The event was mainly sponsored by the Americans for Tax Reforms (ATR), Property Rights Alliance (PRA), International Policy Network (IPN) and about one or two other free market think tanks.
1. Philosophical basis of price control
Price control is rooted on the populist belief that
competitive capitalism is not happening in some sectors, that it is not
possible to happen even at the theoretical level. Therefore, government should
come in to protect the poor and marginalized sectors of society.
Big capitalists are painted as evil, the poor are exploited, government is a savior, so the
savior should intervene to temper the capitalists and ensure there is justice
and equity in society.
In medicines, multinational pharmaceutical companies
(MPCs) are often seen as foreign capitalists whose main business is to make as
much profit as possible by bleeding the poor patients in poor countries
MPCs are seldom seen by the public as revolutionary
innovators who create and produce new medicines for both old and new diseases.
2. Legal basis of drug price control
Republic Act (RA) 9502, “The Universally Accessible
Cheaper and Quality Medicine Act of 2008” or Cheaper medicines law, enacted
June 2008
Long and tedious list of factors to consider in
recommending the maximum retail price (MRP)
Effect of price control
A “hollowing out” and abolition of price competition and price segmentation above the horizontal supply curve.
Level of competition among different manufacturers and their respective drug products is reduced and shrunk.
Producers of more powerful but more expensive drugs will not be encouraged to bring such drugs into the country, constant threat of confiscation by the government of the success of innovation.
4. Politics of drug price control in the Philippines
No apparent national health emergency in the country at
the time the price control provision was pushed hard, sometime in May to July
this year.
Only “political emergency” as the Presidential election,
once every 6 years, was only one year away.
Senator who was the main author of the Senate version of
the law was then running for President but his ranking in various surveys was
low. Need to champion something that is very emotional to voters.
5. Preliminary assessment of effects
5.1. Multinational pharma companies (MPCs)
“Not just a price control measure. It was a confiscatory
price cut of 50%, in many cases for patented products! Even in countries that
have this type of mechanisms, it usually applies once a patent expires, and
only gradually. The impact, of course, is very negative: the rebates to the
trade, and the impact in the price cut itself, both of which will run into several
hundred millions of pesos. Also, it has added a level of uncertainty in our
operations, since there is the threat of more price cuts still to come, with no
clear understanding of what potential products could be affected, or what is
the clear rationale to demand a straight 50% cut.”
MPCs will be unintentionally “raiding” a portion of the
niche market of many LPCs, poorer
consumers who will now consider buying the “more affordable” products of the
MPCs.
5.2 Local pharma companies (LPCs)
Also adversely affected. If they used to sell at say, 30
percent up to 49 percent lower than the equivalent products of MPCs under the
previous free market set-up, they would find themselves that they are now the
“expensive” sellers.
So they will be pressured to further bring down the price
of their products. If they have some
allowance for such further price reduction, fine. If none, then either
they stop selling their products affected by the price control to avoid losses,
or continue selling at a loss, just to retain and protect their overall market
share in the industry
5.3 Drugstores
Big drugstores are not affected much, have computerized
system so MPCs can give the rebates more quickly
Small drugstores are greatly affected, non-computerized
system, drug inventory is slow and may be unreliable, rebates by MPCs are
delayed, so they suffer losses
Double price control: mandatory 50% under the new policy,
plus another mandatory 20% discount for senior citizens and persons with
disability (PWDs), draining their financial bottomline.
5.4 Hospitals
Experience difficulty recovering their administrative
costs in the process of prescription + dispensation + monitoring + change of
medication if necessary.
“We are in the business of world class health care, not
in retailing medicines. We hire good people and give them good pay to educate
patients. We not only prescribe medicines for our patients, we also monitor if
the given medicines produce the desired results or not. If not, then we have to
immediately change the medication to get the desirable health results that we
want for our patients. There are costs to this.”
6. Conclusions and Recommendations
6.1 Government in general
Policies that turn off and discourage the entry of more
players and competitors – like price control, heavy regulation and
bureaucracies, high taxation and disrespect of private property rights – should
be avoided.
Government targeting of the more expensive products which
are branded, even patented products that are used by the wealthy population
that can afford them, is not wise, more driven by envy. Such policy has penalized successful brands
and distorted the market.
6.2 DOH
“If the intention of the government was to really provide
affordable medicines for the poor, they should have looked at the list of
essential medicines from WHO, which consists mainly of off-patent, older
products that are genericized and can be purchased at very low prices, both
here and abroad, cut those prices and offer those products... Instead of
spending money on expensive advertisements on "MDRP" and
"GMA", they could have used that money to advertise those generic
alternatives.”
Do NOT expand the list of drugs under government price
control. Tantamount to expanding the distortions in the economy.
6.3 Congress
Do not create a new drug price control body, replace the
current system where the DOH Secretary makes the recommendation, the President
signs an Executive Order issuing price control on certain drugs.
Do not require drug manufacturers to submit annual
reports of their marketing expenses to the DOH Secretary to monitor such
expenses.
Do not introduce new mandatory discounts for certain
groups of people where the costs are borne entirely by the drugstores.
6.4 Civil society and the public
Objectively monitor and assess both ST and LT
implications of drug price control policy. It is the public, not the
politicians, who will suffer from lack of competition among players and lack of
choice among drugs.
So long as alternative drugs, so long as generic
competitors are present, then public welfare is assured.
Push for more competition among drug producers and
retailers, so that the public will have more choices. More choice means more
freedom.
See also: 3rd PRPX, October 2009, Singapore, October 17, 2009
