21-Aug-2006: Sa panahon ng krisis, bawal magkasakit. (In
times of crisis, getting sick is forbidden.)"
The tagline, culled from a vitamin commercial, underlines a basic truth in the
Studies made in 1999 by the Department of Health (DOH) and the Department of
Trade and Industry (DTI) showed that five out of the nine drugs sampled cost
more in the
Another study conducted by the nongovernmental Health Action International
showed that Amoxil, an antibiotic manufactured by a multinational, sells at a
higher price in the
The
Question: Why are Filipino consumers paying more for medicines of the same
brand, of the same active ingredients and made by the same manufacturers, than
people in other countries?
Why the high prices?
In a paper presented before the Philippine Council for Health Research and
Development of the Department of Science and Technology (PCHRD-DOST), Dr. Emma
Valencia of the Executive Net International identified several factors
contributing to the high cost of medicine in the country. These include import
dependence, transfer pricing, pricing strategies, markups, promotional expenses
and lack of government policy.
Import Dependence. Almost all of the raw materials used in drug manufacture are
imported, thus the prices and volume are often affected by both domestic
inflation (exchange rate of the peso) and international inflation (inflation
from the country of origin).
Also, only 150 of the 500 essential drugs are produced locally. The
Transfer pricing. Used as a tax-avoidance mechanism, transfer pricing allows
the transfer of profits from a subsidiary to its parent company through pricing
schemes.
For example, raw materials are purchased from the mother/sister company at
prices higher than the world market price to avoid paying taxes on profit or to
get around the host country's policies on profit remittance. To address this,
the government needs to formulate guidelines with regards to transfer pricing.
Pricing strategies. Price skimming and penetration pricing are some pricing
strategies practiced by multinationals. In price skimming, new products are
launched at premium price to project the product's "superiority"
despite getting the raw materials at comparable prices.
In price penetration strategy, a new product is launched at a price at par or
just slightly higher than others in the same category to gain a foothold in the
market. Once the product has gained acceptance, however, the price is
significantly increased.
Markups along the importation-manufacture-distribution chain. Estimates of
markups added to the cost of drugs indicate the following averages:
manufacturer's markup, 12- 15%; distributor's markup, 15- 25%; drugstore
markup, 20- 35%.
Promotional expenses. Promotional expenses of MNCs are estimated to range from
12% to 45% of sales. Brand loyalty enables companies to put a premium price on
their products even after the expiration of patent and despite the increasing
number of competitors.
Lack of government pricing policy. Without strong regulatory policies in place,
companies tend to maximize profits by catering to those who have the ability to
pay, and price drugs up to what the market can bear.
Opportunistic pricing
Trade and Industry Secretary Mar Roxas told abs-cbnNEWS.com that one of the
main reasons that drugs are so expensive is that pharmaceutical companies
practice "opportunistic pricing."
"They know that the drug is a necessity so they jack up the prices as long
as consumers continue to pay," he said. "If market prices are fair
reflections of production costs, why are their brands sold for almost half the
price abroad?"
A 2001 study conducted by the Consumer Assistance Facilitation Project (CAFP)
also showed that pharmaceutical companies jack up their prices because of “payola” or kickbacks and expenses incurred due to massive
advertising campaigns.
CAPF said some pharmaceutical companies pay doctors to recommend their products
to patients. It added that aside from cash, physicians are also given
additional perks such as gift items, medical journals and junkets overseas.
The CAFP paper also said that the other big expense of the pharmaceutical
companies is the use of "lobby money" that goes to the pockets of
government officials. It added that it is difficult to prove the amount of
money thrown to professional lobbyists.
The paper said both payola and the big expense of advertising blocked
implementation of the Generic Drugs Law as well as the entry of newly marketed
herbal products. It said that cheaper generic alternatives are not generally
consumed because many doctors do not prescribe them.
Pharmaceutical companies also point out that their medicines are expensive
because of high research and development (R&D) costs. However, a report
conducted by American consumer health organization Families USA refuted this
claim.
The report showed that drug companies in the
The report added that drug company profits, which are higher than all other
industries, exceed R&D expenditures; and that drug companies provide lavish
compensation packages for their top executives.
Among the nine pharmaceutical companies examined in the report -- Merck,
Pfizer, Bristol-Myers Squibb, Abbott Laboratories, American Home Products, Eli
Lilly, Schering-Plough, and Allergan -- all but one, Eli Lilly, spent more than
twice as much on marketing, advertising, and administration than they did on
R&D, and Eli Lilly spent more than one and one-half times as much. Six out
of the nine companies made more money in net profits than they spent on R&D
last year.
The report also documents profligate spending on compensation packages for top
pharmaceutical executives.
"Pharmaceutical companies charging skyrocketing drug prices like to
sugarcoat the pain by saying those prices are needed for research and
development," said Ron Pollack, Families USA’s
executive director. "The truth is high prices are much more associated
with record-breaking profits and enormous compensation for top drug company
executives."
Five of the drug companies included in the Families USA report operate and sell
products in the
Empty promises
During her State of the Nation Address last year, President Arroyo issued a
challenge to pharmaceutical companies by promising a 50% cut in the prices of
top-selling medicines in the country.
"Bababa ang presyo ng gamot. Sa loob ng isang taon, hahatiin natin ang
presyo ng mga gamot na madalas bilhin ng madla (The price of medicines will go
down. Within one year, the price of the most commonly bought medicines will be
reduced by half)," she said.
A full year later, Arroyo was forced to retract her promise as only one
pharmaceutical company, United Laboratories (Unilab), chose to heed her call to
cut medicine prices.
"Target natin: Ibaba sa kalahati ang presyo ng gamot na madalas bilhin ng
mahihirap. Nakamit natin: Mahahanap ang mababang presyong gamot sa mga parmasya
ng 80 ospital ng pamahalaan at sa mga outlet ng Unilab. (Our target: to cut by
half the prices of medicines frequently bought by the poor. We achieved it.
Affordable medicines can be bought in 80 government hospitals and Unilab drug
outlets)," the President said.
She added, "But sad to say, except for Unilab, the wider distribution
network of commercial drugstores -- under pressure from the multinational drug
companies -- will not sell our cheaper medicines. We are studying punitive
measures to correct this unfair, unjust and heartless situation."
Arroyo's declaration of a virtual war against drug companies was loudly
applauded by the public long fed up with the manipulative practices of
pharmaceutical multinationals.
However, the government is waging a war with neither weapons nor ammunition to
win it. No law is in the books that could compel multinationals to reduce
medicine prices.
Even the Generics Act of 1988, which requires pharmaceutical companies to produce
generic equivalents of their branded products, is not observed by
multinationals.
Said one company insider interviewed by abs-cbnNEWS.com, "Of course, we
can lower prices if needed but why should we? There is no law that tells us to
do so. The Generics Act of 1988 isn't even implemented by drug companies
because it has no teeth."
Added another source: "We tried to produce generic equivalents of our
branded products but discontinued it after a few years. After all, why compete
with yourself? Besides, the market in generic drugs is too small."
Punitive measures 'still under study'
Roxas told abs-cbnNEWS.com that the so-called punitive measures mentioned by
the President in her State of the Nation Address include the study of possible
violations on pricing policies under Republic Act 7394 or the Consumer Act of
1992.
One provision stipulated under R.A. 7394 prohibits deceptive sales practices,
which are defined as "whenever the producer, manufacturer, supplier or
seller, through concealment, false representation of fraudulent manipulation,
induces a consumer to enter into a sales or lease transaction of any consumer
product or service." (Title III, Chapter I, Article 50, Consumer Act of
the Philippines 1992)
Still, punitive actions on multinationals for violating R.A. 7394 is a long
shot as none of them has disclosed pricing breakdowns for their top products.
Roxas said the problem with imposing sanctions on pharmaceutical companies is
that it could ultimately be detrimental to Filipino consumers who are in
desperate need of those firms' products.
"We are carefully studying these measures because we don't want to spook
the industry. Some important life-saving pharmaceutical products could be
pulled out of store shelves if we spook these companies," he said.
Roxas has had firsthand experience in fighting influential lobbyists of
pharmaceutical giants. In 1999 Roxas, then a Capiz congressman, filed a
resolution for a congressional inquiry on the exorbitant cost of medicines.
Roxas said drug prices were overpriced because over P1 billion or 25% of the
costs incurred by the pharmaceutical industry is earmarked for marketing,
including ''representation expenses to entice physicians to prescribe their
branded drugs to even poor patients.''
"The huge budget set aside by medical companies for the purpose of luring
physicians into prescribing their drugs defeats the objectives and mission of
the Generic Drugs Act," he said.
As a result, only one out of 10 consumers buy generic drugs because doctors and
pharmaceutical companies continue to recommend branded products, Roxas noted.
He added, however, that lobbyists for the pharmaceutical industry
"effectively killed [the inquiry] before it could take off."
Roxas said he does not opposed a price ceiling on drug prices provided that the
provisions are carefully studied and approved by DTI and Malacanang.
"We are even studying ways of giving tax relief to companies importing
medicine, equipment and other raw materials used for the manufacture of
medicines," he said.
He added that the Cabinet is also studying a proposal to allow Philhealth
beneficiaries to reimburse medicine purchases "only if they are
generic."
Pharma 50's failure
In a bid to cut drug prices, DOH employed two strategies under its "Pharma
50 Project. "
The first involved parallel importation of high quality drugs and medicines,
expansion of an appropriate list of medicines for importation and increase of
the number of outlets selling cheap medicines.
Parallel importation, which was initiated by former health secretary Alberto
Romualdez under then president Estrada, initially faced stiff opposition from
the multinationals.
The Pharmaceutical Healthcare Association of the Philippines (PHAP), which the
multinationals dominate, filed for a temporary restraining order on BFAD and
DOH to stop importation of branded medicines from
Branch 64 of the Makati Regional Trial Court, however, threw out the petition
as it deemed parallel importation "beneficial to patients of government
hospitals by making these drugs available to them at a price lower than the
prevailing price of the same drugs..."
To date, three shipments of 40 branded medicines amounting to about P120
million have been imported from
The price discount ranges from 49% as in the case of Ventolin to a high 451%
for Adalat Retard.
"The medicines we import are of the same quality and efficacy as those
manufactured by the multinational companies," Roxas said. "The
medicines undergo testing before they are shipped to the
However, a report submitted by the Committee on Oversight last month showed
that Pharma 50 had limited success in providing cheap medicine to the poor.
Aside from reaching only 70 out of 600 government hospitals nationwide, an
inventory of hospitals visited revealed some drugs were being "sold at a
slow pace."
One head pharmacist even noted that they would only order some of the drugs
under the Pharma 50 project as some "are even more expensive than those
manufactured locally."
The report said the program to reduce medicine prices was flawed from the
beginning because it is over-dependent on the DOH's budget and on other
"uncertain" sources of financing.
"For instance, the planned fourth batch of importation will depend on the
release of funds from the Philippine Charity Sweepstakes Office," the
report noted.
It added that the volume of the government's drug importation (at P75 million)
accounts for a measly 0.16% of the total pharmaceutical market in 1997.
Instead, the report said the administration should allocate at least P5 billion
for parallel importation of medicines.
It also recommended that the government release funds to the Bureau of Food and
Drugs to expeditiously process the licensing applications of drug companies.
Roxas, however, pointed out that instead of infusing more money into parallel
importation, Congress should instead inquire into pricing strategies of
multinationals.
"The program is not meant to supplant what is otherwise a private sector
endeavor," he said. "I believe that such resources could be better
utilized in other equally relevant projects like infrastructure in the
countryside."
He added: "In the case of pharmaceuticals, and for many basic commodities
for that matter, policy makers should consistently exert efforts to break the
cartel-like behavior of the leading suppliers. This is the only way we can
protect the welfare of the consumers."
Other options
Another strategy included promoting the use of generic drugs and medicines,
support for a continuous supply of high quality but affordable medicines and
the endorsement of significant reductions of the prices of drugs and medicines.
Health Secretary Manuel Dayrit told abs-cbnNEWS.com that while the DOH program
to promote generic drugs has been around for years, the decision to prescribe
generics falls squarely on the shoulders of physicians.
"What's happening right now is, we have a branded culture wherein doctors
are much more interested in prescribing and promoting a particular brand,"
he said.
Even consumers should break the mind set that generics is substandard as
compared to branded medicines, Dayrit added.
"The same ingredients that compose branded medicines can be found in
generics. People should be made to understand that and buy accordingly,"
he said.
Dayrit also pointed out that aside from parallel importation, the Philippine
Institute of Traditional and Alternative Health Care (PITAHC) and the National
Food Authority (NFA) will be selling herbal medicines in 55 areas of Metro
Manila. These medicines, including, lagundi and sambong, will be sold in NFA
rolling stores alongside low-priced basic commodities.
Lagundi is effective against cough and asthma while Sambong is used as a
diuretic and for kidney stones. Other herbal medicines for use at the household
level being promoted by DOH are tsaang gubat (for stomach pains), yerba buena
(for body pains), niyug-niyugan (for ascaris), bayabas (for disinfecting
wounds), akapulko (for skin infections), ulasimang bato (for arthritis and
gout), bawang (to lower blood cholesterol) and ampalaya (for diabetes
mellitus).
Roxas, meanwhile, said DTI is also looking into strengthening the local generic
industry to counter the influence of the larger pharmaceutical companies.
He added that the 79-strong League of Provinces recently signed a memorandum of
agreement with the DTI pledging to "promote and encourage the active
support and participation of local government units, particularly the league of
provinces in the Presyong Tama, Gamot Pampamilya program of DTI."
"Admittedly, it's an uphill climb. Still, we have to keep all options open
so that we can finally defeat the menace of expensive medicines," Roxas
concluded.
Source: ABS CBN News