Up to 70% of local healthcare funds lost to corruption

The PCIJ’s latest investigation is a three-part series that exposes widespread corruption in the provision of health care. The investigation points the finger at local governments, to which healthcare services have been devolved by the Department of Health since 1993. This series explains that the discretion local officials now have to determine health budgets has resulted in the “decentralization of corruption.”

While there are some bright spots, evidence gathered for this report suggests that a culture of waste, corruption and patronage pervades health care in many local governments. Doctors, suppliers and local officials and employees interviewed by the PCIJ estimate that kickbacks from the purchase of drugs given to local officials range from 10 to 70 percent of the contract price.

Moreover, local officials give low priority to health, preferring more visible public works projects that they can boast of during election time. The result: a system that can barely answer the needs of the poorest one-third of the population who rely on local-government-funded health care centers.

The series also looks at how such large-scale corruption has demoralized the ranks of doctors working for rural health units, causing many of them to flee in droves and opt for private practice instead. Health, the series asserts, has become politicized, with health services, including medicines, provided as a form of patronage. In some cases, mayors want to distribute the medicines themselves, so they would get personal credit for services paid for by taxpayers.

With the devolution of healthcare services to LGUs in 1993, the budgets of rural health units have been at the discretion of local officials.

THE YOUNG mother was frantic. A seven-month-old baby was burning with fever in her arms, barely able to breathe. The doctor at the rural health unit quickly attended to the child, who was suffering from serious respiratory tract infection. But she had no medicine to give the baby: her supply of Ventolin or salbutamol, which would have given the infant instant relief, had run out.

The doctor, who ministers to the needs of residents of a poor municipality in Bulacan, could only wring her hands. It took two weeks before the poor mother could scrape together P50 to buy the drug. Fortunately, the baby survived, although it had to suffer the fever and cough longer than it should have.

The doctor sees 90 to 100 patients a week and the medicines the local government buys for her clinic always run out. Worse, she says, the drugs she is supplied with are overpriced by sometimes over 100 percent, with the difference lining the pockets of local officials.

Since the Local Government Code devolved public health centers and other health programs and facilities from the Department of Health (DOH) to local government units in 1993, local officials have had more discretion on how health budgets should be spent. While there are some bright spots, evidence suggests that a culture of waste, corruption and patronage pervades health care in many local governments.

Doctors, suppliers and local officials and employees interviewed for this report estimate that kickbacks from the purchase of drugs — also known as standard operating procedures (SOPs), rebates, internal arrangements and “love gifts” — given to mayors, governors and other local officials range from 10 to 70 percent of the contract price.

The result: a system that can barely answer the needs of the poorest one-third of the population that relies on local-government-funded health care centers.

“Before the devolution, all the corruption was happening in Manila,” says Juan A. Perez III, who was a DOH official when Juan Flavier was still secretary. Transferring resources to local governments should have directly helped communities, he says, but in far too many instances, corruption has thrived instead. Devolution, says Perez, seems to have resulted only in “democratizing corruption.”

“Increases in discretion enjoyed by local governments lead to increase in local-level corruption,” says a 2000 study on decentralization in the Philippines by the U.S.-based Center for Institutional Reform and the Informal Sector (IRIS). “When officials enjoy more discretion, they have greater opportunities to demand bribes.”

Decentralization was expected to reduce corruption, especially in drug procurement. Yet for the most part, such practices as overpricing, rigged biddings, short and ghost deliveries, and the purchase of substandard drugs remain pervasive.

These problems are demoralizing the ranks of doctors assigned to the more than 1,600 rural health units (RHUs) and urban health centers. Too often, these doctors find themselves battling with local officials who divert precious resources to corruption and patronage. “The doctors are leaving,” says a municipal health officer from the Calabarzon region.

Problems have dogged the devolution of health services from the start. Unprepared local governments had trouble paying for the salaries and benefits of about 70,000 health workers and to run local health centers and hospitals now under their jurisdiction. The problem persists, but the national government and international agencies have come to their aid.

All these imperil the delivery of frontline health services. The 2003 National Demographic and Health Survey found more Filipino households visiting public health facilities than private clinics and hospitals. Barangay health stations, which are supervised by the RHUs and urban health centers, had the most clients, followed by the RHUs and urban health centers themselves.

A survey done by the Social Weather Stations for the World Bank in 2001 also shows the country’s poorest 30 percent seeking help mostly from the local health units for their aches and pains.

These health centers are the poor’s primary source of medicines as well. Yet many local governments are allotting less money for health services, choosing instead to spend tax money on fancy municipal buildings, basketball courts and waiting sheds.

Moreover, many local officials see health as another source of illicit income and demand hefty shares from suppliers of drugs and hospital equipment. Of the nearly P1 billion allotted in 2003 for the maintenance and other expenses of all rural health units, P100 million to P700 million could have been lost to graft.

Such amount could have been used to purchase at least 100 million pieces of 500-mg. tablets of paracetamol, which is prescribed for simple fevers and aches, or more than 62,000 tablets per health unit.

TABLE 1: Selected Medicine Purchases of Quezon City, 2000

Unit Price Total Cost Unit Price Total Cost
Amoxicillin Suspension 125 mgs (btl x 60 ml) 7,525 83.73 630,068.25 18.39 138,384.75 491,683.50
Mefenamic Acid Tablet 250 mgs (box x 100s) 1,488 255.00 379,444.00 56.54 84,131.52 295,308.48
Paracetamol Syrup 125 mgs (btl x 60 ml) 9,636 59.93 577,485.48 7.22 69,571.92 507,913.56
Cotrimoxazole Suspension 200 mgs/40 mgs (btl x 60 ml) 5,007 69.90 349,989.30 17.05 85,369.35 264,619.95

SOURCE: Commission on Audit

Today most RHUs and urban health centers have little or no medicine for their patients. Too often, the deliveries — if they were made at all — fall short of what had been promised, in both quality and quantity. A municipal health officer in Laguna recalls an instance when she issued a prescription, only to be told by her staff that their RHU had run out of the needed medicine. Yet the doctor knew that two weeks before, there had been a delivery of supplies.

“I went to the supply closet, and there was indeed no medicine,” she says. “So I went to the police (and told them), ‘Papuntahin mo ‘yung ahente dito at ihatid ang gamot ko kung ayaw niyang maghalo ang balat sa tinalupan (Get that agent to deliver my medicine if he doesn’t want the sh__ to hit the fan)!'”

The doctor who had no medicine to give to the feverish baby recalls that in the past, she would order 10 boxes of assorted medicines every two months. But there came a time when only four boxes arrived at her office. When the confused doctor was asked to sign the payment voucher, she noticed that the prices had been “adjusted.”

The doctor says she had copied onto the requisition voucher the prices of the medicines based on the handwritten list given by the medical representative. Later, she saw a typewritten copy of that list with figures twice the actual price. This served as the basis of the payment voucher. Since then, the doctor has been leaving the price column blank, reasoning, “They’ll just change it anyway.”

Heidi Mendoza, auditor at the Commission on Audit (COA), says overpricing of supplies is the most common form of fraud. “One city mayor told an auditor casually that where price difference falls within the range of 50 percent to 100 percent, that is not overpricing,” Mendoza says. Drugs can be overpriced by as much as 700 percent, COA records show.

A drug distributor admits having sold to a local government in northern Luzon the antibiotic amoxicillin for three times more than its actual price of P280 per box of 100 tablets. “Does it affect the health system?” she asks. “Yes, because I can sell it for P380 per box. I’m already okay with that P100 markup. Even P50 per box is fine. So that (should have been) 300 boxes instead of (just) 100.”

TABLE 2: Price Comparison of Cainta’s Drug Purchases from January 1 to June 30, 2001

Amoxicillin capsule, 500 mg. box 454 1,100.00 203.50 896.50 440
Amoxicillin suspension bottle 2,160 92.00 17.60 74.40 421
Cotrimoxazole tablet, 400/80 mg. box 50 720.00 82.83 637.17 769
Salbutamol syrup bottle 1,152 55.00 14.85 40.15 270
Salbutamol tablet, 2mg. box 50 245.00 46.47 198.53 427
Rifampicin, 450 mg. box 20 1,756.50 382.91 1,373.59 358

According to the supplier, 30 percent of the contract went to bribes, or P256 per box. But she says the share of the contract price going to “love gifts” now starts from 50 percent up. Other suppliers and health officers, meanwhile, say that 30 percent of the contract amount goes to the mayor while 15 percent goes to accountants, budget officers, and to whoever else has to sign or approve the contract. Five percent, meanwhile, sometimes goes to the doctor at the health center.

Under Republic Act 9184 or the Government Procurement Reform Act, all government purchases must go through competitive bidding to ensure the best quality at the least cost. The Local Government Code, meanwhile, says that each town or city is supposed to have a Committee on Awards composed of the mayor, treasurer, accountant, budget officer, general services officer, and the department head, which in cases involving medical supplies is the RHU or urban health center doctor.

But Mendoza says the procuring official and the bidder always find “creative” ways to avoid public bidding. There are also instances where a winning contract is almost already decided even before the conduct of actual bidding.

Suppliers say members of the awards committee are the key people in “bagging” a contract. The amoxicillin supplier says the contract is practically guaranteed as a done deal once one has settled the “sharing” of the spoils. According to the supplier, the doctors are the starting point: “If you can make them your friends, then you can have (the contract).”

“When a doctor doesn’t cooperate, there will be no medicines,” another supplier explains. “The budget will be realigned. Bubuwisitin nila yung doctor (They will pester the doctor).”

The next people to talk to would be the mayors, treasurers or general services officers to negotiate the contract and settle the “love gifts.”

Delivery of 20 to 50 percent of the negotiated amount is done early on as downpayment. The rest of the money comes after the collection to guarantee the processing of the papers. The amoxicillin supplier says mayors prefer cash, since checks leave a trail.

To make it appear as if a bidding had taken place, the amoxicillin supplier says she borrows her friends’ company names and registration papers, promising them a five-percent share later on, and adds two other fictitious competitors for good measure.

The supplier says she sometimes has to “adjust” some more to meet the demands of increasingly greedy local officials while ensuring she still gets a profit. Such “adjustments” could mean substandard drugs, confesses the supplier. Sometimes, wracked with guilt, she tells officials that a higher kickback would mean medicine of lesser quality.

One doctor says she took one of the medicines available at her health center when she was having stomach trouble. The drug didn’t work, she says, making her worry about her patients. She laments, “What can I do? That’s the kind of drugs they deliver.”

This doesn’t happen only in the provinces. In 2000, the Quezon City government bought some P8 million worth of medicines in three batches. Of these, medicines totaling P1.8 million — including 6,028 bottles of multivitamins with lysine syrup and 740 boxes of amoxicillin capsules — failed Bureau of Food and Drugs (BFAD) tests conducted as part of a special audit. Despite the BFAD finding, the local government still paid the contractor, La Croesus Pharma Inc., in full. The supplier did pull out questionable medicines, but the replacements it delivered again failed BFAD tests.

When COA verified the prices of the medicines that passed the tests, it also found these to have been overpriced by P4.3 million. City officials, however, maintained that La Croesus Pharma’s bid was the lowest competitive bid. COA argued that the city should not have limited its evaluation to the submitted bids, but could have compared them with prevailing market prices. Three hospitals in Quezon City, in fact, were able to purchase similar medicines at lower prices during the same year.

Some provinces have also shown that a systematic pooled procurement can drastically bring down costs. In Pangasinan, which is one of the pioneer provinces that have enforced the Health Sector Reform Agenda (HSRA) of the health department, bidded prices went down by 52 percent through bulk procurement.

TABLE 3: Household Utilization of Health Facilities (%)
SOURCE: 2003 National Demographic and Health Survey

Barangay health station 22.4
Rural health unit/urban health center 16.3
Municipal hospital 3.8
District hospital 3.4
Provincial hospital 4.9
Regional hospital/public medical center 3.3
Private clinic 14.0
Private hospital 9.4
Other 2.0

State auditors say the absence of a procurement plan is a red flag. Take the case of Cainta, Rizal, which COA says circumvented rules six years ago because it had no annual procurement program for medicines. The Local Government Code, which then governed the system of procurement, requires that projects be in line with the procurement program of an office before any purchase is made, except in cases of emergency.

According to COA, Cainta avoided public bidding for medicines from January 1999 to October 2000 by purchasing in separate and smaller batches, each below P60,000. At one point, Cainta’s local health office made up to 11 purchases in just a month’s time.

Cainta’s then municipal health officer said they did this because the local government didn’t have funds to conduct public biddings. But COA noted that the frequency of the purchases indicated that Cainta did not suffer from any financial lack. The absence of specifics on the purchased medicines made the transactions even more questionable.

As a rule, before any procurement takes place, the doctor prepares a requisition voucher on which he or she lists the medicines, specifying the quantity and cost for each drug. In Cainta’s case, the municipal health officer provided no such thing although she was obviously privy to the purchase.

In some instances, however, the health-center doctor could be clueless about the local government’s procurement of medical supplies. A doctor in the Visayas says some local governments there just make the heads of health units sign the payment vouchers. Many of the doctors sign just so their RHUs can have supplies. But there are those who refuse-and later face the wrath of local officials.

One young doctor left his post at an RHU in Mindanao after the fuming mayor jabbed a finger at him at the town hall and berated him as the entire municipal workforce looked on. The doctor — the town’s first in more than a decade — was almost reduced to tears, and all because he had refused to sign the delivery receipt of medicines bought by the mayor’s office. The doctor said the medicines had been overpriced by more than 100 percent. He knew the real price because he had met the supplier just weeks before.

After his public humiliation, the doctor, then just 26, packed his bags and left the town. Corruption, he says, has mired that fifth-class municipality in poverty. The doctor has sworn never to be a community physician again.