selling their drugs (patented or generic) at 30 to 50 percent discount or higher to those who hold their discount cards, why not make it a “universal” price for all consumers, with or without a discount card. Why give those discount cards only to doctors in expensive clinics and hospitals for their rich and the middle class patients, why not give the same privilege also for patients who cannot afford to see a doctor.

Since there is obvious “class” discrimination among rich and poor patients, government should come in and mandate or force those drug companies to remove those discount cards altogether and sell their drugs at the existing discount price.

This does not seem to fall in the above definition of where government is expected to keep out or come in. There was no harm to the public when some companies would give price discounts to patients who voluntarily signed into some discount cards. The patients signed in voluntarily like they sign in to their yahoo or gmail or facebook account. The service provider – web-based email or social networking or pharma company – asked the person to give his/her name, age, etc. in exchange for a particular favor, like free email account or highly-discounted medicine prices.

As discussed above, price discounts and various forms of marketing promo are expected from enterprises which are operating in a competitive environment. No discounts, less customers, less revenues, less profit, if not losses. Very simple.

Should the State, through the Department of Health (DOH) and/or the Department of Trade and Industry (DTI) and other government agencies devote their thin resources into coercing companies to another set of price control, then monitor for their compliance or non-compliance, then wait for the “offending” parties’ position paper in a public hearing, then prepare charge sheets and go to the courts if necessary. Is this the right way to spend taxpayers’ money?

It is true that those discount cards may be used by the issuing pharma companies for their “intelligence gathering”. If those pharma companies will distribute their discount cards to all doctors nationwide, let them continue their marketing promo. Other competing pharma companies can bring down the prices of their drugs without discount cards, threatening the marketing promo of the earlier companies that issued discount cards.

Whatever dynamics and counter-promos in quality and price competition among the various enterprises, the State should get out of such deals. By keeping out, the State is indirectly inviting more pharma companies to come in, both domestic and multinationals, to launch their own promos, and ultimately the patients and their families will benefit.

The State should reserve its coercive resources in tracking and controlling those pharma companies that produce and/or import fake or substandards drugs because of the harm they bring to the public. For these companies, they can always price their drugs at just 1/2 or even 1/5 of the supposedly comparable drugs by other companies because the former just used flour or any cheap and medically useless substances in producing their own “drugs”. Isn’t this a better use of the taxpayers’ money?

There are still soooo many multinational innovator pharma companies abroad that are not yet in the country that can help increase competition. These multinationals are global corporate brands that are too scared to be involved in even a single case of producing fake or substandard or ineffective drug. Why should the Philippines be satisfied with the current 30 to 40 multinational pharma companies and about the same number of reliable domestic pharma companies, when there is a potential of 200 to 500 reliable companies who can offer more choices for the Filipino patients?

The State, through the Department of Finance (DOH) and the Bureau of Internal Revenue (BIR) should also consider cutting drastically the various taxes and fees that they imposed on medicines and active ingredients.

There is nothig to fear in discount cards. We should be afraid in discounted competition instead. Monopolists, oligopolists and political rent-seekers thrive in an environment of discounted and limited competition.

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