A call for transparency in medicine pricing

By Kenneth Hartigan-Go MUCH of the clamor now in the pharmaceutical sector, both globally and locally, calls for transparency in pricing to lower the cost of medicine. International and local organizations and alliances have been formed to clamor for it. Prices are monitored and compared within and between regions throughout the world. Various mechanisms have been placed to demand transparency in pricing worldwide. However, prices remain high and thus the clamor remains. An important factor to consider why prices remain high is the inability of the government to systematize a transparent pricing mechanism. It is as if the imperfection of the market, its profit-maximizing nature, is irreversible and thus has to be accepted as innate. This should not be the case. There can be a better equitable way out of this. The government must put up a transparent mechanism in medicine pricing to influence the market to respond to the public’s call and moderate their profit-orientation. Though this first action will address the imperfection of the system, it is not enough. The second half of action involves addressing the market failure by developing a proper and responsive competitive pharmaceutical sector capable of undertaking science and technology activities. The Philippine Government has tried to respond to the call for transparency. The Department of Health and PhilHealth have come up with Drug Price Reference Index (DPRI). It works basically under the principle of informing the public of the prices of medicines, as being sold in the market, thus giving them the choice. However, though the intention is good, it does not really address the problem of high medicine prices. The DPRI is not enough. It accepts that the market may impose high prices as long as there is a cheaper counterpart. And that regulation will be left with the market forces. Further, the assumption of the PhilHealth that the public is objective enough to choose a cheaper counterpart may not be completely true, as they may be shaped by the misleading advertisements. DPRI is only a short-term solution. Drug pricing in the Philippines remain non-transparent and drug prices remain high and access by the public is adversely denied. From the account of the WHO survey for 2005, high drug cost in the Philippines is not really induced by high manufacturing or importation costs. Rather, it is caused by the price mark-up for every step of the way the drug has to go through before reaching the consumers. These prices are raised by business groups who do not contribute to research and development of the product but who merely sell the medicines through dispensing activities supposed their value added advantage. In the said survey, WHO examined both the minimum and maximum figures of the mark-up. Considering the minimum figures, the cumulative mark-up adds up to 89.51 percent of the original price, with retail as having the greatest share in mark-up (69.20 percent). On the other hand, considering the maximum figure, the cumulative mark-up adds to a maximum of 273.24 percent of the original price using the maximum figures with retail also as having the greatest share. Wholesale and retail mark-ups in this case can reach 65 percent and 50 percent, respectively. Such high mark-up hinders the accessibility of patients and is further aggravated by the consumers’ lack of capability to pay. Studies have shown that a typical Filipino family (can) only allocate less than 5 percent of monthly incomes for health care (NSO, 2006). With this financial capacity, a typical Juan dela Cruz is doomed to suffer of supposedly curable diseases such as tuberculosis, without even having the medication. Such imperfect market system can be reversed into a more competitive system by putting up a transparent mechanism. A mechanism that can be considered is the Medicine Price Ratio Survey, which is not really new and thus, there is no need to reinvent the wheel. This survey is being used by the World Health Organization in different countries including the Philippines as conducted in the year 2002 and 2005. In fact, WHO advocates the use of the abovementioned survey to determine the cost and availability of essential medicines throughout the country. The Medicine Price Ratio can be used as a research-based evidence to analyze the existing market mechanisms and formulate policies. The survey findings specifically the Median Price Ratio can be used as reference for price negotiations and auditing of medicine procurements. This referencing process can introduce a more transparent pricing process and link the study to the discourse on fair pricing of medicines. The discourse on fair pricing, equity issues in access to medicines and the rights based approach to development programs will establish the issue of medicine prices as a human rights issue and therefore an integral part of one’s basic right to have access to basic health services. The government may argue that it does not have the resources to implement such national survey and that it will divert already meager resources from public service delivery like hospital support. But in fact the survey may be conducted as part of another existing national survey. Moreover, various government agencies may pull their resources to allocate for it. A part of the limited resources that will be used for the survey can not be considered as wasted as the survey will pave way for making drug access efficient through installing a competitive market. Upon correcting the system, competition may now come in and industries will be encouraged to invest in innovation. The pharmaceutical sector may go beyond the traditional activity of trading but will move towards innovation through our abundant natural resources. Kenneth Hartigan-Go is a former BFAD Deputy Director and is currently Executive Director of a foundation. He is an appointed expert member of the Congressional Commission on Science, Technology and Engineering (COMSTE) Health Panel.