Price controls on drugs are not a good idea

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By Amir Ullah Khan

THE Philippine’s government is grappling with the problem of making healthcare affordable and accessible.

Health Secretary Francisco Duque recently announced that the Department of Health intends to move forward with a new round of Maximum Drug Retail Price (MDRP) cuts, which limit the final price of medicines. The cuts will likely be implemented from July this year.

Drug price controls aim to improve healthcare outcomes for Filipinos by reducing costs and lowering out of pocket expenditure.

Drug price controls are not new to the Philippines, with two rounds of price caps being mandated in 2009 and 2007. Yet there are still many unanswered questions.

What is the impact on patients if drug manufacturers cannot make profits and stop serving the Philippine market? Have other healthcare costs gone up to compensate for any lost profits? And what will be the impact on longer-term investment and innovation in the Philippine’s medicines industry?

If Mr. Duque doesn’t set the price of medicines at exactly the right levels to prevent all this, the cure could well be worse than the disease.

His policy approach should take into account the ample evidence from India, another middle-income country struggling with health costs. Like the Philippines, a large portion of India’s population is outside the government health system and forced to pay for healthcare directly from their own pocket.

Since the 1990s, India has deployed price controls for drugs on its list of essential medicines, expanded in 2013 and 2015. In February 2019, cancer medicines were included in a bid to reduce prices in this costly area by 85%. The controls target margins made by different players in the supply chain — manufacturer, wholesaler, hospitals, and so on.

There is now enough data to make interesting conclusions. A 2018 study by the Center for Global Development found that while price controls do mean falling prices among directly impact medicines and near competitors, total sales volumes have been reduced meaning less medicines are consumed overall.

Hardest hit are the small local generics manufacturers, suffering a 14.5% decrease in market share and a 5.3% decrease in sales. These low-cost manufacturers typically sell to the rural poor whom price controls are supposed to help.

Normally, price controls compel manufacturers to increase supply to compensate for lost revenues. But India’s poor rural infrastructure, such as poor roads and a lack of pharmacies and reliable electricity, makes supplying rural markets expensive.

Rather than lose money selling their products, manufacturers pulled medicines from rural areas or went bust — a dire outcome for people who already suffer the lowest rates of medicines access.

So much for the essential generic medicines that have been around for years. What about more expensive innovative drugs? India is pressing ahead with price controls of cancer drugs, but at what cost?

There are hints about the future from India’s controls on the price of coronary stents, which have seen two major innovative manufacturers (AbbVie and Medtronic) pulling several of their products from the Indian market.

Meanwhile, the number of angioplasties performed per month has declined and the out-of-pocket expenses paid by angioplasty patients have increased as hospitals try to recoup their mark-ups elsewhere.

In a nutshell, this is the problem with India’s price controls. To recoup margins lost on controlled medicines, hospitals and pharmacies have put up charges in other areas; patients pay the same overall.

The Indian government is now considering price caps on beds, which will only reduce the already low number available. What’s next? Wage controls for doctors? That would hollow out the Indian medical profession.

In trying to target medicines and medical devices, the government is playing an absurd game of whack-a-mole, trying to control prices that pop up after being squeezed elsewhere. And despite Indian drug prices being among the lowest in the world, out-of-pocket expenditure of Indian patients on healthcare remains at 61% of total expenditures.

Indians are not benefiting from new drugs, either. Research by IMS Health shows price-control measures have seen a 75% decline in new drug launches since 2011. The future availability of generic medicines will suffer as a result. Such policy measures have also contributed to very low levels of private sector investment in R&D — 0.3% of GDP in India compared to over 2% in China.

Politicians have tried to use price controls to limit the rising cost of goods for millennia, from the Babylonian emperor Hammurabi and the Egyptian Pharaohs, through to the Soviet Union and Maduro’s Venezuela. All have failed.

The Philippines has its own circumstances and the government understands that the balance between healthcare affordability and access is delicate and is the product of many factors. But India’s experience with price controls shows that in healthcare, there are no quick fixes.


Amir Ullah Khan is Professor at the MCR HRDI Institute, Government of Telangana, India.