Dear Dr. Arroyo, just what medicine are you prescribing?

Dear Philippine President Gloria Macapagal Arroyo,

With all due respect, I suffered a dose of confusion after reading an article (see below) in Reuters today, “Philippines imposes price control on some medicines” and I thought I would “write” to you to see if you could help me to understand.

MANILA, July 28 (Reuters) – Philippine President Gloria Macapagal Arroyo has imposed price controls on nearly two dozen drug brands after pharmaceutical companies failed to comply with a law lowering costs by 50 percent, officials said on Tuesday.

Arroyo signed an executive order on Monday regulating prices of anti-cancer drugs and blood pressure, cholesterol and anti-viral medication, Robert So, the health department’s national drug programme manager, told reporters.

“The order will take effect on Aug. 15 and we’re asking local governments and the trade department to help us monitor compliance,” So said.

He added popular anti-hypertension drugs, like Norvasc which is produced by the world’s largest drug firm Pfizer Inc (PFE.N), were included in the controlled list.

The pharmaceutical industry said it would abide by the law and guidelines set out in the president’s order, but insisted that imposing price control “is not the best approach” in making drugs available to poor Filipinos.

Drug makers last week voluntarily offered to lower prices by an average of 50 percent for about 80 brands for treatment of hypertension, cancer and diabetes to prevent the government from imposing price controls. [ID:nSP442185]

However, the cost cut for some of the popular medicines were less than the 50 percent mandated by law, prompting Manila to resort to price caps.

“Price control may deliver some short-term benefits but the long-term negative consequences, not only on the pharmaceutical industry but in other industries, must be considered,” Reiner Gloor, an industry spokesman, said in a statement.

“If price adjustments do not result in market expansion, then affected companies will have to study options to remain viable.”

The pharmaceutical industry is estimated to lose about 7-10 billion pesos ($146-$208 million) a year in sales, making it hard for smaller drug firms that produce and market three or four products to survive, Gloor said previously.

Gloor said the government’s health reform agenda should be more wide-ranging than just price cuts because most drugs would still be expensive to the poor even if prices were lowered by 50 percent. Nearly one-third of the Philippine population lives on less than $1 a day, according to latest government statistics.

I was intrigued by this policy decision of your government especially considering your esteemed education and I quote:

President Gloria Macapagal-Arroyo was valedictorian of her high school class at Assumption Convent, was consistently on the Dean’s List in Georgetown University in Washington, D.C., and graduated magna cum laude at Assumption College. She obtained a Master’s degree in Economics from the Ateneo de Manila University and a Doctorate degree in Economics from the University of the Philippines.

Macapagal-Arroyo joined the Philippine government in 1986 during the Administration of President Corazon C. Aquino, who appointed her Undersecretary of Trade and Industry. During her tenure in the Senate, she authored 55 laws on economic and social reform and was named outstanding Senator several times.

At the risk of sounding politically incorrect, or simplistic and naive, I remember this graph from microeconomics 101? The image is a little blurry but it appears so is the economic concept in your justification to impose price controls (making drugs available to poor Filipinos).

If I recall, if we fix the price “p” at below what is considered market equilibrium, suppliers will supply less and consumers will demand more (wish I could draw the line on the graph!). Is it possible that some of the international pharma companies will realize a growing opportunity cost to selling/providing the drug in the Philippines vis a vis “good” paying countries elsewhere? I suppose you could also prohibit the export of any pharmaceuticals in these classes as well for locally produced drugs. But then maybe the pharma companies will decrease production. No matter how you cut it, over the long term I reckon it means less drugs for the poor.

Unless… you had short term considerations in mind. In that case it would appear that policy was implemented for short term political gain. Again, I’m confused especially after reading yesterday in the AP , “Philippine president vows not to seek fresh term” and I enclose a little bit of that article here:

MANILA, Philippines – Philippine President Gloria Macapagal Arroyo, faced with the prospect of civil unrest unless she steps down at the end of her term, has vowed not to try to extend her time in office.

In her final state of the nation address Monday, Arroyo defended her record during her turbulent 8 1/2 years in power and assured lawmakers she would not lift term limits set by the constitution.

“I have never expressed the desire to extend myself beyond my term,” Arroyo said. “At the end of this speech I shall step down from this stage … but not from the presidency. My term does not end until next year.”

And further on…

Riot police on Monday used trucks, barbed wire and shipping containers to block more than 10,000 people who braved the rain to protest outside the House of Representatives, where Arroyo gave her hourlong annual speech. Protest leaders warned Arroyo of public unrest if she clings to power.

“Ms. Arroyo’s political maneuvers … to perpetuate herself in power will surely face the people’s wrath,” said leftist Rep. Rafael Mariano, who boycotted Arroyo’s speech and joined the protesters.

Opposition Rep. Roilo Golez, Arroyo’s former national security adviser, said the president’s promise not to extend her stay in office “may not be as categorical as some people would want it, but it sounded like goodbye.”

U.S. Ambassador Kristie Kenney also said Arroyo’s address “sounded like a final” speech in Congress.

Left-wing activist and lawmaker Satur Ocampo, however, said Arroyo failed to ask her congressional allies to stop efforts to amend the constitution to extend her term. “Such uncertainty will continue to fuel protests,” he said.

Ok. I accept I may be a cynic and may be erroneously putting two and two together but its hard to come to any other conclusions. It would be much appreciated if you (or anyone else) can shed some light on these policy choices.

Tej Deol, M.D.