The problem with medicines is that no one wants them. We all love ice cream, so we are happy to pay for it and don’t complain over the price. But any price for medicine is too high, because it’s a forced expense, not one we choose to make. The fact that medicine cures us of an illness is a subsequent event we don’t easily relate to. On the other hand, the joy of ice cream is immediate.
When activists and some in the government complain of high prices, they complain that people can’t afford them. But which people? The rich can afford, as can the middle class (though perhaps they have to sacrifice a few ice creams to do so). Plus they have the choice of already available and much cheaper drugs: generics, which have already captured 70 percent of the market.
It’s the poor we really want to help, since they can’t afford drugs at any price. That’s where universal health care and the Philippine Health Insurance Corp. (PhilHealth) come in. PhilHealth can buy in huge volumes, giving it leverage to negotiate for much lower prices. They can then pass the medicines on to patients at a lesser cost or provide them for free.
To force price reductions now would be a mistake. It was done in 2008 under Republic Act No. 9502 or the Universally Accessible Cheaper and Quality Medicines Act, which led to some drugs for diabetes, cholesterol and high blood pressure having their prices cut by up to 50 percent. The cost to the pharmaceutical industry was a massive drop in market growth from 11.4 percent in 2007 down to 2.8 percent the following year, with companies having to downsize, resulting in unavoidable staff cutbacks.
You would think that price cuts would lead to market growth. But the thing about medicines is that those who should be buying—and for some, buying more at lower prices—didn’t, simply because they never had any real purchasing power to begin with. Add the fact that companies cut back on introducing innovative cures, and the very best you could see was a flat market. Losses to the industry were estimated at P11 billion, affecting 40-60 percent of the entire businesses of many pharmaceutical companies.
The government, on the other hand, gave up tax collections conservatively estimated at between P4 billion and P5 billion. That’s a lot of foregone revenue that could have been used for priority government projects. Bristol Myers Squibb actually left the country because it was unable to absorb the losses.
Despite this, there’s a move to introduce price controls on medicines through a drug price regulatory board.
If prices are cut again, pharmaceutical companies could see losses or low margins that wouldn’t be viable to stay in business. In a worst-case, and not unlikely, scenario, companies could leave or take the drug off the market.
Drug companies act responsibly; they have to if they want to stay in business. But they are not philanthropists. They have to make money to keep the business going to fund the huge cost, running into billions of dollars, that new cures would cost. Research has been hugely successful; just look at the cures we have today for illnesses that killed just 50 years ago. These companies will lick cancer one day, but only if they have the funds to do it. The Philippines isn’t some special case that should be exempted from supporting that research.
Much as you might want to price products and services at a level people can afford, markets don’t work that way. Pricing is determined by how much it costs to produce the product, and drugs aren’t excluded from this fundamental economic reality.
There are other ways to help people get the drugs they need. One is for PhilHealth to negotiate with drug companies for better deals. Given the huge volumes PhilHealth needs, considerable cost savings can be achieved. Then there’s generics; they’re already at the cost lawmakers want to achieve with branded drugs. So why force branded products down? Competition, which is the best driver of markets, has already done it.
Beyond competition, the private sector also has much to contribute through partnerships, and not price regulation. Public-private partnerships, where the industry works together with the Department of Health (DOH) and PhilHealth, are a win-win approach for the government, private businesses and, more importantly, Filipino patients.
What’s needed is for the DOH/PhilHealth to work together with the pharmaceutical companies to get the best deal for patients. That’s something Health Secretary Francisco Duque III recognizes, and he is working with the industry to find the best solutions. It doesn’t need mandatory price regulation disrupting the much proven success of free markets to give consumers the best deal.
E-mail: wallace_likeitis@wbf.ph