The Wall Street Journal's view of the Cheaper Medicines Act

Source: The Wall Street Journal

http://online.wsj.com/article/SB10001424052748704541004575012210915754250.html

    * OPINION ASIA     * JANUARY 20, 2010, 12:32 P.M. ET

MANILA'S DOSE OF ECONOMIC POPULISM

Price controls on drugs and other bad election-season ideas.

The Philippines' Congress has been agitating for a second round of price controls on drugs, which would follow close on the heels on an initial round of price controls that just went into effect in August. Here we go again.

The department of health issued a letter on January 6 with a "request" for drug companies to submit lists of drugs whose prices they would be willing to cut by 50%. The last time they issued such a "request," the result was a mandatory price cut of 50% for five branded drugs, and "voluntary" cuts for a further 16 drugs. Undersecretary of Health Alexandra Padilla has said that this second round could include even more drugs than the first round.

These controls are legal under the 2008 "Cheaper Medicines Act," but that doesn't make them good policy. The Department of Health writes in its January 6 letter that its request for price cuts is part of efforts "to improve access to essential medicines especially for the poor." But it has not presented any evidence that proves the current price controls have improved access for the poor. (The Department of Health did not return multiple telephone calls requesting comment.)

Health impact aside, what is certain is that price controls send a strong signal to all pharmaceutical companies about the desirability of doing business in the Philippines. The first round of price cuts dug into drug profits—not only for the makers of the 21 drugs affected, but also for generics manufacturers, who had to lower their prices to stay competitive. Hospitals and pharmacies saw profit margins wither as well—hardly encouraging for anyone who's thinking of investing in the health-care industry.

Unfortunately drugs are not the only sector suffering from the government's populist enthusiasm. Price limits were put in place for oil in October following two devastating typhoons, and lifted only once it became clear that the controls were drying up supply. Earlier this month the government also threatened to impose price controls on cement.

Congressmen may be hoping to score populist points with voters come May, but these moves fly in the face of the policies that have made the Philippines prosper over the last several decades. The last time price controls were widely used was during the reign of Ferdinand Marcos, who was overthrown in 1986. Many voters are old enough to remember how that turned out—with shortages of rice and unemployment at times near 25%.

Pharmaceutical sales are a $2.5 billion-a-year industry in the Philippines, and arbitrarily punishing drug companies only sets a bad precedent for other industries. If Congressmen really wanted to improve health care, they could cut taxes on medicines (currently at 12%), allocate resources toward keeping fake drugs out of the market, or develop the fledgling insurance industry. Populist shenanigans only risk making things worse.