Drug Price Control 37: Four Years of the Policy

* This is my article yesterday in thelobbyist.biz.

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This week, the drug price control or maximum retail price (MRP) policy has turned four years old. The policy was laid out in late July 2009, with the issuance of Executive Order 821 on the day former President Global Arroyo delivered her 9^th and last State of the Nation Address (SONA). With a two-weeks additional preparation period, price control became effective in August 16, 2009.

The main and unstated purpose of imposing the policy was electioneering. The May 2010 election was just nine months away and the former President and her arch critic that time, former Senator Mar Roxas who was aspiring to run for President under the LP, they both needed to appear “pro-poor, pro-patients” to get more voters support.

The stated purpose was to make popular but expensive medicines become cheaper, even if alternative generic, cheaper medicines were available at that time.

So, after four years of forcible 50 percent price discount on certain popular brands, have the poor patronized the innovator (or originator or multinationals’) brands?

In a “Policy Dialogue on UHC and Access to Medicines” last July 25-26, 2013, sponsored by the DOH, Zuellig Center for Asian Business Transformation (ZCABT), and MeTA Philippines, held at the Asian Institute of Management (AIM),  Deejay Sanqui of IMS Health made a presentation, “Pharmaceutical Market Perspective.”

For a start, here’s a situationer. The total Philippine pharmaceutical market as of end-2012 was valued at P131 billion. Minus the nutritionals, it was worth P124.5 billion.

The most popular molecule that was put under price control was amlodipine, an anti-hypertension drug. And the most popular brand was Norvasc, made by Pfizer. Since it was a highly popular, highly saleable brand but considered “high-priced”, forcing its price to be slashed by half would result in the poor and middle class shifting to it away from the cheaper generic brands of amlodipine. Did this happen?

No. From the IMS data, even before the MRP policy was imposed in mid-August 2009, the vertical line in the chart below, there were plenty of generic brands of amlodipine already available, and many people were buying them. When Norvasc 5mg tablet’s price was slashed from P44 to P22, the poor did not shift to it because there were already amlodipine 5mg generic brands that were selling for only P10, even P7.50, so the P22 was still high. The main beneficiaries of the drug price control policy were the rich and upper middle class who were patronizing Norvasc, whether its price was P50 or P30 or P20 a tablet.

For simvastatin, an anti-cardiovascular (heart) diseases drug molecule, the same trend was developing – many cheaper generic drugs were already available for the poor even before price control was imposed, again marked by the vertical line in the chart below. In fact, the share of the innovator brands that time was already small, perhaps below 15 percent of the total market value for simvastatin. There was really NO need to impose price control for this molecule.

But then again, “helping the poor” was just an alibi for the two political camps then. Their goal was simply to look “pro-masa, pro-mahirap” even if the poor would not directly benefit from such coercive and arm-twisting in forced price discount.

Another popular drug molecule against breast cancer and related diseases, Tamoxifen, was also put under price control.  What was ironic was that the share of the innovator or originator brand was almost nil. Prescription for generic variants was already very high, before, during and after MRP policy.

One may wonder, if the policy did not benefit the poor but only the rich and upper middle class, why is the policy not withdrawn?

That is one ugly aspect of heavy government intervention. Once a policy or regulation was imposed, it almost always becomes permanent and long-term, never temporary or short-term. The two main protagonists, now Congresswoman Gloria Arroyo and DILG Secretary Mar Roxas, plus former DOH Secretary who became Civil Service Commission (CSC) Commissioner Francisco Duque, have been out of medicines policy after the 2010 elections, yet the damage done by their policy remains until today.

What is that damage? The politics of envy, that if a company is able to produce useful, popular and revolutionary products, the politics of envy and government coercion will penalize that company by forcing it to give mandatory, forcible and coercive price discount. And since all the affected companies were multinationals, the message across other foreign investors and suppliers was negative.

There are no government moves or attempts to withdraw this policy. All the innovator/originator and generic manufacturers, the drugstores and hospitals, have already adjusted to that ugly reality.

What the policy can teach us is to avoid, to refrain, inviting government to come and impose price regulation and price control. In whatever sector or sub-sector of the economy.

Government can do better if it will encourage and allow more players and competitors, local and foreign, to come in. More competition almost always results in price reduction or stability, benefitting the consumers, patients especially.

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See also: 

Fat-Free Econ 22: Three Years of Drug Price Control Policy, August 30, 2012 

Drug Price Control 33: Debate with a Cat, June 15, 2013 

Drug Price Control 34: No Single National Price, And a Wailing Cat, June 17, 2013 

Drug Price Control 35: DOH Procurement Price and Lobbying for Another Price Coercion, June 29, 2013 

Drug Price Control 36: Advisory Council, James Auste and China, July 12, 2013

Fat-Free Econ 22: Three Years of Drug Price Control Policy

* This is my article yesterday in TV5's news portal,
http://www.interaksyon.com/business/41795/fat-free-economics-three-years-of-drug-price-control-policy
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The drug price control policy turned three years old in mid-August. The Maximum Retail Price or MRP was imposed through Executive Order No. 821 and Advisory Council Resolution 2009-001 - both issued in July 2009 and took effect August 16, 2009.

The imposition was driven by a political emergency and not a health emergency, as the Presidential and local elections were just nine months away back then.

Prevailing drug prices data at that time contradicted the necessity of imposing price regulation. Competition among various brands from different drug manufacturers and drugstores was healthy at that time, such that consumers had various options for their needs.

Three examples of drugs are given below. Data came from Tomas Marcelo “Beau” Agana, who is president of the Philippine Chamber of Pharmaceutical Industry. Beau prepared a PowerPoint for the public hearing of the Congressional Oversight Committee on Republic Act No. 9502 last May at the Senate. But due to limited time, Beau was unable to present it. The event became a “public speaking” -instead of a public hearing - by Rep. Ferjenel Biron and Sen. Manny Villar, as both were pushing their respective bills creating a new bureaucratic layer, the Drug Price Regulation Board.

First is amlodipine, an anti-hypertension drug. While the leading brand, Norvasc by Pfizer, was selling for around P38 for the 5 milligram tablet, similar drugs were selling for P25, P15, P11 and P10. Consumers had choices, but the politics of envy centered on Norvasc. So their solution was more politics, more government coercion.

Source: Agana, May 2012. Primary data for the second chart - prices of different brands - is from the Drugstore Survey, March 2012.

Beau showed that for the average retail price for various brands of amlodipine, Philippine prices were cheaper than those in Indonesia, but more expensive than those in Malaysia, Singapore, Taiwan and Thailand.

Now consider this: some countries - such as Malaysia - do not slap taxes on medicines. Philippine taxes on medicines include an import tax of 3-5 percent and value-added tax of 12 percent - all of which result in a 15 percent price spike. If other taxes and fees are included - local taxes and fees and Food and Drug Authority fees - the government share could rise up to 20 percent of the retail price.

Then there are indirect taxes on medicines, namely the corporate income tax and the mandatory social security contributions by drug manufacturers, wholesalers and importers, and drugstores. Those taxes and fees, direct and indirect, are passed on to consumers.

Thus, the price difference of amlodipine between the Philippines and Malaysia could pretty much approximate the difference in tax treatment they both applied (or not applied) on medicines and on corporations: 12 percent VAT in the Philippines vs. zero in Malaysia; and 32 percent CIT in the Philippines vs. 20 percent for the first RM 500,000 and 28 percent on the balance.

Second case is co-amoxiclav, an anti-infection drug. Before the MRP policy three years ago, the leading brand, Augmentin by GSK was selling for nearly P83 for the 625 milligram bottle. But consumers had other options that were selling for only P59, P47, or P35.

Comparing again with some Asian countries, drug prices here for co-amoxiclav were similar with those in Indonesia and Thailand. The price difference with Malaysia because of a different tax treatment appears to explain why they are cheaper in Malaysia.

Comparing with prices in Singapore, VAT in the city-state stands at only 5 percent and CIT at 17 percent, or almost half that in the Philippines.

The third case is simvastatin, a drug against high cholesterol and certain cardiovascular diseases. See the different prices for different brands.

And here are other drugs and their respective price ranges. Again, basic data is from the Drugstore Survey, March 2012.



The bottomline for all these data is clear: there is competition, there are various options for the consumers, and therefore government intervention in drug price setting was unnecessary and unjustified. Only then Senator Mar Roxas (who pushed for the policy in the Senate) and then President Gloria Arroyo knew why the MRP was imposed.

When the MRP was being cooked and debated, Roxas was desperate to raise his low approval rating for the May 2010 Presidential elections, while Arroyo signed the EO to steal the show from him. Then Health Secretary Francisco Duque was also looking at the possibility of running for the Senate, but did not push through with the plan because of the Arroyo administration's poor showing in surveys.

In short, the MRP imposition in August 2009 was a political gimmick for political ends by politicians looking at the elections just nine months away. While their political horizon was short term, the social and economic damage was long term. EO 821 has no sunset provision.

A year after the MRP was imposed, the key sponsors of the policy had dropped the drug sector like a hot potato: Arroyo won a congressional seat, Roxas was appointed transport and communications secretary, and Duque was appointed head of the Civil Service Commission.

Two weeks ago, I attended the emergency meeting of the DOH Advisory Council for RA 9502, the Cheaper Medicines Law, and the important question requiring an answer was: What should the DOH do, to deal with repeated if not rising cases of water-borne diseases like leptospirosis due to flooding? Should the government impose another round of MRP on drugs used to treat those diseases?

Luckily the lesson of the past three years of MRP is clear in the minds of the Advisory Council members. Competition among different brands and drugstores provides the poor some access to cheap drugs, whereas price control has upset the market for the same.

Below is data presented during the said meeting. The drug against leptospirosis, doxycycline, has various brands with a wide price range. The prices are in pesos per 100 milligram capsule.

So consumers have the option of buying at P169, P74, P49, P5 or P2. Furthermore, many drugs against diseases that arise during calamities are given away not only at low prices, but sometimes for free through donations from various civil society and charitable organizations like the Red Cross, Rotary, Mason, Lions, JCI, etc. The DOH also has its own stock of medicines for distribution to the poor.

Competition, not more government coercion. Deregulation, not more government regulation and taxation. The public and the politicians would be better off if they will heed this simple lesson from the three years of drug price control.
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See also:
Drug Price Control 25: Top 10 Articles on Google Search, April 03, 2012
Drug Price Control 26: Conflict of Interest in Drug Price Regulation Legislation, May 13, 2012
Drug Price Control 27: Letter to Sen. Pia Cayetano, May 15, 2012
Drug Price Control 28: On Cong. Biron and Sen. Villar Bills, July 14, 2012
Drug Price Control 29: MRP Attempt Over Anti-Leptospirosis Drug, August 16, 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

Drug price control 5: Mandatory discounts and acronym politics

(Note: this is my article today in the lobbyist.biz, Double price control and acronym politics)

Politicians tend to be as populist as possible just to get votes again and again. The usual practice is to create various welfare and subsidy programs to be funded either by existing taxes or new borrowings and hence, future high taxes.

But there is another way by which politicians can achieve their goal without directly compromising taxpayers’ pockets. And that is by forcing private companies to provide mandatory discounts or forcible price cuts. And whatever revenue reductions if not losses, are not necessarily deductible as tax credits.

In the case of drugs and medicines, there are currently two types of mandatory price cuts or what I call as “double price control.” The first price control is the mandatory 20 percent discount on drugs (and food in restaurants, fares in planes, buses, etc.) purchased by senior citizens (SCs), with another follow up law of mandatory 20 percent for persons with disabilities or PWDs.

The second price control is the mandatory 50 percent price cut for selected medicines (all are products by the multinationals, not a single drug produced by local pharma). This was implemented since mid-August 2009.

The latter is “easier” to implement because the price cut is limited to a few identified drugs and it applies to all consumers, young and old, who buy those medicines. No ID or physician prescription and other papers will be sought by the drugstores. The prices of drugs covered by the list are simply slashed by 50 percent of their previous prices, no questions asked.

The former, the mandatory price cut of 20 percent for drugs purchased by SCs, is a lot more complicated and harder to implement. To avail of rebates from the drug manufacturers and the BIR (for the VAT deductions), drugstores need to present these data about each and every single SC who buys from them: SC full name, age, address, SC ID number, drugs purchased record, physician prescription, drugs purchased at the store, how much, etc.

Only a few of the small drugstores have copying machines to photocopy those information. If they buy that machine, that will be another operating cost, plus their maintenance and electricity consumption, even if the drugstores are losing money from those mandatory discounts.

One negative effect of this revenue loss and complex compliance procedures, is that many small drugstores have stopped selling the drugs that many SCs purchase more often. And this adversely affects access. Even if the drugs for the SCs have been slashed (20% + 50%) but if they are not available, then the social goal of having “affordable, available drugs” is immediately not met and defeated.

The complex compliance procedures in implementing the mandatory price discounts for SCs is among the topics that were discussed during the meeting of the DOH Advisory Council on Healthcare early this week. I am a member of this Council since 2009. It used to be the Advisory Council on Price Regulation. After the price control has been implemented and pharma players, both multinationals and locals, have learned to live with the policy as there are no signals from the government to pull out the policy, the Council has been converted and renamed as Advisory Council on Healthcare. The focus of the meetings is how to attain “universal health care” or UHC for many Filipinos.

In another topic of the meeting, on monitoring the implementation of the mandatory 50 percent discount for selected drugs, I spoke to question the continued use of Government Mediated Access Price (GMAP) and Maximum Drug Retail Price (MDRP) because these terms and concepts are not found in the law (RA 9502) and its implementing rules and regulations (IRR). Thus, I consider these terms as technically illegal.

GMAP simply means Gloria Macapagal Arroyo Price when Gloria was still the President of the country at the time the 2nd drug price control policy was imposed in mid-August 2009. It was coined by the DTI and DOH leadership at that time.

The official term in the law and its IRR is Maximum Retail Price or MRP, not MDRP. But the Gloria boys then did not want to associate the policy to former Sen. Mar Roxas, who was then the Chairman of the Senate Oversight Committee on the implementation of RA 9502, the Presidential Candidate of the Liberal Party, and a constant critique of Gloria. So the Gloria boys did not want MRP to mean “Mar Roxas for President”, so they inserted “drug” to make it MDRP.

I added that these two terms, GMAP and MDRP, are not only technically illegal, but their continued use until today speaks of the heavily politicized nature of drug pricing in the country. Even if the politicians who orchestrated their acronyms and political connotations are no longer in power. Thus, I suggested that the DOH and other players should stop using those GMAP and MDRP. Use instead the one that is officially in the law, which is MRP.

I was glad that the other members of the Council did not object to my proposal, including the top DOH officials in the room.

Healthcare policies by the government are already political by nature. It is something that even free marketers like me already recognize. We only request that the extent of politicization be kept to the minimum.

Where there is less government intervention in pricing and supply of health services, there is more leeway for the various players in the health sector – pharma manufacturers, drugstores, hospitals, physicians, pharmacists and other health professionals – to adjust to the various characteristics of the patients and the public.
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See related articles in this blog,

Double price control

Mandatory drug price discounts

Drug price control 1