Showing posts with label Sen. Manny Villar. Show all posts

Monday, November 26, 2012

Fat-Free Econ 31: On the Kasambahay, Solo Parents Welfare Bills

This is my article yesterday in TV5's news portal,

http://www.interaksyon.com/business/48867/fat-free-economcs--why-we-dont-need-the-kasambahay-and-solo-parents-bills
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State welfare is sometimes defined as “the politicians are well, taxpayers pay the fare.” This is true for taxpayers’ funded welfare and subsidy programs for the poor, like the conditional cash transfer (CCT), education and healthcare, housing and credit, train subsidy and tractors, or condoms and pills.

But there are other state welfare programs that are not funded by taxpayers. Instead, the government forces private enterprises and employers to provide mandatory price discounts to consumers, or mandatory high wages and other benefits to workers. Those caught violating will penalized. Examples of this type of welfare are the minimum wage law and mandatory discounts to senior citizens and persons with disabilities.

There is a measure that is expected to become a law soon - the “Kasambahay Bill” or “Domestic Workers Act” lodged as Senate Bill No. 78 and House Bill No. 6144. The bicameral conference committee has already approved a common measure this week. Among the provisions of the unified bill are:

- Monthly minimum wage of P2,500 in the National Capital Region, P2,000 in chartered cities and first class municipalities, and P1,500 in other municipalities;
- Kasambahay entitled to other social benefits such as Social Security System, Philhealth, and Pag-Ibig Fund, with employers shouldering the premium payments if the helpers receive a monthly salary below P5,000; and
- Kasambahay should have a written contract specifying the terms of employment, a pay slip, daily and weekly rest periods, service incentive leave of five days with pay, 13th month pay, and so on.

The premise is that domestic workers are generally exploited by their employers and so must be protected by the state. This logic can be faulty. Hiring of domestic helpers is a private and often intimate contract with workers who often live in the house of the employers and know many confidential and sensitive information about the household.

It is hardly possible for employers to maltreat their kasambahay as they will be exposing themselves and other family members to danger when the kasambahay will not do their work properly. Like a nanny who fails to attend just for a minute to a baby who climbs the stairs or a high chair, then falls down.

Employers often grant salaries and other perks more than necessary to inspire their kasambahay to do their work well, and make them stay long with the family. There are many instances when a yaya would take care of a baby until he/she becomes an adolescent. The employers no longer treat them as ordinary domestic workers but as extended family members.

Lazy, inefficient or rumor-mongering workers are usually fired by their employers, rendering the mandated welfare moot and useless. In the same vein, abusive employers also lose their good workers in just a few days or months. This is a penalty worse than government-mandated penalties and fines as the household heads can hardly work in their offices since they have to take care of the kids, suffering a steep decline in productivity.

The bottom line is legislative measures like the Kasambahay Bill are generally unnecessary.

Then there are two Senate bills that want to give various mandatory discounts to solo parents. SB 2563, which Senator Manny Villar introduced, seeks to amend Republic Act No. 8972 or the “Solo Parents Welfare Act of 2000,” giving additional benefits to solo parents, including a 20 percent discount on all purchases of milk or formula products, diapers, medicines and supplements, other necessary infant items for children 0-4 years old.

SB 1439 by Sen. Loren Legarda provides the following additional benefits to solo parents:

- 10 percent discount on all purchases of clothing materials for children 0-2 years old;
- 15 percent discount on all purchases of baby’s milk, food and food supplements for children 0-2 years old; and
- 15 percent discount on all purchases of medicines and other medical supplements/supplies for children 0-5 years old.

There are serious flaws in these two bills forcing companies to give mandatory discounts.

One, they assume that all solo parents in the country are poor or financially distressed. This is not true. Some solo parents are rich or have rich family members who can give them assistance in cash or kind.

Two, the bills assume that all shops, manufacturers and traders that produce or sell these goods are rich or financially stable and hence, can afford to give such discounts without adversely affecting their financial conditions. Again this is not true. While some companies are financially stable, others are not or may even be on the brink of bankruptcy due to various financial, economic and social challenges here and abroad.

Three, the bills assume that even financially unstable shops, manufacturers and importers of these products will continue selling these goods. This is wrong. One result of the implementation of RA 9994 or the “Expanded Senior Citizens Act of 2010” - which requires 32 percent discount on medicine purchases - is that small drugstores that cannot afford to keep selling medicines at a loss have stopped selling essential medicines to senior citizens. Senior citizens living in small and rural municipalities have to travel farther to bigger cities so they can buy at Mercury or other large chain pharmacies.

This proves again that Newton’s third law of motion - “For every action, there is an equal and opposite reaction” - can also apply in economics. This can be aptly restated thus: “For every government intervention to force welfare, there is an equal and opposite reaction that results in dis-welfare."

The economic tensions in Greece, Spain and other European economies that are limping from heavy public debts are additional proof that heavy welfarism can create more long-term harm than benefits. The bills on Kasambahay and Solo parents, as well as many other welfarist programs should be abandoned. Government should focus on promulgating the rule of law, protecting property rights and the citizens’ basic freedom, instead of forcing equality among people.

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See also:
Fat-Free Econ 27: Sin Tax and Nannyism, October 22, 2012
Fat-Free Econ 28: Poverty, Planning and Populism, October 29, 2012
Fat-Free Econ 29: Anti-capitalism, Fanaticism and the Poor, November 13, 2012
Fat-Free Econ 30: BPOs and Obama, November 14, 2012

Tuesday, October 23, 2012

Welfarism 23: Letter to Sens. Cayetano and Pangilinan on Solo Parents Welfare

This is my letter to two Senators which I faxed to their respective offices late afternoon today.
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23 October 2012

Hon. Pia S. Cayetano

Chairperson

Committee on Youth, Women and Family Relations

Hon. Francis N. Pangilinan

Chairperson

Committee on Social Justice, Welfare and Rural Development

Senate of the Philippines

Pasay City

Dear Senators Cayetano and Pangilinan,

While the State has the obligation to protect the citizens’ right to life, private property and liberty, it may have no right to force and coerce private enterprises to give mandatory discounts to their consumers if these companies are already paying the required taxes and complying with various health and regulatory requirements.

The provisions of two Senate Bills amending RA 8972 or the “Solo Parents Welfare Act of 2000” seem to go along this practice. To give additional benefits to solo parents, SB No. 2563 by Sen. Manny Villar provides these mandatory discounts:

(A) TWENTY (20%) PERCENT DISCOUNT ON ALL PURCHASES OF MILK OR FORMULA PRODUCTS AS WELL AS DIAPERS AND OTHER NECESSARY INFANT ITEMS;

(B) TWENTY (20%) PERCENT DISCOUNT ON INFANT MEDICINES AND SUPPLEMENTS. INFANT SHALL REFER TO CHILDREN AGED 0- TO 4 YEARS.

And SB No. 1439 by Sen. Loren Legarda provides the following additional benefits to solo parents:

(1) TEN PERCENT (10%) DISCOUNT FROM ALL PURCHASES OF CLOTHING AND CLOTHING MATERIALS FOR THE CHILD MADE WITHIN A PERIOD OF UP TO TWO (2) YEARS FROM THE CHILD'S BIRTH;

(2) FIFTEEN PERCENT (15%) DISCOUNT FROM ALL PURCHASES OF BABY'S MILK, FOOD AND FOOD SUPPLEMENTS MADE WITHIN A PERIOD OF TWO (2) YEARS FROM THE CHILD'S BIRTH;

(3) FIFTEEN PERCENT (15%) DISCOUNT FROM ALL PURCHASES OF MEDICINES AND OTHER MEDICAL SUPPLEMENTS/SUPPLIES FOR THE CHILD MADE WITHIN A PERIOD OF FIVE (5) YEARS FROM THE CHILD'S BIRTH; AND

There are serious flaws in these two bills forcing companies to give mandatory discounts. Among them:

1. They assume that all solo parents in the country are poor or financially distressed and hence, the need to give them mandatory discounts for their young children’s needs. This is not true. Some solo parents are rich themselves or have rich family members who can give them various assistance in cash or in kind.

2. They assume that all shops, manufacturers and traders that produce or sell these goods are rich or financially stable and hence, can afford to give such discounts without adversely affecting their financial conditions. Again this is not true. While some companies are financially stable, others are not or may even be in the brink of bankruptcy due to various financial, economic and social challenges here and abroad.

3. They assume that even financially unstable shops, manufacturers and importers of these products will continue selling these goods. This is wrong. One result of the implementation of RA 9994 or the “Expanded Senior Citizens Act of 2010” where senior citizens are given mandatory discount of 20 percent plus 12 percent VAT free or 32 percent effective discount on medicines, not tax creditable, is that small drugstores that cannot afford to keep selling medicines at a loss have stopped selling essential medicines to senior citizens. Those living in small and rural municipalities have to travel to bigger cities that are far away so they can buy at Mercury or other large chain pharmacies.

This proves once again that Newton’s third law of motion, “For every action, there is an equal opposite reaction”, can also apply in economics. This can be aptly restated as “For every government intervention to force welfare, there is an equal opposite reaction that results in diswelfare.”

Drug Price Control 28: On Cong. Biron and Sen. Villar Bills

Last June 29, 2012, the Coalition for Health Advocacy and Transparency (CHAT) held a meeting-discussion at the PRRM building, Quezon City, on three issues:

1. legislative bills amending the Cheaper Medicines Law (RA 9502) by creating a drug price regulations board,

2. update on the bill raising the excise tax on tobacco and alcohol products ("sin tax bill"),

3. discussions on the proposed Milk Code, other matters.

The meeting was moderated by Atty. Pau Tanquieng of the Ayos na Gamot sa Abot Kayang Presyo (AGAP), the biggest coalition within CHAT. She also presented the three bills creating the drug price regulations board, as well as Sen. Legarda's peculiar bill amending the amendments to the Intellectual Property Code (IPC) contained in RA 9502.

After the discussions, Pau as convenor/moderator, asked, "Anyone here supports drug price control?" Anyone supports the creation of a drug price control regulation board?"

None said Yes, meaning everyone who attended the meeting, including CHAT President, Gov. Obet Pagdanganan has NO as answer to the above questions by Pau. Since she has already written the AGAP position on the same subject, she begged off to write the draft position paper of CHAT. No one else volunteered to do it, so I did. Here's the draft that I wrote, posted in our googlegroups last July 03, 2012.
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Draft Statement by CHAT

On the Proposed Amendments to the Cheaper Medicines Law

The Cheaper Medicines Law of 2008 or RA 9502 is still a new law and there are several indicators that so far, it has succeeded not only in bringing down medicine prices but also in making more essential drugs become more available in more drug outlets nationwide. There are other provisions of the law that are not activated yet and which, when seriously implemented, will further bring down drug prices, The main challenge therefore, for the implementing agencies and various stakeholders in the Philippine healthcare sector, is how to carefully implement those provisions.

There are several bills in both the House of Representatives and the Senate though, that aim to amend certain sections of RA 9502, foremost of which is the creation of a new agency, the Drug Price Regulations (or Regulatory) Board (DPRB). These are HB 1386 by Cong. Ferjenel Biron, and SB 5 by Sen. Loren Legarda and SB 2960 by Sen. Manny Villar.

We believe that the proposed amendments of (a) expanding the drug price control policy made in August 2009, and (b) creating a new office or bureaucracy that will implement such expanded policy, are not necessary at the moment for the following reasons.

One, even before the drug price control policy was made in August 2009, average prices of essential medicines have been declining due to more competition among various drug manufacturers and among more drugstores and pharmacies.

Two, the policy benefited the rich and upper middle class patients who would be buying those branded innovator drugs whether their original price was retained or was slashed by half. Many of the 21 drug molecules that were covered by the policy have cheaper, off-patent competing drugs already available. The poor were patronizing the off-patent drugs which are still cheaper than branded innovator drugs even if their prices were slashed by half.

Three, the policy has contradicted the goals the Generics Act of 1988 or RA 6675. That law was successful in promoting cheaper generics, off-patent drugs to the public. The drug price control policy however, encouraged the people to shift back to the branded innovator drugs made by multinational pharmaceutical companies as their prices were made 50 percent cheaper.

Four, the policy has adversely affected many local generic manufacturers, some of which were forced to close, or pull out some of their drugs since their prices were already low enough. After the mandatory 50 percent price cut by the innovator drugs, they were forced to either make further price cuts which affected their profitability, or simply close shop even temporarily.

As a result, the policy has introduced business uncertainty especially among local generic drug manufacturers. The threat of being forced out of the market by the unfair price competition by the foreign pharmaceutical companies due to drug price control will remain.

Five, creating the DPRB will only add another layer of bureaucracy in the government, which will require another set of budgetary allocation each year. Right now, the DOH Advisory Council on RA 9502 is doing fine monitoring the implementation of the law including the drug price regulation or control policy.

Six, there is a danger that corrupt government officials who will head that board might use their powers to extort money from existing players, otherwise their profitable drug products will be put under price regulation list.

In lieu of those twin moves, we propose the following.

Drug Price Control 27: Letter to Sen. Pia Cayetano

Last Thursday, May 10, after attending the meeting of the Congressional Oversight Committee on RA 9502, I went to the office of Sen. Pia Cayetano and gave this letter.
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10 May 2012

SEN. PIA S. CAYETANO
Chairperson
Committee on Health and Demography
Senate of the Philippines
Pasay City

Dear Sen. Cayetano,

We would like to submit our position paper on SB 5 of Sen. Loren Legarda and SB 2960 of Sen. Manny Villar, creating the Drug Price Regulatory Board, Amending RA 9502.

The current drug price regulation and control policy (EO 82 mandating MDRP, and DOH Advisory Council Resolution No.2009-001 on GMAP) will turn three years old this coming mid-August. There are many indicators showing that the policy is a failure in its stated goal of making certain drugs affordable to the poor.

Here are the reasons why:

1. The policy contradicted, if not defeated, the goals of RA 6675, the “Generics Act of 1988”. That law was successful in promoting cheaper generics, off-patent drugs to the public. The drug price control policy however, encouraged people to shift back to the branded and innovator drugs made by multinational pharmaceutical companies as they have been coerced by the government to slash prices by 50 percent.

2. The policy benefited the rich and upper middle class who would be buying those drugs whether their price remained at prevailing or discounted levels. Many if not all of the 22 drug molecules that were covered by the policy have cheaper, off-patent competing drugs already available. The poor were patronizing the off-patent drugs, which are still cheaper than branded drugs even if their prices were slashed by half.

3. The policy has adversely affected many local generic manufacturers. If they were selling their drug at P8 per tablet vs. the multinationals’ P15, the locals would make enough profit as the poor will patronize their products because of the big price differential. After the price control, the P15 becomes P7.50 and the local generic manufacturers now have the “more expensive” drugs. If they have enough leeway to further bring down their price to only P4 or lower without sacrificing the quality and safety of their drugs, fine.

But if they do not have enough leeway, then they will be forced to pull out their drugs rather than sell at a loss. Or worse, simply close down if the affected drugs are the main products of that generic manufacturer.

Drug Price Control 26: Conflict of Interest in Drug Price Regulation Legislation

After posting Fat-Free Econ 9: Drug Pricing Bureaucracy is Not Cool below, a physician friend who requested anonymity gave me some leads about Cong. Ferjenel Biron, and Sen. Manny Villar. Some info why they push for more government, bigger government, drug pricing. There is possible conflict of interest among legislators who are pushing for the creation of a new bureaucracy, the Drug Price Regulation (or Regulatory) Board, DPRB.

I am not sure, I have not read, if Sen. Villar disclosed that his brother, Virgilio B. Villar, is one of the incorporators of Seville Pharmaceuticals, Inc., and was a former countrymanager of B. Braun. I have nothing against these companies as more players means more choices for consumers. I am only curious about personal disclosure by government officials when they propose certain legislations that may benefit their kin and/or friends.

I am also not sure if Cong. Biron publicly admitted that he owns PharmaWealth and Botikang Pinoy, two local pharma companies. Here are two stories about these two companies.
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(1) http://www.marroxas.com/press/abaya-biron-father-substandard-meds/

Abaya: Biron is 'father of substandard meds"
February 23rd, 2010

Liberal Party Secretary General and Cavite Rep. Joseph Emilio Aguinaldo Abaya today said Iloilo Rep. Ferjenel Biron deserves the title “Father of Sub-Standard Medicines” instead of being the “Father of the Cheaper Medicines Law.”

Abaya said Biron and his family owns Philippine Pharmawealth Inc. and Pharmawealth Laboratories that former Health Secretary Alberto Romualdez suspended from getting medicine supply contracts from government hospitals and agencies.

In 2000, one female patient – Prescilla Galao – died and four others were forced to undergo emergency hysterectomies to remove their uterine after taking the methylergometrine maleate in the Governor Celestino Gallares Memorial Hospital in Tagbilaran, Bohol supplied by Pharmawealth

“Wala po siyang karapatan sa titulong Father of Cheaper Medicines. Baka ‘father of substandard and deadly medicines’ pa (He has no right to the title Father of Cheaper Medicines. Maybe he can claim to be the ‘father of substandard and deadly medicines.’),” Abaya said.

“Marami nang pasyente ang namatay o napinsala nang husto dahil sa bulok na gamot na ibinebenta ng kanyang mga drug company. Hindi ko alam kung matatawag mong ‘fatherly love’ iyon (Many patients have died or have been badly injured because of substandard medicines being sold by his drug companies. I don’t know if you can call that ‘fatherly love’),” he said.

Doctors of public hospitals in Iloilo, Negros Occidental, Antique and Rizal, and regional officials of DOH and the Bureau of Food and Drug (BFAD) in Cagayan de Oro City, Davao City, and Guimaras have complained also against substandard medicines supplied by Biron and Pharmawealth such as aminophylline injections, epinephrine, hydrocortisone sodium succinate, nifedipine, metronidazole, among others.

In March 2003, the DOH through Health Undersecretary Alexander Padilla took Pharmawealth to notice as its medicines being supplied to public hospitals again failed sterility tests conducted by the BFAD.

“How can that congressman claim being the father of cheaper medicines when all he did in his business was to supply substandard medicines,” Abaya asked.

(2) http://manuelboymejorada.wordpress.com/2011/01/13/bargain-drugs-made-in-china/

Cheap medicines, made in China
JANUARY 13, 2011

... Dr. Ferjenel Biron, M.D., an Iloilo congressman who tried hard to push a generics medicines law to benefit his pharmaceuticals business, is bringing to the country dirt-cheap medicines from China in the manner of the 168 Mall, to borrow the words of business columnist Vic Agustin (“Cocktales” in Manila Standard-Today). The 168 Mall is that super store located in Divisoria where Chinese is spoken side by side with Tagalog. This is where a shopper can hunt for cheap products from China, where you can haggle with the vendor to get the lowest price. That Vic Agustin would compare Biron’s new venture, “Botikang Pinoy,” to the 168 Mall already gives us the chills.

Biron has opened several branches of his new pharmacy chain in strategic locations near major hospitals in Manila. The stores, structured as “wholly Filipno owned”, is really a partnership with two China pharmaceutical manufacturers, Zhangjiakou Dongfang Pharmaceuticals Co. and Shanxi Nuocheng Pharmaceuticals Co. “Botikang Pinoy” is so deceptively branded to give consumers no clue that the cheap medicines they buy are actually made in China. The company’s president, Dr. Luz Suplico-Jeong, is a sister of former Vice Governor Rolex T. Suplico.

This should be a cause for worry for Filipino consumers because Biron has a track record of selling substandard drugs and medicines. In the past, his Philippine Pharmawealth was sanctioned by the Department of Health for failure to meet standards imposed by the agency on drug quality. Deaths attributed to the use of his injectables have been documented in the Eastern Visayas. Without fear of contradiction, I can say that Biron isn’t exactly a paragon for selling quality drugs. The words “fake” and “substandard” are closely associated with his product line.

It’s not for me to say that these two companies don’t meet international standards for drugs and medicines. That’s the job of the Department of Health. What I’m saying is that if it’s happened in the past, what will now protect the unsuspecting buyer of medicines from being given “fake” and “substandard” products? Biron will have to show that all the medicines sold on his shelves have been inspected and green-lighted by the Bureau of Food and Drugs (BFAD). As almost all his products are imported, government will also have to make sure the correct taxes and duties are paid. Sources tell me that Biron’s expertise is importing medicines at a cost of say, P1.00 per tablet, and then selling them at P30-50 per tablet. No sweat.

Biron made his fortune as a pioneer in importing Indian-manufactured pharmaceuticals in the middle 90s. It appears he has found a cheaper source: China. But painful lessons — the loss of lives due to his substandard medicines is certainly painful — have to be made. From what I know, the Chinese vendors on 168 Mall or the like don’t issue warranties on their products. If you find a product defective, just bring it back to them and they will replace it, no questions asked. That’s because repairing it will cost just about the same as a new unit. That’s the reason they don’t really care about quality control.

This, however, can’t be done in the case of medicines. Once ingested, there’s no way of getting it out a patient’s body, and replacing it with a full-potency drug.
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Meanwhile, I am curious how certain pharma companies close to, or being owned by, price control bureaucrats, would benefit if the proposed DPRB bill become a law. Here are two scenarios that I can think off, I do not know if this makes sense.

1. The price regulation bureaucrats will decimate if not kill those pharma companies that directly compete with their products by declaring their drug products under big price control, hoping these competing companies will exit the market. Or

2. Force these competing companies to bend their knees before the price control bureaucrats, and the companies owned or controlled by the bureaucrats will take over these competitors via full or partial acquisition.

I hope readers can help if the above scenario makes sense or not, and why.
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See also:
Fat-Free Econ 8: Drug Price Regulation is Wrong, May 04, 2012
Drug Price Control 25: Top 10 Articles on Google Search, April 03, 2012

Friday, May 11, 2012

Fat-Free Econ 9: Drug Pricing Bureaucracy is Not Cool

This is my column today in TV5's news portal. Only one photo was posted there. Additional photos here taken at the Senate hearing that day, plus charts, are not part of the original article.
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http://www.interaksyon.com/article/31666/fat-free-economics-why-drug-pricing-bureaucracy-is-not-cool

FAT-FREE ECONOMICS: Why drug pricing bureaucracy is not cool

11-May-12, 8:56 PM | Nonoy Oplas

Gun control is not so much about guns, but about government control. In the same way, drug price control is not so much about medicine prices, but about the power of bureaucrats to set prices. Guns can kill, drugs can heal, but government control can corrupt. More power to control something means more opportunity for corruption.

This became clearer to me when I attended the Congressional Oversight Committee on Quality Affordable Medicines at the Senate yesterday. It was chaired by Sen. Manny Villar and co-chaired by Rep. Albert Garcia – both of whom head the Committees on Trade and Commerce in their respective chambers.

The other legislator who attended was Rep. Ferjenel Biron (4th District, Iloilo), the main author of a bill creating the Drug Price Regulation Board (DPRB), of which a counterpart bill was filed by Sen. Villar. Besides the three, no other legislator attended the hearing. The panel of resource speakers represented various interests and groups in the Philippine healthcare sector.

What usually happens in Congress-ional committee hearings is that the legislators tend to over talk while the invited resource speakers can speak only when being called, and can be cut by legislators anytime they want.

Rep. Biron spoke long, glorifying the magic that government price regulation and control can do because “competition does not happen, drug prices here are very high compared to prices in India and Pakistan.”

He was citing old figures. India has had a drug price control policy since the mid-1970s but slaps low or zero taxes on medicines. Here, medicines are slapped with import tax, value-added tax and other levies, national and local. That partly explains the price differential between the two countries. But taxation of medicines here never figures in the explanation given by legislators.

The local generic companies, the multinational innovator companies, the local pharmacist association, medical association, drugstore association, hospital association, academic pharmacists, and some NGOs like us in Minimal Government Thinkers, are unanimous in saying that price control is not the answer as competition among various players has resulted in the slow but steady decline in average prices of drugs.

To say “millions of poor people still cannot afford many essential drugs” is wrong on two counts. One, drug prices are falling, as presented by Reiner Gloor of the Pharmaceutical and Healthcare Association of the Philippines (PHAP is mostly multinationals) and Beau Agana of the Philippine Chamber of Pharmaceutical Industry (mostly national pharmaceutical companies).

For instance, the price of anti-hypertension drug molecule amlodipine has gone down from around P40 per tablet in 2007 to P33 in 2008 before the price control policy. It further dropped to P29 when price control was imposed, before last year's P18.

The price of anti-bacterial infection co-amoxiclav has gone down from around P56 per tablet in 2007 to P50 in 2008, P41 in 2009, and P33 in 2011.

A second reason it's wrong to say that poor people cannot afford essential medicines is that for really poor people, even a P5 tablet is still “expensive and unaffordable”, since they want the government – national and local – to give away the medicines for free.

The Department of Health has identified several medicines as “entitlements,” to be given for free to certain poor patients. Some rich local governments – such as the cities of Manila, Makati and Quezon - have city-owned hospitals and they treat poor patients for free, even give away some medicines for free. This is an example of making essential drugs not just “cheap and affordable” but free for the poor, and even to those pretending to be poor.

One danger of having a new government bureaucracy that has the power to slap price control on any medicine and vaccine, especially those in the Essential Drugs List (EDL) of the DOH, is that it can be a big tool for corruption and extortion. A corrupt price control bureaucrat for instance can intimidate or harass any pharmaceutical company to pay a huge amount, otherwise their most popular, most saleable drugs will be slapped with a steep tax or voluminous paperwork, thus leading to heavy losses.

The reasons or alibi for regulating prices can be endless. “Millions of Filipinos are waiting and dying out there” is a statement for instance, that I heard at least three times from Rep. Biron during the hearing. So whether people are dying (we all die, right?) from cancer (and there are probably 200+ different types of cancer), various diseases of the heart, cerebrovascular diseases, pneumonia, diabetes, or mosquito-borne diseases (dengue, malaria, etc.), the threat of price control will be on the heads of the pharmaceutical companies.

There is too much discourse on curative healthcare, such as making various medicines cheaper. Preventive healthcare - like having healthy lifestyle (people should not over-smoke, over-drink, over-eat fatty food, over-sit) – is seldom or hardly discussed in many public discourses on healthcare.

One reason perhaps is that there is no opportunity for extortion and corruption in telling people to lead healthy lifestyles. But there is a big opportunity for extortion and corruption in various types of government intervention in curative healthcare. Like creating a price control bureaucracy, or buying tens of billions of pesos of medicines and clinic/hospital supplies for DOH and LGU hospitals.

Competition among various players, not more regulation by government agencies - whether existing or future bureaucracies - is the best tool to promote public health at the least cost to taxpayers, and invite the least opportunity for robbery among the corrupt officials in government.
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See also:
Fat-Free Econ 8: Drug Price Regulation is Wrong, May 04, 2012

Drug Price Control 23: Greece's Pharmacy Nightmares, January 13, 2011

Drug Price Control 24: Forcing Drug Firms to Report Payment to Doctors, January 24, 2012

Drug Price Control 25: Top 10 Articles on Google Search, April 03, 2012

Friday, May 04, 2012

Fat-Free Econ 8: Drug Price Regulation is Wrong

This is my article today in TV5's news portal.

I sent this to two Senators who authored a Senate Bill creating the Drug Price Regulatory Board. See my email to them after this article.

http://www.interaksyon.com/article/31003/fat-free-economics-the-folly-of-drug-price-regulation

FAT-FREE ECONOMICS: The folly of drug price regulation

04-May-12, 2:08 AM | Nonoy Oplas

Government regulation and control of the price of something that it has not produced or manufactured is wrong and parasitic. Drugs are "expensive" because of government taxes and fees slapped on the product and the producer as well as the seller.

The current drug price control policy will turn three years old in August. There are many indicators showing the policy is a failure in its stated goal of making certain drugs affordable to the poor.

Now some legislators want to compound the folly by creating a new layer of bureaucracy called the Drug Price Regulatory Board (DPRB) under the Department of Health (DOH).

Why is drug price control or regulation wrong? Here's why:

1. The policy contradicted, if not defeated, the goals of the Generics Act of 1988. That law was successful in promoting cheaper generics, off-patent drugs to the public. The drug price control policy however, encouraged people to shift back to the branded and innovator drugs made by multinational pharmaceutical companies as they have been coerced by the government to slash prices by 50 percent.

2. The policy benefited the rich and upper middle class who would be buying those drugs whether their price remained at prevailing or discounted levels. Many if not all of the 22 drug molecules that were covered by the policy have cheaper, off-patent competing drugs already available. The poor were patronizing the off-patent drugs, which are still cheaper than branded drugs even if their prices were slashed by half.

3. The policy has adversely affected many local generic manufacturers. If they were selling their drug at P8 per tablet vs. the multinationals’ P15, the locals would make enough profit as the poor will patronize their products because of the big price differential.

After the price control, the P15 becomes P7.50 and the local generics manufacturers now have the “more expensive” drugs. If they have enough leeway to further bring down their price to only P4 or lower without sacrificing the quality and safety of their drugs, fine. But if they do not have enough leeway, then they will be forced to pull out their drugs rather than sell at a loss. Or worse, simply close down if the affected drugs are the main products of that generic manufacturer.

4. The policy has introduced business uncertainty. Someone with a really innovative, creative and revolutionary product like a disease-killer drug, might hesitate bringing their products to the Philippines knowing that the politics of envy can hit them anytime.

5. Price control simply means price dictatorship. The government is dictating to the industry regardless of the cost of production and marketing, the cost of taxes and fees. Those companies must sell their products at a level that was set and dictated by the government. Otherwise, they will be penalized.

6. The policy did not recognize that government taxation of medicines - three- to five percent import tax, plus 12 percent value-added tax and local government taxes - is partly to blame for expansive medicine.

7. Competition among more drug manufacturers, drug retailers and pharmacies is the best price regulator, not more government regulation and coercion.

In this regard, the creation of the DPRB is also wrong for at least two reasons:

1. It will add another layer of bureaucracy in the government, which will require another set of budgetary allocation each year. With a P300 billion annual budget deficit, the government should think of how to reduce spending and eradicate the need for more borrowings.

2. The DOH Advisory Council on Price Regulation, the body that deliberated the implementation and monitoring of the price control since mid-August 2009, has been transformed into the Advisory Council for Healthcare because there is general recognition by the Council members, including the federation of local generic manufacturers, the Philippine Chamber of Pharmaceutical Industry (PCPI), that price control did not work.

The Advisory Council is not a permanent body although it may have permanent members. Thus it is easy to transform itself and focus its discussions and energy on more important issues like universal healthcare, not just drug pricing. A permanent drug regulation body will only become a white elephant implementing and monitoring a bad policy.
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from:		Nonoy Oplas minimalgovernment@gmail.com
to:		"Sen. Manny Villar" <mb_villar@yahoo.com>, "Sen. Villar" <mbv_secretariat@yahoo.com>, "Sen. Loren Legarda" <loren@lorenlegarda.com.ph>
date:		Fri, May 4, 2012 at 2:03 PM
subject:		On your SB, Drug Price Regulatory Board

Dear Sen. Villar and Sen. Legarda,

I have read from the news that you have authored a bill creating a new office called the Drug Price Regulatory Board. I think that proposal is not wise. May I share with you my article today why price control/regulation is wrong, and why creating a new bureaucracy for this policy is equally wrong.

Should you have a Senate Committee Hearing on the said subject, kindly inform me and I would like to attend and verbalize this position.

Thank you very much.

Sincerely yours,

Bienvenido "Nonoy" Oplas, Jr.
President, Minimal Government Thinkers, Inc.
http://funwithgovernment.blogspot.com

http://minimalgovernment.net

Columnist, http://thelobbyist.biz

Columnist, http://interaksyon.com
Author, Health Choices and Responsibilities
Mobile: +63915-8204616

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http://www.interaksyon.com/article/31003/fat-free-economics-the-folly-of-drug-price-regulation