Access to safe and affordable medicines: Probing the effects of price control and

mandatory discount policies

Bienvenido “Nonoy” Oplas Jr.

Presentation at the Pharmacy Economics classes, University of San Carlos (USC) Talamban campus

Cebu City, 15 March 2014

Outline

I. Dreaming a single national price

II. Drug price control of RA 9502

III. Senior citizens discount of RA 9994

IV. Conclusions

I. Dreaming a single national price • Basis: same product with same dosage made by the same

manufacturer in the same country should have only one price nationwide. Medicine price by same manufacturer should be the same regardless of outlets.

• Any difference is explained by greed; the wider the price difference, the bigger the greed, so government should control or limit that greed in the name of public health and welfare.

• Applied internationally: same product with same dosage by same manufacturer made in different but similar developing countries should have little price differentials.

• This is the philosophy adopted when the Cheaper Medicines Bill was being discussed, until it became a law in June 2008.

• Huge price gap observed for PH vs India and Pakistan prices.

• Source: Explanatory note of a Senate Committee Report, Octoberr 2007

• Single national price is not possible. Take a can of Coke 350 ml made by the same manufacturer in the same country, PH. It has different prices in different retail outlets -- a sari-sari store, carinderia, average resto, 7-11/Mini-Stop, SM, Rustans, Robinsons, Shangrila, Manila Hotel, Mandarin,… – prices range from P25 to P100+.

• No single price to represent a “national price” of that can of soda, or any other commodity. Different “equilibrium price” for each outlet. This can be said in other countries with generally higher or lower price levels as the Philippines.

a. same or comparable retail outlet, say only from Watsons (not hosp. pharmacy in country A vs. small drugstore in country B)

b. same reference period for price, say December 30, 2012 (not end-January in A vs end-December in B of same year)

c. Same reference period for exchange rate in converting different currencies into a common currency, PhP or US$, say as of end-June 2013

d. taxes and fees, national and local, applied on each commodity

e. subsidies or mandatory discount or price control, if any, applied on each commodity;

f. other factors.

To make meaningful price comparison of a commodity country by country, one must show:

RA 9502’s main concerns • Amending the Intellectual Property Code (IPC) to allow

TRIPS flexibilities in the intellectual property rights (IPR) like patents of innovator drugs and allow compulsory licensing (CL), special CL, “early working” and parallel importation.

• Drugs and medicines price regulation through the issuance of maximum retail price (MRP, not MDRP or GMAP).

• Non-discriminatory clause, amending the pharmacy law and generics law and strengthening BFAD, now FDA.

• Only one goal: cheaper and safe medicines be more accessible to the poor.

II. Drug Price Control of RA 9502 • Targetted initial 21 molecules

because they were among the most saleable products by the innovator/multinational firms.

Average prices already declining

even before the drug price policy of August 2009, due to competition. Case of amlodipine (anti-hypertension) drugs.

Indonesian prices higher than those in the PH.

Source: B. Agana, PCPI, May 2012

Competition has resultedin average prices already declining even before the drug price policy of August 2009,. Case of Co-amoxiclav (anti-infection) drugs.

Indonesian prices higher than those in the PH.

Source: B. Agana, PCPI, May 2012

Companies Value P Bill.

Share in %

Companies Value P Bill.

Share in %

TOTAL 138.53 100 Johnson 3.599 2.6

United Lab 35.130 25.4 Roche Phils. 3.309 2.4

Pfizer Inc. 9.701 7.0 Natrapharm 2.693 1.9

Glaxo SmithKline 9.264 6.7 Bayer Pharm 2.486 1.8

Abbot Lab 5.511 4.0 Servier Phils 1.824 1.3

Merck Sharp&Dohme 4.787 3.5 Merck Inc 1.672 1.2

Novartis 4.765 3.4 Menarini 1.350 1.0

Boe. Ingelheim 4.573 3.3 Wyeth Phils 1.210 0.9

Sanofi-Aventis 4.474 3.2 Bristol-Myers SQB 0.903 0.6

AstraZeneca 3.721 2.7 GX Intl 0.840 0.6

Pascual Labs 3.608 2.6 Others 33.108 23.9

Out of 864 Registered Manufacturers, Distributors, Traders, the Biggest, Nov. 2013

Source: IMS PPI + PHPA. In red are local or national pharma companies

Products Registered Drugs, 2012-13

Drug Application, Feb-Sept. 2013

Products Registered Drugs, 2012-13

Drug Application, Feb-Sept. 2013

Ambroxol 13 16 Co-amoxiclav 20 50

Amlodipine 45 103 Co-trimoxazole 12 0

Amoxicilin 22 44 Glimepiride 27 21

Ascorbic Acid 61 2 Levofloxacin 24 34

Carbocisteine 8 9 Losartan 51 66

Cefalexin 19 7 Mefenamic Acid 22 13

Cetriaxone 17 28 Metronidazole 16 25

Cefuroxime 43 98 Omeprazole 34 59

Cetirizine 23 40 Paracetamol 49 93

Chloramphenicol 14 3 Ranitidine 14 19

Ciproflaxacin 36 29 salbutamol 38 32

Clarithromycin 24 31 Simvastatin 37 36

Cloxacillin 11 14 Tramadol 15 39

Competition and More Competition, of Existing and New Products…

III. Mandaatory Price Discounts to Senior Citizens of RA 9994 (Also mandatory discounts to persons with disabilities, PWDs) An enterprise that is forced and coerced by the government to give 20% discounts to certain group/s of consumers will attempt to survive and not go bankrupt. Several ways to do this.

One, stop selling those medicines and products that are highly demanded by the senior citizens (SCs). Happening already in some small and independent drugstores in rural areas which have little leeway for further price discounts

Two, raise the price of medicines demanded by the SCs, so that after the forced discount, the price simply goes back to its original level and not suffer a loss.

Three, raise the price of other medicines and products demanded by the non-SCs. They subsidize the price discount given to the SCs.

• If no price distortion like RA 9994, “equilibrium price” (P*) of a particular medicine will be at point A, supply meets demand. With the law, new price with mandatory discount (Pmd) will be at point B, lower or cheaper than point A.

• To prevent losses, an enterprise will have price hike (Ph) of medicines to point C. A 20% discount at point C will only bring back the original price at point A while giving the illusion to patients that they are buying at point B. Or SCs pay at point B while non-senior citizens suffer even higher prices at point C.

Not all SCs and PWDs are poor. Not all deserve a mandatory discount. And not all drugstores, other enterprises are rich to afford giving 32% forced discount. • Henry Sy, John Gokongwei, Lucio Tan, George Ty, Jaime Z-Ayala, Manny Pangilinan,

Fidel Ramos, JP Enrile, etc. are all SCs. Yet under the law, they are entitled to the mandatory 20% discount + 12% VAT exemption (total of 32% forced discount) for medicines, healthcare, etc. if they will insist.

Some drugstores, clinics, restaurants, other business sectors covered by the law are rich and financially capable to shoulder or absorb the forced discount.

One adverse result is “cheap but non-available” medicines to SCs in small and far away drugstores and pharmacies. If SCs and their caretakers must travel far to bigger cities where the bigger drugstore chains are present, the cost of travel erases the gains of forced discounts.

IV. Concluding Notes

1. Government price control policy as instrument to make drug prices become available to the poor is both wrong and a failure. The price control of August 2009 should be discontinued, affected companies must be allowed to raise their prices if they wish to.

2. Tinkering with high prices even if consumers have options to buy the lower-priced products is the politics of envy. Ensuring good and safe product quality regardless of prices per brand is the politics of safety. Government should focus on the latter, not the former.

3. Mandatory and forced discounts like RA 9994 should be avoided. The law in fact should be scrapped. But this is impossible to happen soon, so let this situation serve as additional lesson, that government price regulations and forcible, mandatory price discount, produce more harm than good.

4. RA 9502 and RA 9994 are both failures in seeking “safe and affordable” medicines to the poor. It is mainly the middle class and the rich who mainly benefit.

5. The poor are courting the danger of getting cheap but unsafe, counterfeit, or substandard medicines as government attention is diverted or diluted from focusing on product quality to enforcing and monitoring compliance with price control and forced discounts.

6. FDA should get out of any price monitoring function and focus on medicines/product safety and quality. Focus requested by FDA Dir. KHGo and he is right. FDA should focus on rule of law function, the law on product safety and efficacy.

7. More market competition, not more government regulations and price interventions, will ensure more public health.