Drug Price Control 39: Presentation at USC, Cebu, March 2014

Two weekends ago, I gave a talk at the University of San Carlos (USC) in Cebu City, some 100 Pharmacy Economics students of a friend, Prof. Frank Largo. Frank is a fellow UP School of Economics (UPSE) alumni, also a fellow International Academy for Leadership (IAF) alumni at Gummersbach, Germany.

Four years ago, I also gave a talk at his Economics graduate class also at USC. I was one of four speakers then. See  Drug Price Control 38: Presentation at USC, Cebu, March 2010.

The other speaker that day was Prof. Eric Salenga, Chairman of the Pharmacy Department, UP Manila, also President of the Young Pharmacists Association of the Philippines (YPAP). He's a very articulate speaker.

My outline was simple. I.  Dreaming a single national price, II. Drug price control of RA 9502,

III. Senior citizens discount of RA 9994, IV. Conclusions.

I. Dreaming a single national price

Many of those who advocate government price control and/or mandatory discounts of certain commodities in society make this faulty assumption. That same product with same dosage or quality made by the same manufacturer in the same country should have only one price nationwide. Thus, medicine price by the same manufacturer should be the same regardless of outlets.

Any difference in pricing is explained by corporate greed; the wider the price difference, the bigger the greed, so government should control or limit that greed in the name of public health and welfare. This can be an emotionally powerful argument.

When this logic is applied internationally, it would imply that same product with same dosage or quality by same manufacturer made in different but similarly developing countries should have little price differentials. But why this did not happen?

This line of thinking is illogical because there can never be a single national price.

To make meaningful price comparison of a commodity country by country, one must show:

a.       same or comparable retail outlet, say only from Watsons (not a hospital pharmacy in country A vs. small drugstore in country B)

b.       same reference period for price, say December 30, 2012 (not end-January in A vs end-December in B of same year)

c.       Same reference period for exchange rate in converting different currencies into a common currency, PhP or US$, say as of end-June 2013

d.       taxes and fees, national and local, applied on each commodity

e.       subsidies or mandatory discount or price control, if any, applied on each commodity;

f.         other factors.

I asked some individuals who were involved in the lobbying and crafting of the Cheaper Medicines bill into a law, RA 9502, the raw data for such price comparison in the above table, they could not present one. Those numbers in the Senate Committee Report therefore, were suspicious, but they have become strong basis for enactment into a law of the bill.

RA 9502's main concerns were as follows:

* Amending the Intellectual Property Code (IPC) to allow TRIPS flexibilities in the intellectual property rights (IPR) like patents of innovator drugs and allow compulsory licensing (CL), special CL, “early working” and parallel importation.

*  Drugs and medicines price regulation through the issuance of maximum retail price (MRP, not MDRP or GMAP).

* Non-discriminatory clause, amending the pharmacy law and generics law and strengthening BFAD, now FDA.

* Only one goal: cheaper and safe medicines be more accessible to the poor.

But even before RA 9502, average medicine prices were already declining. Not because of political coercion and harassment, but because of competition among drug manufacturers themselves.

Drug Price Control 38: Presentation at USC, Cebu, March 2010

* Note: This is an expanded version compared to the one I originally posted last Thursday. The discussion on game theory below is explained as many readers may not be familiar with this applied math theory used in Economics and other social sciences.

Upon the invitation of a friend, Prof. Frank Largo, who was the Chairman of Economics Department then, University of San Carlos (USC), Cebu City, I spoke at his university in March 2010. I forgot to blog about it here, posting now.

My title was a play of words on right and left. Private property rights can be subverted by leftist pricing policy.

I was one of four speakers then. The three other speakers were (from left) Dr. Sophia Mancao of DOH Region 7, Mr. Juanito Luna of Prosel Pharmaceuticals Inc. in Cebu, and Prof. Yolanda Deliman, Dean of College of Pharmacy, USC.

My presentation, below.

Fat-Free Econ 23: Penang Workshop on Markets in Healthcare

* This is my article today in TV5's news portal,
http://www.interaksyon.com/business/42796/fat-free-economics-healthcare-as-right-responsibility
---------

PENANG, Malaysia – Healthcare is a right and an entitlement, a public good that must be provided by the government at the highest quality and at the lowest or zero cost possible. And some people can sit back as this high social expectation and low personal obligation is supposed to be provided by the government.

That is a formula for high disappointment and social conflict, both in the present and in the future. While it is true that healthcare is a right, it is also a responsibility, a personal and parental, guardian, and civil society responsibility, with or without government assistance. Rights without responsibilities, entitlements without obligations, will encourage politically noisy but economically lazy citizens. And society cannot progress in such condition.

Our seminar on “Promoting Markets in Healthcare” ended Sunday. Participants from independent think tanks from China, India, Indonesia, Malaysia and the Philippines exchanged notes on how civil society and the private sector can optimally provide healthcare to the public at the least politics, least coercion and taxation possible. The event was sponsored by a new global think tank, the Emerging Markets Health Network based in London, and the Institute for Democracy and Economic Affairs based in Kuala Lumpur. Both are espousing free market and more individual freedom philosophy.

There were several presentations made by speakers from different countries. Liew Chin Tong, a member of the Malaysian Federal Parliament, observed that the federal government is acting like a businessman in healthcare, banking and many other sectors as the government owns many hospitals, including “private” ones. He said the role of the government is to be an enabler, to provide equal opportunity to the people especially the poor, and not as businessman.

Frank Largo, a fellow Filipino who chairs the Department of Economics of the University of San Carlos in Cebu City, said that while healthcare is often an emotional issue, not every case is an emergency, and there is a big role for market and civil society players and providers especially in non-emergency cases. That there is a big gap between curative and preventive healthcare, and that there is bias among many academics, especially health economists, for more government intervention in healthcare.

Dr. Debashis Chakraborty, an economics professor at the Indian Institute of Foreign Trade noted the role of public-private partnership in India in the provision of various healthcare services, the inefficiencies or even absence of government healthcare service in many rural and far flung areas. This provides big opportunity for civil society and market players in non-state provision of healthcare.

Philip Stevens, the founder of EMHN, noted that the National Health Service of the UK government is a healthcare monopoly and is showing various forms of inefficiency like long waiting period for patients, and lack of innovation, which is a common practice in situations where no competition exists.

Prof. Yu Hui of the Chinese Academy of Social Sciences and director of China Research Center for Public Policy, and Prof. Feng Xingyuan of the China Academy of Social Sciences and vice-director of Unirule Institute of Economics, made a joint presentation, “Development of Private Hospitals in China and Lessons for Other Countries”. Below are some of the presentations.

But while there are explicit announcements by the Chinese government to encourage the development of more private hospitals and other healthcare providers, the entrenched interests in the public health sector is making this far from attainable.

They suggested (a) competition for the sector, (b) equal inclusion of private hospitals in the Social Medicare Insurance scheme, (c) privatization of some state-owned hospitals, and (d) mobility of healthcare providers in terms of fair promotion, especially among health professionals in the private sector.

Dr. Chua Hong Teck, director of the Healthcare and Low Income Households, Performance Management and Delivery Unit under the Office of the Prime Minister, presented lots of data about the healthcare system in Malaysia (see below).

Healthcare is the fastest growing sector in the Malaysian government. This is a result of high expectations by both the public and policy makers, that healthcare should be provided to all citizens at the highest quality and at the lowest cost, free for the very poor, as much as possible. This is not happening of course, as the presence of private hospitals is rising, implying there is rising demand and expectations on public healthcare that are not met and provided.

The lower table shows that the number of beds in private hospitals was rising from 2000 to 2011,but the number of health professionals for the same period was declining. This implies one thing: physicians and other health professionals in private hospitals are over-worked or simply more efficient, producing more health services at lower manpower input, while those in public hospitals are underworked or simply bloated. I could be wrong but this is the most proximate explanation that I can see.

Dr. Chua said the following are the challenges for the non-state sector in healthcare: (a) enforcement of Private Healthcare Facilities Act of 1998 with regulations of 2006, (b) financing of these services and management of these facilities, and (c) ability to co-exist and compete with the public healthcare system.

I do not believe that it is possible to have real competition between private and public healthcare providers as favoritism is inherent in the latter. For one, the former is taxed while the latter is subsidized. Second, the former is regulated while the latter is the regulator.

High spending in public healthcare is among the major deficit generators and debt creators in many rich countries now. If a service is provided for free or at highly subsidized rates, expect the demand to be larger than the supply always. The result of such a wide gap between demand and supply is (a) healthcare rationing like long waiting period for non-emergency cases, or (b) generally poor quality delivery or provision of a service, or (c) continued bleeding of fiscal condition with sustained high borrowings to finance the system, or (d) all of the above.

If we recognize that healthcare is a right and a responsibility at the same time, then it should be recognized that those who want good quality healthcare must pay for it as much as possible. This will open up the discussion on the importance of preventive healthcare, that people own their bodies, not the government. So if people will abuse their body, no amount of government healthcare subsidy and borrowings will remedy the situation.

And secondly, recognize the need to deregulate private and civil society health insurance schemes. Government health insurance system like PhilHealth in the Philippines can be retained but people should not be coerced and obliged to become mandatory members and contributors to it. It should co-exist with private and civil society health insurance schemes in order to encourage more competition, more innovation, and more efficiency at least cost possible to the public.

The case of infectious diseases on certain occasions like the spread of leptospirosis during heavy flooding, and pediatric diseases like childhood cancer, can be a separate case where taxpayer-financed healthcare is justified.

Removing or reducing the fat and bureaucracies in government healthcare system is the way not only to help address the bleeding public debt problem in the Philippines and in many other countries, but also to inculcate the age-old dictum: rights and responsibilities, entitlements and obligations go together.
---------

See also:
EMHN 1: Forum on Promoting Markets in Healthcare, IDEAS-Malaysia, June 23, 2012
EMHN 2: IDEAS Forum in Penang, Malaysia, September 01, 2012
EMHN 3: Penang Workshop Report, September 10, 2012

Fat-Free Econ 8: Drug Price Regulation is Wrong, May 04, 2012
Fat-Free Econ 9: Drug Pricing Bureaucracy is Not Cool, May 11, 2012
Fat-Free Econ 18: Healthcare Corruption and Physician Entanglement, July 30, 2012
Fat-Free Econ 22: Three Years of Drug Price Control Policy, August 30, 2012

EMHN 3: Penang Workshop Report

* This is my article in the online magazine yesterday,
http://www.thelobbyist.biz/perspectives/less-gorvernment/1349-healthcare-competition-and-government.
I also wrote a longer version in interaksyon.com.
-----------

Penang, Malaysia – The seminar that I attended here on “Promoting Markets in Healthcare” ended yesterday. It was another learning experience listening to various speakers and fellow participants from free market think tanks and groups from India, China, Malaysia, Indonesia and the Philippines. The activity was sponsored by a new global think tank, London-based Emerging Markets Health Network (EMHN) and the Kuala Lumpur-based Institute for Democracy and Economic Affairs (IDEAS), and was held in Red Rock Hotel.

The focus was how to free from politics, or how to minimize political interventions and the various inefficiencies associated with it, in the delivery of healthcare to the public, with greater role to be assumed by civil society and the private sector. In short, healthcare provision at the least politics, least taxation and borrowings possible.

Among the speakers yesterday were the following.

Liew Chin Tong, a member of the Malaysian Parliament. He noted that the main role of a government is to provide equal opportunity to the people, to be an enabler of the less privileged so they can improve their lives later on. But the Malaysian federal government has been acting like a big businessman, owning many banks and hospitals, even private hospitals with substantial share ownership in them.

Frank Largo, the head of the Economics Department of the University of San Carlos (USC) in Cebu City. Frank has a unique role because he teaches Economics not only to Econ majors, but also to Nursing and Pharmacy majors who are required to take a subject on health economics. He said that while there are lots of emotions involved in the discussion of health policies, not all health cases are emergency. That the gap between curative and preventive healthcare is big, public resources is heavily focused or biased on curative health.

On a side note, Frank’s graduate Economics students organized a forum about the Cheaper Medicines Law in USC about two years ago, and I was one of the speakers there. I talked about “Property right and policy left” of the law.

Prof. Yu Hui of the Chinese Academy of Social Sciences (CASS) and Prof. Feng Xingyuan of the Rural Development Institute and Vice-Director of Unirule Institute of Economics, made a joint presentation entitled “Development of Private Hospitals in China and Lessons for Other Countries”.

In their presentation, they showed some data like as of 2011, there were 457,000 private healthcare providers including private hospitals or 48 percent of total. But these private enterprises comprise only 10 percent of total hospital beds.

Below are some data regarding the dominance of government hospitals despite public pronouncements of encouraging private hospitals and other healthcare providers, as well as the reforms they think should be done.

Dr. Debashis Chakraborty, a Professor of Economics at the Indian Institute of Foreign Trade in Delhi said there is an important role for public-private partnership (PPP) in providing healthcare services.

Philip Stevens, the founder of EMHN, narrated how the UK government healthcare monopoly, the National Health Service (NHS), is one proof of the problem of centralizing and politicizing healthcare provision. Long waiting period for patients, insufficient supply of certain medicines in some government hospitals, lack of innovation and cost-cutting measures, are among the ills that plague the NHS and other government-nationalized or centralized healthcare systems.

Dr. Chua Hong Teck, Director of the Healthcare and Low Income Households, Performance Management and Delivery Unit (PEMANDU) under the Office of the Prime Minister, presented a number of interesting of data on Malaysia’s healthcare system.

Government healthcare expenditure is growing at an average of 11 percent per year, with the Ministry of Health (MOH) spending alone rising at 12 percent per year on average. Since 2009, total healthcare spending comprises about 5 percent of GDP and 55 percent of it is from public sources.

The number of beds in private hospitals is rising from eight percent of total beds in 2000 to 24.5 percent in 2011, but the number of health professionals is declining from 67 percent of national total in 2000 to only 29 percent in 2011. This suggests to me that health professionals in private hospitals are over-worked or simply are more efficient, while those in government hospitals are underworked or bloated.

Tables below, healthcare spending is led by MOH at 43.7 percent of total, followed by out of pocket (OOP) or private spending at 35.6 percent, then the Ministry of Higher Education (MHE) at six percent, and the other agencies have small or minimal shares. The Ministry of Defense also has its own hospital and they treat not only its own personnel and their dependents, but even ordinary citizens can go to their facilities and get free or subsidized healthcare.

As of 2011, 42 percent of all dentists, 40 percent of all pharmacists, and 33 percent of all nurses, are working in the private sector healthcare providers.

Can healthcare, especially those provided by the government, national and local, be depoliticized? Can real competition happen between public and private healthcare enterprises?

From my observation in the Philippines and other countries, the answer I think is No. Government being a regulator and a player at the same time already gives undue advantage to public health institutions. Besides, they get subsidies from taxpayers while private enterprises are being taxed.

When a commodity or a service is provided for free or at highly subsidized rate, we can expect that the demand will be larger than the supply, always. For instance, someone who has a headache might demand a CT scan or MRI tests to find out if there are other hidden causes of the headache. And why not demand, it is free or heavily subsidized anyway. This will put heavy pressure and use on the facilities and personnel of the public healthcare sector, resulting in high costs, healthcare rationing like long waiting period for non-emergency cases patients, or poor quality delivery or provision of a service.

Healthcare competition among different service providers – national government, local government, civil society and charity organizations, corporate and for-profit businesses – will result in better health service provision to the public at lesser cost. Competitors are always under pressure to give value for money to their clients as the latter have the option to opt out and go to another service provider.

On another note, I enjoyed the food and local cuisine here. There are many food shops and stalls almost everywhere, selling Malaysian, Chinese or Indian food. Our local hosts told us that if one is busy, it is much cheaper to eat outside than do groceries and cook food in the house.

The food competition in Penang and other parts of Malaysia, and almost elsewhere in the planet, is perhaps the best and solid proof that depoliticizing an important service like healthcare is best for the public, whether in the short- or long-term.
---------

See also:
EMHN 1: Forum on Promoting Markets in Healthcare, IDEAS-Malaysia, June 23, 2012
EMHN 2: IDEAS Forum in Penang, Malaysia, September 01, 2012