Monday, August 10, 2009

On Senior Citizens Discount

(Note: The original title of this paper was "Double Price Control")

Senior citizens (60 yrs old and above) and persons with disabilities (PWD, like blind, mute) are entitled to 20 percent discount on medicines. That’s price control #1. Then there is the government-mediated and government-mandated 50 percent price cut on medicines. That’s price control # 2 that will start 5 days from now, August 15.

There have been a number of confusions already on price control #1 alone. Among these are the following:

One, if the senior citizens are buying drugs that are obviously for their grandchildren or for other people, can the drugstore refuse to give the mandatory 20 percent discount? But there are clear penalties if the seniors will report to the Department of Health (DOH) and the police.

Two, if a person comes to a drugstore and makes signs that he/she is mute and deaf and demand the 20 percent mandatory discount, how will the drugstore staff know that he/she is indeed mute-deaf and not just pretending?

Three, most small drugstores just make 5 to 10 percent profit margin because of stiff competition among them, but they are all forced by the government to give 20 percent discount to PWD and senior citizens, how will they recoup the losses?

When price control #2 is added to the above, here’s the result: for certain drugs, a senior citizen or a man/woman on wheelchair can get 20 percent discount on drugs that already have 50 percent forced price reduction!

So pharmaceutical companies and drugstores, big and small, are wondering how to deal with this kind of double price control and still survive. And there are uncontrolled taxes and fees on medicines alone, uncontrolled taxes and fees on entrepreneurship and doing business, the government is not budging to reduce or abolish even one of those various taxes and fees.

Business is business. If businessmen lose money somewhere, they have to recoup it elsewhere; otherwise, they better close shop and move to other industries. So the non-senior, non-disabled persons, rich and poor, men and women, will have to bear higher drug prices.

This morning, I attended the DOH Advisory Council Meeting on Price Regulation. The above issues were among those discussed. Well, the term “double price control” was not used or mentioned there, it’s only a term I coined as I listened to the drugstore owners and managers, including hospital pharmacies, and pharmacists.

The big hospitals were represented there – Makati Med, St. Lukes, Asian Hospital, among others. They say that as much as possible, they do not allow the confined patients to buy drugs outside of the hospital to control the use of (a) cheap but counterfeit drugs, and (b) cheap but sub-standard generics with no bio-equivalence tests. When these drugs are used by the patients, either they do not recover fast, and/or develop new diseases, and some of them sue the hospital and their attending physicians.

So the hospital managers ask, “We usually charge higher for drugs in our pharmacies than the drugstores outside because there are administrative costs to us. A nurse will get the blood pressure for instance and the physician or pharmacist will recommend what dosage to give. Will the new drug price control law allow us to charge additional administrative charges for the medicines we dispense to our patients?” To which DOH officials replied “Yes, a separate charge, but the price of drugs under maximum retail price (MRP) should not exceed the prices as announced.”

As a researcher and policy analyst of the effects of various government intervention in the market, I am intrigued by the unfolding of events, even before the actual price control (the second control) will commence.

I have said it before and I will say it again: politicized pricing through government price control, like mandatory discounts and mandatory price reduction, is among the best formula to mess up the economy. Any intervention will require another set of intervention supposedly to correct the wastes and inefficiencies of the earlier intervention.

Elton John sang it appropriately: “It’s the circle of life, and it moves us all…”

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