FITCH SOLUTIONS Macro Research said the government’s plan to impose price controls on a list of widely-used drugs will be positive for the market over the long term but will likely threaten the operations of multinational drugmakers, whose business models are based on expensive medicines under patent protection.

Fitch Solutions said the price controls will likely restrict the growth of the pharmaceutical market over the short term.

“Pressure on pharmaceutical prices will continue to threaten the operations of multinational drugmakers in the Philippines. The introduction of a maximum retail price scheme will exacerbate a tough environment, with price controls being applied at all stages of supply chain,” according to a commentary published by Fitch Solutions, a part of Fitch Group.

However over the longer term, it said the price controls will likely be “positive for the market” given the expected increase in sales due to higher demand and greater competition among suppliers.

“If patients and other payers are attracted to the new lower-priced pharmaceuticals, greater demand should attract more suppliers to the Philippine market, which is often overlooked by firms seeking opportunities in Asia Pacific,” it said.

Fitch Solutions said that the proposed scheme will likely affect large drugmakers in Europe and US the most since the price controls will mainly be implemented on newly-introduced products for the treatment of chronic diseases.

It said the scheme may also affect distributors, pharmacies and private hospitals, citing the Pharmaceutical Healthcare Association of the Philippines’ (PHAP) warnings of the negative impact on retailers. It said it may even push manufacturers to rethink their plans to launch new medicines in the Philippine market.

“It could also lead to pharmaceutical companies withdrawing existing products, which would harm the public,” it said.

It said a policy of generics substitution will “over the longer term, as is common throughout the Asia region, (lead to decelerating) market growth… due to increasing cost-containment and initiatives to improve the cost-efficiency of pharmaceutical spending.”

“An increasing focus on cost-effective expenditure will further promote generic substitution rhetoric. As such, generic medicine sales growth will outperform overall market growth over the long term,” it added.

The government is looking to implement a Maximum Drug Retail Price (MDRP) scheme that aims to impose price controls on widely-used drugs.

In an interview with ABS-CBN aired Monday, President Rodrigo R. Duterte said he will sign a draft executive order covering the MDRP scheme.

The Department of Health (DoH) released in September a proposed list of 120 drugs covered by MDRP, which will lead to “a mean price reduction of 56% from the prevailing market.”

Included in the list are drugs addressing hypertension, diabetes, cardiovascular disease, chronic lung diseases, neonatal diseases and major cancers, as well as diseases that have high treatment costs, including chronic renal disease, psoriasis, and rheumatoid arthritis.

The DoH hopes to lower prices of some medicines through the scheme but a group of pharmaceutical firms said the government can reduce prices by buying in bulk and selling them through state hospitals, instead. — Beatrice M. Laforga

THE government could respond to a Supreme Court ruling increasing local governments’ share of national government revenue by shifting more of its functions to the local level, Finance Secretary Carlos G. Dominguez III said.

Mr. Dominguez said giving local government units (LGUs) more responsibility for tasks currently taken on by the national government was one of the options in response to the so-called Mandanas ruling, which sought to broaden the definition of “national government income” eligible for distribution to LGUs under an allocation called the Internal Revenue Allotment (IRA).

The case, Mandanas vs. Ochoa, takes its name from Hermilando I. Mandanas, a former governor and legislator from Batangas province. Mr. Mandanas in 2012 questioned the basis for determining the IRA pool, noting that local governments were owed about P500 billion in arrears since 1992 due to a more restrictive definition of “national government revenue” which left out revenue earned by the Bureau of Customs.

The Local Government Code entitles LGUs to a share of national government revenue. In July 2018, the Supreme Court ruled that the LGU’s “just share” covered all other forms of national tax, not just internal revenue taxes.

Mr. Dominguez said apart from shifting more functions to LGUs to comply with the ruling, the government is also considering requesting Congress to amend the law, or to declare the ruling “fiscally unsustainable.”

“That will be a very significant chunk of the revenue going to the LGUs,” he said.

“The first option is to comply with decision… however, in order to comply, we will also have to transfer some of the costs that are being incurred by the national government to the local government. You can’t just take the money, you should also take some of the responsibility. So that is being studied right now by the Department of Budget and Management and ourselves (DoF),” he said.

“The second option we have is to request the Congress to change the law and say it should be 30% of what the BIR collects. In that way that will defeat the decision of the Supreme Court.”

“The third option is to declare it fiscally unsustainable, so we won’t have to do it. So this is a legal problem that has become a fiscal problem,” he added.

He said the government has two years to decide before the ruling takes effect. — Beatrice M. Laforga

THE Philippines “gave up its sovereignty” in negotiating the water privatization contracts in 1997 at a time when the government could not improve its water distribution system using its own resources, Finance Secretary Carlos G. Dominguez III said.

“When the contracts were bid out in 1997, the Philippines was paying 700 basis points over the benchmark for its loans, 7% over the loans. Right now, we are paying less than a third of 1% over the loans. Our situation has changed. Apparently in 1997, in order to attract bidders, the government gave up its sovereignty,” Mr. Dominguez said at an event in Makati City Thursday.

He said that the water contracts in 1997, which are being reviewed, led to the “surrender” of the government’s duty to protect the people.

“If you really read the contracts… the government appoints a regulator and that regulator, together (with the water companies), we’re supposed to come up with the rates. If I don’t agree with the regulator, the concessionaire has the option to go to arbitration… in Singapore to decide for us, and the government is prohibited from making any comments. That is a surrender of the government’s obligation to protect its (people).. so we are saying that’s the fundamental problem… That’s what we are looking at the moment,” he said.

Asked on the status of the water agreements with Manila Water Co., Inc. and Maynilad Water Services, Inc., Mr. Dominguez told reporters that “the case is still under discussion.”

Justice Secretary Menardo I. Guevarra has said that consultants from the Asian Development Bank (ADB) will help the government revise the economic and financial terms of the agreements.

Mr. Dominguez said contract reviews are normal.

“We are reviewing it in order to update the contracts to the new reality that we are in now,” he added.

Mr. Guevarra, whose department is leading the review, is waiting on the input of the Finance department, especially on the financial and economic terms.

President Rodrigo R. Duterte said last week that the government will offer new contracts to Maynilad and Manila Water without “onerous” provisions, under threat of nationalization if they do not accept. — Beatrice M. Laforga