PWD Discount 1: Who are Persons with Disability?

In a complaint email last Tuesday by James Auste, head of the Cancer Warriors Foundation (CWF), why Mercury Drugstore did not give sell him his medicines for more than one month, he was answered by Atty. Edsel Manuel of Mercury. The latter gave me permission to blog his comments, thanks Atty. Manuel.

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Is one suffering from Chronic Illness a Disabled person? This has been discussed with the National Council for Disability Affairs (NCDA) 2 years ago and was answered in the negative.

First, Republic Act 9442, amending RA 7277, the Magna Carta for disabled persons, provides that the 20% discount for the purchase of medicine shall be for the exclusive use and emjoyment of persons with disability, thus:

CHAPTER 8. Other Privileges and Incentives

“SEC. 32. Persons with disability shall be entitled to the following:

(c) At least twenty percent (20%) discount for the purchase of medicines in all drugstores for the exclusive use or enjoyment of persons with disability;”

Second, the Implementing Rules and Regulations of RA 9442 states that the granting of said 20% discount is subject to the guidelines of the Department of Health (DOH), thus:

“IRR OF REPUBLIC ACT NO. 9442,

6.1.d Purchase of Medicine – at least twenty percent (20%) discount on the purchase of medicine for the exclusive use and enjoyment of persons with disability. All drug stores, hospital, pharmacies, clinics and other similar establishments selling medicines are required to provide at least twenty percent (20%) discount subject to the guidelines issued by DOH and PHILHEALTH.”

Third, the DOH-Administrative Order No. 2009-0011 has made clear in its “Rationale” and in the “Definition of Terms,” particularly on the “Disability Types,”  the phrase “Chronic Illnesses with Disabilities” or “disability due to chronic illness,” thus:

Senior Citizens Discount 5: Supreme Court Flip-Flopping on the Law

A fried from Mercury Drugstore, Atty. Edsel Manuel, gave a long reply to the complaint of Mr. James Auste, head of the Cancer Warriors Foundation, why his demand to get a 3-months supply of his medicines from Mercury was denied. The email exchange was posted in our DOH Advisory Council for RA 9502 (Cheaper Medicines Law of 2008) email loop. Atty. Manuel's long reply covered several topics, from the law on mandatory discounts to persons with disabilities (PWDs) or RA 9442, to the expanded mandatory discounts to senior citizens or RA 9527 (enacted February 2004) and RA 9994 (enacted January 2010), to pricing by big drugstore chains.

Below, I am posting portions of his reply related only to RA 9994. I will reserve my further comments about this law in my next blog post on the subject. I thank Atty. Manuel for giving me permission to blog his long reply. Photos here, I got from the web.

(S)ince the enactment of senior citizen and PWD discounts, drugstores have been crying afoul and have been literally crying a river in Congress and Senate.  If this 20% discount is viable and reasonable to drugstores why on earth will drugstores complain? And with the burden shared to manufacturers and suppliers, why are they complaining also? This means that there is something wrong with the law.

The first giver of 20% discount is RA 7432 or the original senior citizen law. This law is the most fair that even without the implementing rules being issued, Mercury Drug has initiated the giving of 20% discount believing in the just and fairness of the law as the cost of the discount was treated as tax credit. 

However, the anticipated fairness of the law was saddened by the issuance by the Bureau of Internal Revenue of Revenue Regulation No. 2 series of 1994, by treating the grant of the 20% discount as tax deduction instead of tax credit; and the expected propriety of the elderly was frustrated by the abuses made by unscrupulous persons. We were able to convict in Valenzuela court a person who used fake senior IDs and the discounted medicines he illegally acquired were sold to other establishments.

Appeal to the Executive branch of the government turned to be futile thus, the company sought the intervention of the Judiciary.  

From 1994 until the company won the case with the Supreme Court in 2005, the company had suffered substantial reduction in sales,  profit, and drain in the company’s cash flow, not to mention the litigation costs  incurred . 

It has been decided in numerous decisions of the Supreme Court that tax deduction is not fair- is not a just compensation for the loss revenues brought about by the discount. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation G.R. No. 159647, April 15, 2005, 456 SCRA 414; Bicolandia Drug Corporation  v. Commissioner of Internal Revenue, G.R. No. 142299, June 22, 2006, 492 SCRA 159; Commissioner of Internal Revenue v. Bicolandia Drug Corporation, G.R. No. 148083, July 21, 2006, 496 SCRA 176; Commissioner of Internal Revenue v. Central Luzon Drug Corporation , G.R. No. 159610,(June 12, 2008] 

To quote the Supreme Court, thru Justice Panganiban, 

“Be it stressed that the privilege enjoyed by senior citizens does not come directly from the State, but rather from the private establishments concerned.  Accordingly, the tax credit benefit granted to these establishments can be deemed as their just compensation for private property taken by the State for public use.” (Commissioner of Internal Revenue v. Central Luzon Drug Corporation G.R. No. 159647, April 15, 2005, 456 SCRA 414)

That light we saw from the Supreme Court in redeeming the company from injustice did not continue to flame-up because the Legislature enacted RA 9527 or the Expanded Senior Citizen Act of 2004, which changed the original tax treatment of the discount from tax credit to tax deduction.

With the enactment of the Expanded Senior Citizen Act of 2004, the small drugstores filed a Petition with the Supreme Court questioning the constitutionality of the tax deduction provision of the law.

Surprisingly, the Petition by the small drugstores was dismissed by the Supreme Court, in deviation from their previous ruling by upholding the  tax deduction scheme, but questioning the business decision of drugstores in pegging a small mark-up. 

The Supreme Court enunciated thru Justice Azcuna

“it is unfair for petitioners to criticize the law because they cannot raise the prices of their medicines given the cutthroat nature of the players in the industry. It is a business decision on the part of petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost, as alleged by petitioners, is merely a result of this decision. In as much as pricing is a property right, petitioners cannot reproach the law for being oppressive, simply because they cannot afford to raise their prices for fear of losing their customers to competition.” (Carlos Super Drug vs. DSWD, G.R. No. 166494, June 29, 2007)

As evident from the above ruling, the Supreme Court teaches drugstores to increase their prices to counter the effect of tax deduction, but this has been rendered inutile by the enactment of RA 9502 or the Cheaper Medicine Law in June 6, 2008, where prices of medicines have been limited to the dictated price of the government. 

Where now will the drugstores put themselves? Again, woe to drugstores! Additional salt to wound is that the drugstores are being punished if they will not give discounts and the aggressive complaints of seniors and pwds as if drugstores are the dictator of prices….

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See also:
Senior Citizens Discount, Part 2, November 03, 2010 
Drug price control 5: Mandatory discounts and acronym politics, March 21, 2011 
Senior Citizens Discount 3: Sharing of Mandatory Discounts on Medicines of Senior Citizens, December 14, 2012 
Senior Citizens Discount 4: Distortion in Consumers' Perception of Drug Prices, February 04, 2013 

Drug price control 5: Mandatory discounts and acronym politics, March 21, 2011 
Welfarism 25: Centenarians and Populist Legislators, May 30, 2013

Drug price control 11: Costs, ads and taxes

Below are four charts and tables I got from four different sources, related to the various players that affect drug pricing, and the role of advertising and marketing in drug costing.

The first chart, I got from a presentation by a friend at the Coalition for Health Advocacy and Transparency (CHAT), Vanni Villafuerte, during one of CHAT's planning workshop. Vanni gave me permission to use his papers.

These are the players and stakeholders involved in medicines (especially pricing and availability): (1) Pharma industry, (2) doctors/ physicians, (3) government (DOH, FDA, PhilHealth), (4) patients, and (5) civil society, especially CHAT (and MeTA).

I think Vanni forgot to include two other players. These are the (6) drugstores, pharmacies and their pharmacists, and (7) toll manufacturers and wholesalers.

Take note also that government is much BIGGER than projected here. Government in the health sector is not limited to the Department of Health (DOH), Food and Drugs Administration (FDA) and PhilHealth. There are also the Dept. of Finance (DOF) and Bureau of Internal Revenue (BIR) involved in taxation of medicines; the Intellectual Property Office (IPO) and the courts, for patent and other IPR cases; and the local governments (provinces, cities, municipalities) which have their own medicines procurement and distribution programs, have their own hospitals and rural health clinics.

With plenty of players at both the supply and demand sides, there are many factors therefore, that can influence drug pricing and availability.

I got this chart from Dr. Delen dela Paz's presentation in February 2010 at the UP College of Law. According to Doc Delen, the drug manufacturing and distribution network is characterized by heavy oligopoly. For instance, toll manufacturing is 80 percent dominated or controlled by Interphil Laboratories, while in drug retailing, 80 percent is controlled by Mercury Drugstore,

This table, I got from Dr. Guia Crisostomo Tan's presentation sometime in September 2010. No currency was specified, this should be in US $ billion. The numbers in red rectangle compare the "cost of products sold" and "selling, marketing and administrative costs".

I think the "administrative" expense would include the various taxes and fees that a corporation would have to pay to the government (VAT, income tax, import tax, local government tax, etc.) each year. Cutting the expenses on marketing may look tough as drugs are not similar to hamburger or pizza that even ordinary consumer can analyze without the need for expert advice. Drugs, especially newly-discovered, are highly technical products that would need to be introduced to physicians and patients/guardians by specially trained staff.

Another chart from Vanni, which he got somewhere else. The drugs being purchased by the poor (left pie) here refer to off-patent and generic drugs, not the patented drugs by the innovator companies. While the "newness" or "revolutionary-ness" of the innovator drugs determine their higher price, the extent of advertising and marketing that the generic pharma companies use, determine not only the price but also the patronage by the public of their products.

To summarize, if drug prices have to be controlled by the government, the above charts are saying that this is an unwise move.

First chart with my addition of 2 other factors is saying that it is not only the pharma industry that determines drug prices. There are other players like the drugstores, physicians, the DOH, etc. If drug prices have to be controlled, then taxes on drugs, profit margin by retailers and hospitals, etc. should also be controlled. Doing these nationwide will create a logistical nightmare for the DOH and other implementing agencies.

Second chart is saying that a significant factor that causes high drug prices is the lack of competition, the degree of oligopoly, in the drug distribution chain.

The third chart is saying that in the case of innovator pharma companies, while the cost of selling, marketing and administration is big, there are two other equally important factors that contribute to high drug prices: the cost of R&D, and the cost of products/drugs sold.

It will be simplistic and parochial to blame just one or two of the various players involved in drug manufacturing to wholesaling and retailing, for high drug prices.

It will also be hypocritical for the government not to own up to certain factors or policies why drug prices are high. And these are the taxes slapped on medicines and vaccines.
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See also:
1. Part 9,
2.