Monday, June 11, 2007

How To Lower Drug Prices

As expected, Congress failed to pass a bill that would make medications less expensive. Apparently we are second only to Japan in having the costliest drugs in Asia. Our drug prices are higher by 40 to 70 percent compared to other countries in the region. The public was fooled into thinking that meaningful reform regarding the ridiculous drug costs was underway and a few members of Congress made a big, loud spectacle of throwing out some members of pharmaceutical companies from the session hall to demonstrate their independence, even if most of them knew the bill was so poorly crafted and loaded with defects.

Throughout the 90 day campaign period, I was given 3 minutes and thirty seconds of free national television exposure when I participated in a program that asked each candidate 3 questions. One of the three questions pertained to my stand regarding parallel importation of medications considering that my “sister was a lawyer for a multinational pharmaceutical company”. I was flabbergasted by the question because it suggested that I went home and left my medical practice to shill for a pharmaceutical company in the Philippines!

Now all this debate and talk about drugs being expensive involves a lot of idiocy. Cited all the time as an example is Norvasc, a medicine for hypertension, priced at P41.41 per tablet, instead of a possible cost of only P5.77 per 5-mg tablet if imported from India. Hypertension is the fifth leading cause of death in the Philippines killing over 300,000 people in 2004. I don’t understand why our government does not take the initiative to manufacture less expensive and almost equally effective alternative drugs like diuretics which cost something like P0.10 to manufacture? In the US, diuretics belong to the so called first line of anti-hypertensive medications. Why do we insist on Cheetos when we can settle on Chiz Curls? Another favorite drug here is Plendil which costs P21.82 a tablet instead of P2.69 if imported from India. I remember back in 1990 while working for the US Veterans Administration we were instructed to stop prescribing Plendil altogether and switch to generic nifedipine, a related calcium-channel blocker that was way less expensive. A popular drug for pain and inflammation is Ponstan which retails for P25 per tablet. If imported from India, the price plummets to P3.22. I don’t recall a single episode in 17 years in the US of ever prescribing Ponstan (mefenamic acid) because we always started with acetaminophen or Tylenol and made our way up to ibuprofen, naproxen. Much cheaper and very easy to produce. Importation is not the answer.

The government through the Department of Health must educate the public about the rational use of medications. We must not expect for-profit pharmaceutical companies to stop hosting educational symposia, or make donations to libraries or send physicians abroad to attend educational activities because these invariably influence prescribing patterns. We must begin becoming self-sufficient on anti-hypertensives, anti-tuberculosis medications, anti-infectives, anti-inflammatory drugs. We can’t expect drug companies to invest on a drug that will sell for P0.10 apiece. There is no profit here, this is why we have a government. We’ve done it in the past. Ilosone (erythromycin) was isolated from soil samples obtained in Iloilo (hence the appellation) submitted by Dr. Abelardo Aguilar in 1949. It remains the antibiotic drug of choice for penicillin-allergic patients.

Our Senate and House of Representatives do not have the wherewithal to shake the system. They have behaved like noisy purveyors of false hope. All I need to ask is “look where we are today?” If I become President, I will make an inventory of priority diseases that we can realistically control (hypertension being one of them) and direct the Secretary of Health to buy a laboratory that will be dedicated to manufacturing generic alternatives. Even if the savings from renegotiating our interest payments are not yet available, I will realign funding from many existing programs that are not performing effectively and believe me, there are many harebrained programs. Through a Barangay distribution system, we will offer the generic medications at cost to all hypertensive patients and offer free blood pressure readings as well (this is very easy with all the inexpensive automatic manometers around). Point is, this problem requires Executive fiat. Let's stop all this posturing and get to work.


r.g. lacsamana, m.d. said...

Lowering drug prices has been a bugaboo for many countries, including the United States, and, as noted, has always been a struggle between the government and the well-oiled machine of Big Pharma. (I wish the good Doc would have pointed out the essentials of the bill that did not pass in Congress.)

Here is how the U.S. government and some of its units like the VA and Medicaid have approached the problem:

(1) A few years back, Congress approved what is called Medicare Prescription Act which allows seniors, for a monthly fee, to participate in a program where various insurance companies offer drugs at discounted prices. Instead of the government setting prices, the insurance companies contract directly with the drug companies, in effect creating competitive programs that Medicare recipients can choose from. Both brand names and generics are available. For the indigents, subsidies from the governnment allow them to buy the drugs.

This is an option that the Philippine government most likely will be unable to offer because of the expenses.

(2) For HMOs, the VA, and Medicaid,
formularies are created, made up mainly of generic drugs. HMOs as a rule offer a larger variety, including some brand names, but at higher prices for those who can afford them.

(3) Though not officially sanctioned by the government, many Americans can buy drugs at cheaper prices from Canada and Mexico. Congress did not approve this option because it could not guarantee the safety of these drugs, with the FDA (Food and Drug Administration) having no control over these drugs.

(4) Some drug companies have set up programs where those unable to buy some expensive drugs can get them free for periods of time. This would be of limited help at home.

Drug companies are there for the profits, and have a monopoly of brand names for as long as 13 years, occasionally longer. However, a number of generic drugs are now available, particularly for
high blood pressure, diabetes, heart problems, infections, and arthritis. Considering the exchange rates, many of these generics can still be expensive there.

An ideal set-up would be for the Secretary of Health to set up a national formulary, preferably made up of generics like the VA and Medicaid here do it. It would even be better if drug companies back home can manufacture these generics, which would lower the prices further. If not feasible, these generics can be purchased from India, but assuring at the same time they are safe and potent.

Controlling drug prices is not an easy task. In a free-market atmosphere, price controls are a big No-No here. As I said at the start, it would be nice if Dr. Bautista can spell out the particulars of the drug bill that did not make it in Congress there. Better still, does he think adopting some of the approaches here would help there?

Delfin said...

Doc: your P5.77-per-Norvasc-tablet may be the manufacturer-cost, not the selling price. Norvasc/amlodipine 5mg sells P23.00 per tablet (India) and P45.00 per tablet (Canada).
And doc, it should be the business community, not the Philippine government, who should own the (local) factories to manufacture drugs (or Chiz Curls or cement).

Gregory said...

I don't know this issue too well and will need to read different thoughts to be able to understand it better.

However, I must agree with Delfin that in general, government must not engage in business. Let the private sector develop the drugs and sell them. Government instead should provide the legal frameworks/laws/rules and regulations that would encourage investments and competition as well as the infrastructures that would foster business.

I agree that health is a basic and important mandate. The role of government though is not to build factories to make medicines and to run them. Rather, it should formulate the laws that would provide incentives to companies that would, for example, produce generic drugs. I am sure there are other laws that it can formulate to help bring down drug costs, e.g., if importation is the short-term solution, government should be at the forefront of safety regulation (my worry about importation is that a short-term measure such as this will become entrenched and then we simply rely on importation rather than think of ways to encourage businesses to sell generic drugs in ways that will be profitable for them - such as tax incentives. We do have a propensity to do this. Short term solutions suddenly become our long term reply to solving a problem because we simply do not one to go in depth to understand and solve a problem due to its complexity). But government should not be engaged in pricing drugs or setting ceilings or in running factories.

Martin D. Bautista, M.D. said...

desperate times require desperate measures. we can't expect for-profit companies to invest in a product that will retail for P0.10. we have to help ourselves by totally removing the profit motive on specific essentials like anti-hypertensive drugs. anything that will wean us from the endless cycle of importation and endless debt.

ano nino said...

Desperate times require desperate measures; Dictatorship now!!!!

Gregory said...

Government should stay out of business. They say politics is the art of the possible. If so, then creative minds in government (executive/legislature) should find a way to make for profit companies want to sell generics. It's all about putting the right systems in place and incentives to make them want to sell generics. Businessmen determine whether the opportunities are there. Absent those opportunities, they won't invest. But if government creates conditions that will make things profitable for them - then they will take the plunge.

Big pharma won't likely do it and can't be expected to do so - -so let others - -other competitors / businessmen come in.

And give the right incentives to make that happen.

Government has the tools to engineer things. The power of taxation and granting incentives is one tool to lure people to make the investments in the industries government deems necessary.

"Desperate times require desperate measures" - is a very dangerous phrase indeed.

Short term solution perhaps is importation. That can relieve a desperate situation.

But before that becomes the permanent solution, government should take steps for the long term solutions in terms of legislation.

Gregory said...

Importation per see isn't bad.

Here are good explanations on the whole idea of importation/trade. Personally, we should all engage in dialog because the diversity enriches the debate. There are a lot of great Filipino minds out there that can be harnessed.


By Rhoelano Briones:

If you read fairly typical antiglobalist propaganda (see here), you would think that foreign trade is somehow detrimental to an economy. An economy trades mainly because the foreigner wants to monopolize the domstic market. While the economy is ruined by imports, we also ruin ourselves by misallocating our scarce local resource to produce exports only to serve the foreigner.

Phobias have zero rational basis; xenophobia is no different. Fortunately many countries have, by joining the World Trade Organization, signalled their intention to liberate themselves from this obsolete way of thinking.

Consider the the first question in the title; of course I am not after opening some trade statistics book to find out what products are imported and exported. What I mean is, what is the reason those products are imported or exported? The answer was already given by Ricardo (quoted here). Without using the phrase, Ricardo was already elucidating an answer based on opportunity cost. Opportunity cost is a central concept in economics. When you produce cloth, the cost of doing it is not, I repeat not, determined by the amount of inputs (land, labor, machinery, materials) used up in the process. The cost is the vaue of the goods that are given up because resources have been shifted to produce the cloth. After all, these resources are means to an end, right? So the actual cost can be found only by examining the trade-offs between competing ends.

Once you get over that hump, the rest is (comparatively) easy. Suppose (as in Ricardo's example) 1 of cloth costs England 100 men, while 1 of wine costs 120 men. Portugal meanwhile can produce the same cloth with only 90 men, and the same wine with only 80 men. Laypersons (and most anti-globalists, I think) would say that it England will have to import both wine and cloth from Portugal, because it costs more (in terms of labor) in England. Wrong! Again, the labor does not matter; what matters is what you get out of the labor. So, with this in mind, consider: in Portugal 1 of wine costs 8/9 of cloth (= 80/90). Meanwhile in England, 1 of wine costs 1.2 of cloth (= 120/100). So wine has a lower opportunity cost in Portugal, than in England. However the reverse must be true: cloth must have a lower opportunity cost in England! By giving up one of wine, you can only get 8/9 of cloth in Portugal; however, in England, by giving up 1 of wine, you can get 1.2 of cloth. So:

What does England trade?
It exports cloth and imports wine.

What does Portugal trade?
It exports wine and imports cloth.

Why does England trade?
Because it is more beneficial for it to do so.

Why does Portugal trade?
Because it is more beneficial for it to do so.

Suppose say 1 of wine trades for 1 of cloth. Then by importing 1 of wine, it need only export 1 of cloth; to get the same wine without trade, the amount of cloth that needs to be given up is 1.2. Meanwhile Portugal gives up 1 of wine and gets 1 whole cloth; without trade, it will have to make do with only 8/9 of cloth.

Folks, you have just heard the simplest and most powerful argument for free trade. Everything else is gravy.

Larri said...

I'm sorry, Gregory, you lost me there, but I do remember the concept of opportunity cost from my 1st year economics professor and even he, a PhD holder from U.P. Diliman, admitted the real world does not operate the way the books say it does.

Cite me a country that exported something it had relative advantage, cost-wise, over the others and imported everything else. I'll bet you my last pair of socks, you won't find any.

Now, on the subject of government getting involved in business, there is nothing wrong with it. I fully agree government should not dip its hands in undertakings that directly compete with private enterprise. But, by golly, we shouldn't stop it where the private sector is miserably failing.

Big Pharma is failing the poor. The right to cheap medicine is a right to life itself. Good for you, Gregory, you can afford to buy expensive drugs and can wait for businessmen to invest in the manufacture of 10-centavo anti-hypertensive tablets -- which, by the way, won't happen in this lifetime (and that's another bet).

There is no reason why government should not sponsor, if not directly operate a factory that manufactures cheap drugs. Let Big Pharma make a killing from branded drugs, but allow the government to meet the needs of the poor. After all, this is what the government is here for.

ano nino said...

larri: the local Chinese-Filipino or Filipino-Filipino businessman should own the local factory that produces the generic, not Malacanang nor the Philippine Supreme Court.

jonphil said...

So the local Chinese-Filipino or Filipino-Filipino businessman will again dictate its price to the public? They have been calling the shots for decades now.

You don't call that dictatorship only without adding monopoly & greed in it.

Gotta drink my norvasc10 & lipitor40 - BP is shooting up.

Gregory said...

"Cite me a country that exported something it had relative advantage, cost-wise, over the others and imported everything else. I'll bet you my last pair of socks, you won't find any."


There are lots of countries selling commodities and import finished goods. That isn't exactly a good model. Likely, there's gonna be a lot of trade imbalances there. What is important is that countries like the Philippines adopt an export strategy where goods have value added. By adding value to their goods (and not merely trading commodities), they will able to command higher prices. Often, we think of competing on price, however, you don't want to compete on price because you'll be continuously squeezing margins and be forever stuck with the curse of trading commodities. Think Porter here.

Anyway - -the whole point though of the post on importation is to say that importation per se isn't bad. I am not saying importation is the solution to the generics problem. All I am saying is that a statement that appears to negatively reflect on "importation" ("anything that will wean us from the endless cycle of importation and endless debt.") may give an impression that the author is giving a thumbs down to the whole notion of importation as a trading activity.


I agree that the situation needs solutions. But for government to run businesses isn't the most efficient and effective way of doing things. Government in most cases will run businesses to the ground. How many GOCC's are currently being financed by taxes to prop these companies up in order to keep them from collapsing and avoid unemployment of their employees.

Instead of quick fix such as running businesses, government should:

1. Find a short term solution - e.g., importation of drugs.

2. Begin work on the structural, long term-solution - pass law that will create conditions that will make producing generics drugs an endeavor that the private section will want to undertake. In other words - use the carrot approach.


"Now, on the subject of government getting involved in business, there is nothing wrong with it. I fully agree government should not dip its hands in undertakings that directly compete with private enterprise. But, by golly, we shouldn't stop it where the private sector is miserably failing."

I strongly suggest readers of this blog to watch the documentary Commanding Heights: Battle for the World Economy.

You will begin to understand how the concept that government dip its hands in business took root (Keynesian roots) vs. the previously discredited and now widely-accepted concept that private enterprises should be the ones engaged in business and let government stick to governance (Hayek, Friedman, etc.).

You can watch the entire documentary online:

Here's the wikipedia entry:

*Just think of almost all the forays of government in business. Almost all of them, failures - at the expense of tax payers money. When you have limited resources, you want to put those resources to the most effective/efficient use.

Gregory said...

Jonphil - - as Martin suggested - use the first line of defense first - -take the water pill (HCTZ) first. I do. That's why I was able to connect. :-)

BTW - there's a cost to everything.
If you let government run the businesses, sure, it can charge lower drugs. And you'll be happy.

But at what cost.

Someone's got to pay for the lower drugs being charged, right. In other words, where does the subsidy come from?

Wasted tax payers' money due to inefficient running of the business and graft. And when you waste resources, you will increase the budget deficit - -which - to prevent a collapse in the economy, devaluation, and increase in interest rates - - you will need to find ways to raise more revenues. Which means additional taxes. You won't see our government finding ways to cut costs. You'll just see them raising taxes.

I am amazed at the anti-business bias of some sectors. Without business, where would we all be. I agree - -you have unethical businessmen. But business has been an engine of progress.

Here's an eye-opener to people who think that government is the solution and who have so little faith in the private sector:

Anonymous said...

Gambling is probably the only business enterprise that a government can engage in and make money/profit.

Oh... I forgot... Prostitution, too.

Gregory said...

Lastly - -I will have to echo Martin's solution - -some short term things we can do.

And he talked about it when he said: the government through the Department of Health must educate the public about the rational use of medications.

Also, the doctors and other health professionals should be harnessed to in the endeavor. Again - not just government. Government and private sector working together.

As to who should do the educating of health professionals, perhaps Martin can throw out some ideas in this ongoing discussion. I certainly would like to understand how the education aspect can work. It certainly is doable and workable. Before one can have an army of educators, these educators have first to be educated on the matter. What I would like to know -by whom. Who will we expect to get the ball rolling.

Certainly, Martin's blog has been a starter of the discussion and pointed out something worth following. Now, let's think of the details.

Gregory said...

True. In the case of gambling though, government sells the franchises and licenses and gets a huge stake - I think up to 40 or 60%. However, government isn't running most gambling operations. It's the private sector running them under the auspices of PAGCOR. There might be exceptions though.

You won't see government giving this up because it's a cash cow. But it would be worth seeing the genesis of PAGCOR. If I am not mistaken, Marcos wanted his cronies to control the gambling industry - and hence - PAGCOR.

Anonymous said...

One has to challenge the premises, especially the premises of politicians. Where did candidate Bautista get the idea that a factory can not make money in the manufacture of generic diuretics? One only has to think of manufacturers of pardible and aspile, and they are in for the money... and they make money.

Gregory said...


Businessmen will always fill demand - as long as there is supply and the barriers to entry are low enough to enter.

And that's where government comes in. Help lay the infrastructure and laws that will help lower the barriers to entry and not go into business itself.

I think there is an ideological "clash" if you will here: Those who see government as the solution and those who see government merely as an empowering entity of the untapped energies of the private sector and the citizenry.

If Filipinos lack capital to set up factories, then make it easy for them to team up with outside investors to manufacture the medicines. However, the investments must make sense otherwise, no business will enter the market and manufacture these drugs.

And if no business will invest - -and instead the government invests - that means the government will likely be wasting a lot of resources because if no business wants to take up the mantle, that means likely, the conditions are that the investment won't pay off. And if it won't pay off and government instead decides to do it, it will be another money losing GOCC that will use public funds to ensure that it stays afloat.

There is a cost for everything. Lower medicines produced by government. Sure, but that will mean a lot of wasted government revenue that will contribute to greater deficits.

Let business do this job. But give them a reason (meaning - help create the conditions) for them to want to enter this business.

Gregory said...

Oops - I meant business will always try to fill supply as long as there is demand.

Gregory said...

Which brings me to another point - currently, we lack the resources for social services and infrastructure. A great deal of this goes to debt servicing.

Until yesterday, I was for honoring the debts. However, I chanced upon an article yesterday (and decided to read further). And as I began to understand the situation (quick and dirty research), there might be a very good reason to revisit this issue. Martin has espoused this in previous blog entries.

Here are links to understanding the problem (note - foreign debt or external debt includes both debts of the government and the private section. However, a lot of our private sector debt were guaranteed by the government during Marcos' time and until today. And so when these companies go belly up - guess who pays for it - -the Filipino people).


Wikipedia articles:


I don't want to be an ideologue on this matter. That's why I am willing to revisit my previous stance. I hope we can get someone people knowlegeable to shed more light on the Philippine debt problem.

Beyond debt relief though, any funds saved should be used towards investment in education, social services, and infrastructure - -and not wasted towards more pork barrel projects or entering into businesses (which frankly, government should not do).

Martin D. Bautista, M.D. said...

Let me remind you of some recent history. Marcos allowed a crony in the person of Jose Yao Campos to corner generic drug production in the Philippines through Unilab. The first recorded success of the PCGG was when Campos returned some of the massive ill-gotten profits after Marcos was deposed. That was a golden opportunity that exemplified the way business is conducted in the Philippines. The gold winds up lining the pockets of a few.

We have the capability to manufacture diuretics and beta blockers. Just contract with a local lab like Interphil for example and they will manufacture for you as much product as you desire.

Gregory said...

That's the better approach. It still is a private company that is engaged in manufacture and business investment. The government merely becomes a "client."

And I suppose we are talking of distribution at cost through health centers.

Question now is - -price distortions. If others will purchase the drug at higher prices in pharmacies, will this cause a situation where government officers will engage in graft and use the price leverage/differential to create an underground market for generic drugs.

Just trying to anticipate things.

Perhaps, government can help create the demand (let government doctors prescribe medicine), assure purchase of drugs initially from potential manufacturers, and then once demand has been established, allow the drug to be distributed retail. Government will have a "buyer power" via prescriptions that such can serve as a deterrent against possible price manipulation by manufacturer(s).

Gregory said...

Another way to maintain "buyer power" - purchase not just from one supplier but from several suppliers. That will prevent one from having major supplier power via a monopoly.

Anonymous said...

I used to work with an aid organisation doctors without borders and it took a global campaign to drastically bring down the price of HIV meds. Up to now, Indian versions of HIV meds are still cheaper and bioavailability (which is checked by WHO regularly) is comparable with the patented versions. We need to shame these companies with mortality figures as a result of inability to afford these medicines.