By Cielito Habito
Inquirer - August 13, 2007

I HAVE always defined good policies as those that promote the greatest good for the greatest number. And I keep lamenting that too many of our most critical economic policies do exactly the reverse: they promote the interests of a few at the expense of the wide majority of Filipinos.

Little wonder, then, that the richest 20 percent (one-fifth) of Filipinos receive aggregate incomes 12 times that of the poorest 20 percent (contrast that with Sri Lanka, where the same ratio is only about 4 to 1, or Japan where it is about 3 to 1).

And the reason this comes about, even in a supposedly democratic society such as ours, is the Golden Rule. Not the one we learned as little children, of course, but the one that says: Those who hold the gold make the rules.

Glaring differentials
It is this same golden rule that plays out in the way medicines are priced in this country, an injustice that has plagued us Filipinos for far too long. We pay up to 45 times what people in other countries are paying for exactly the same drugs, manufactured by exactly the same multinational pharmaceutical companies. There are hard data on this compiled by Philippine International Trading Corp. (PITC), showing such glaring price differentials for drugs needed for anything from the common cold to hypertension.

Why must the parents of an asthmatic child in the Philippines pay twice as much as what Thais need to pay for the very same inhaler by the same company? Or a Filipino heart patient pay about 45 times what a Pakistani pays for the same maintenance drug? Is it any surprise that the state of public health in the Philippines is significantly worse than other countries of similar income level?

Contestability
The 1988 Generics Law sought to correct this injustice by giving Filipinos much cheaper unbranded alternatives for expensive drugs. But because that law had been substantially watered down by the time it passed Congress, and does not help with drugs that are patented, it has done little to change the situation even after almost 20 years in force.

The cheaper medicines bill that Sen. Mar Roxas has been pushing since the 13th Congress, against a formidable lobby by the big drug companies, would bring the battle forward by providing contestability (translation: more competition) in the drugs market. Put simply, the bill proposes to (1) permit importation of patented drugs from another country where the same patent holders are selling them more cheaply; (2) make it possible for generic drug manufacturers to come into the market for patented drugs immediately upon expiry of the patents; (3) prevent patent owners from extending their patents on the basis of "new use" for existing substances, and (4) give the government discretion to set aside patent restrictions when public health is at stake

Eliminating competition
The principle behind the bill is rooted in a basic law in economics: more competition is better than less, or none at all. On the other hand, the patent system is meant, quite simply, to eliminate all competition for a certain product. That is, it gives the patent holder monopoly rights for a fixed time period, normally 20 years. The rationale is to permit inventors to recover their often substantial investments in the innovation, via the monopoly profits to be made from exclusive sale of the product. The theory is that this "reward" to innovation and invention will ensure that continuing investments will be made in developing new useful products for humanity.

The problem is that it is next to impossible to determine how much of such reward, via time-bound monopoly profits, is just enough to keep the flow of inventions coming. Experience indicates that rewards actually enjoyed have been more, probably much more, than adequate. And in the case of big drug companies, unnecessarily huge profits via unfair pricing practices may have been made, literally at the expense of large numbers of human lives.

Markets work
Would creating a drug price control body, as other legislators would like to do, be a good idea? Some countries have actually resorted to this, with unclear results. Given the current state of governance in this country, especially its proneness to so-called "regulatory capture" (aka the Golden Rule), I see more risk than benefit in a mechanism that would "repeal" the basic law of supply and demand, and put critical pricing decisions in the hands of a supposedly omnipotent body composed of a few individuals. All we need, in fact, is to permit more competition, as the Roxas bill would do.

Our country's positive experience in providing more competition in markets where there previously was none speaks for itself. Most prominent examples have been in telecommunications and domestic airline services. Deliberate moves to open these industries to competition in the 1990s unleashed dynamic growth, lowered prices and improved quality, all to the benefit of consumers and thus, the wider population. We now have the opportunity to do the same for the drug industry, promising even far greater benefits to the multitude of Filipinos. It's about time we finally took it.