Price control board debate may delay cheap drugs law

After almost a decade, a bill seeking to ensure access to affordable, quality medicines by majority of poor Filipinos is on the verge of finally becoming a law. But unless the matter devolves into one of political expediency, contentious issues between the House and Senate versions of the bill could delay its immediate passage.

First of two parts

BY THE time Hazel Divinagracia-Coton’s grandfather suffered his second heart attack last February, he was already on medication for diabetes. After the attack, 69-year-old Lolo Rodolfo was put on more medication, this time for his heart condition.

In total, his doctors prescribed 17 kinds of medicine for him to take each day, putting a strain on his family’s finances. Lolo Rodolfo and his wife relied on a P14,000 monthly pension, but with the promise of some monetary help from the rest of the family, they hatched a plan that had them buying only the “more important drugs” — worth a total of P600 a day — to see him through.

Lolo Rodolfo lasted six more months. He passed away last August, while members of the country’s Congress continued to bicker over two versions of a proposed cheap medicines law. Now, however, lawmakers themselves are saying that a bill ensuring access to affordable, quality medicines by majority of poor Filipinos is on the verge of finally being enacted into law.

Certified as an urgent piece of legislation by the Arroyo administration since 2001, the measure is set to be among Congress’s legislative priorities once sessions resume late this month. Late last year, both Houses passed two versions of the proposed law, and now a bicameral conference committee is supposed to reconcile these.

Both the bills’ principal authors, Senator Mar Roxas (Liberal Party) and Iloilo Representative Ferjenel Biron (Kampi), are optimistic that harmonizing the two drafts would be quick. Indeed, the two bills have a handful of similar provisions proposing to amend Republic Act 8293, or the Intellectual Property Code of the Philippines, aside from other reconcilable stipulations. Still, unless the matter devolves into one of political expediency, there may just be more Filipinos ending up like Divinagracia-Coton’s lolo as they wait for Congress to produce an affordable medicines law.

Just last week, doctors threatened to declare a “hospital holiday” should lawmakers refuse to take out a provision in House Bill 2844 that says only the generic names of medicines appear on medical, dental, and veterinary prescriptions. At the same time, legislators themselves are gearing up for debate over other “contentious” provisions in the bill, such as a non-discriminatory clause that makes it illegal for any retail drug outlet to refuse to sell medicines brought in via parallel importation by the government or any authorized third party. Yet what seems to upset economists and drug industry insiders and observers most is the House proposal to have a drug-price regulatory board.

“I see more risk than benefit in a mechanism that would ‘repeal’ the basic law of supply and demand, and put critical pricing decisions in the hand of a supposedly omnipotent body composed of a few individuals,” commented former Socioeconomic Planning Secretary Dr. Cielito Habito in a letter he sent to Roxas last December.

LATE this month, legislators will try to harmonize two versions of the bill that they say will help reduce the high cost of medicines in the country. [photo by Alecks P. Pabico]

Dr. Rene Azurin of the University of the Philippines Graduate School of Business, meanwhile, has called the proposal a “Trojan horse.” A price regulatory board would not only fail to bring down medicine prices, he says, it would “also create a convenient vehicle for entrenched interests to use in limiting competition and managing prices.”

Market distortions vs market monopoly

Azurin’s concerns echo those of the Philippine office of the World Health Organization (WHO), whose comparative studies of drug price regulations in several countries show that price controls don’t work. According to WHO researchers, these can even cause “market distortions,” giving rise to the “withdrawal of price-controlled medicines from the market and the introduction of new combinations to replace them at higher prices.”

Rep. Biron, though, argues that free-market competition cannot work in an imperfect world. He has also repeatedly said that prices of medicines can never be reduced for as long as the industry remains in the grips of a few giant players. “Legislative intervention,” says Biron, “is the only key to solving the rising cost of medicines.”

Table 1: What the House and Senate Bills Propose
Source: HB 2844, SB 1658

Relevant provisions on:

Drug Price Regulation Section 10 of the Senate version bestows on the President of the Philippines the power to impose price ceilings over any or all drugs or medicines, upon joint recommendation of the Secretaries of the Department of Health and Trade and Industry, under certain conditions, including calamities, public health emergencies, or widespread acts of illegal price manipulation. Chapter 3 of House version calls for the creation of the Drug Price Regulation Board attached to the Department of Health, to be constituted within 30 days after the effectivity of the Cheaper Medicines Act.

It shall be composed of seven members: the Secretary of Health as chairperson; Secretary of Trade and Industry as vice chairperson; and the following members: Director of the Bureau of Food and Drugs; President of the Philippine Health Insurance Corporation; one faculty from the health sciences school; and two representatives from the consumers’ sector.

The board has the following powers:

  • Determine the maximum retail price of drugs or medicines subject to price regulation;
  • Include other drugs or medicines in the list subject to price regulation;
  • Implement cost-containment and other measures to effectively reduce the cost of drugs or medicines;
  • Impose administrative fines and penalties against any person, manufacturer, importer, trader, distributor, wholesaler, retailer or any other entity for violations of the maximum retail price fixed pursuant to this Section;
  • Deputize government entities for any assistance that it may deem necessary to carry out the purposes of this Act;
  • Exercise other powers necessary to implement provisions of this Act. (Section 15)
Non-Discriminatory Clause None Chapter 4 of House bill makes it unlawful for any retail drug outlet to refuse to carry either by sale or by consignment, or offer for sale drugs or medicines brought into the country through parallel importation by the government or third party authorized by the government and which have been previously approved for distribution or sale by the Bureau of Food and Drugs. (Section 28)

The bill also prohibits manufacturers, importers, traders, distributors, wholesalers from withholding from sale or refusing to sell to a wholesaler or retailer any drug or medicine without good and sufficient reasons. (Section 29)

Strengthening of BFAD Senate bill calls for the strengthening of the Bureau of Food and Drugs in order to more effectively and expeditiously implement the Affordable Medicines Act. Fees, fines, royalties and other charges collected under this Act and other laws that BFAD is mandated to administer for use in its operations will be retained, in addition to its annual budget. (Section 9) None

That there is a high degree of market concentration in the local drug industry is hardly debatable. By 2002, the total pharmaceutical market was already estimated at P65.7 billion, 72 percent of which is controlled by foreign companies, based on data by the Philippine Chamber of Pharmaceutical Industries (PCPI). The rest of the market is shared by top Filipino drug manufacturer United Laboratories (18.6 percent), and small Filipino-owned drug firms and other multinational firms owned jointly by Filipinos and foreigners. At present, the market is estimated to have grown between P85 to P100 billion, with the trend in revenue sharing remaining intact.

There is even greater concentration in the distribution sectors of the industry, with three firms effectively dominating the wholesale market while the Mercury Drug chain controls 40 to 50 percent of the retail market. Such a market structure, says Margaret Bengzon of the Ateneo School of Government, enables market leaders to exercise substantial control over price levels and set what is generally known in the business as “the highest price that the market will bear.”

Prices of pharmaceuticals in the Philippines are thus among the most expensive in the world — even higher compared to neighboring countries Thailand, Malaysia, and Indonesia, though drug companies have time and again attributed the price differences to cost and quality. The House bill goes also as far as rooting the problem to what Makati Rep. Teodoro Locsin Jr. (PDP-Laban) describes as the “inutility of government to use its power to restrain the unconscionable profits in drugs and medicines sucked in by multinationals here and nowhere else in the world.”

Improved, but still controversial

In truth, HB 2844 is an improved, more comprehensive draft of the same measure (HB 6035) that congressmen failed to pass on third and final reading before the 13th Congress adjourned in June 2007.

Aside from its own revisions to the IP Code and rectifying “infirmities” in the Generics Act of 1988 (RA 6675), HB 2844, among other things, also amends the Pharmacy Law (RA 5921) by allowing non-prescription or over-the-counter drugs to be repackaged in small quantities and sold in retail.

But industry players have balked over the bill’s “must carry” provision that will force even small drugstores with limited capitalization to stock drugs brought in through parallel importation. In the Senate, in fact, a similar stipulation was shelved after it was noted that medication needs vary across the country, and that requiring drugstores to have medicines their market does not need could jack up prices all the more.

Some industry insiders have also pointed out that Biron may have a conflict of interest in pushing the provision, since his family is into drug manufacturing, trading, and distribution with Pharmawealth Laboratories Inc. and Phil. Pharmawealth Inc. Biron, a doctor by profession, used to be treasurer of both corporations. Former Iloilo congressman and now Vice Governor Rolex Suplico, who was Biron’s co-author in a similar bill filed in the previous House, was once an incorporator and board director of Phil. Pharmawealth.

One health economist who declines to be identified says there is also no provision for conflict-of-interest declarations from the various members of the proposed regulatory board. “One assumes wrongly that the members have no conflicts or vested interests,” he comments.

As proposed, the board would have seven members, with the health secretary as chairperson and the trade and industry secretary as vice chairperson. The other members of the board are the Bureau of Food and Drug (BFAD) director, the Philippine Health Insurance Corporation (PhilHealth) president, and three presidential appointees: an academic from a health sciences school and two representatives from the consumers’ sector. The board will be assisted by a secretariat to be constituted from the organizational structure of the Department of Health (DOH).

This early, BFAD Deputy Director Joshua Ramos fears that it may just turn out to be “a paper price regulatory board and an administrative burden to the already overloaded government staff.” Though not completely against the board’s creation, Ramos says it would be better if it had its own budget and staff complement instead of being “an additional function of already existing government agencies using existing staff and within existing budget.”

The health economist, for his part, remarks that with the exception of the DTI secretary, none of the members of the board are presumed to have any business experience — despite the fact that they will be making regulatory and pricing decisions affecting free-market trade.

More than the board’s composition, though, Habito and other economists and business experts have counseled against price controls in medicines, particularly in the context of the current state of governance in the country, which they characterize as weak and prone to corruption. This, they argue, would only open up such a mechanism to the risk of “regulatory capture” — a situation wherein regulated entities take over the control exercised by their regulating body.