Editor’s note: The first part reported that the Botika ng Barangay was not as widespread as President Gloria Arroyo recently said. The village drugstore, which is a source of affordable medicines, has yet to expand to the poorest provinces in the Philippines.
One of the most common drugs sold over the counter is the headache and fever tablet paracetamol, which costs P2.74 in commercial outlets. At the government-run Botika ng Barangay (BnB), paracetamol costs just a fifth of that at only 50 centavos.
Other drugs are as affordable to impoverished Filipinos at the Botika ng Barangay—the anti-diarrhea loperamide for P1.05 against P4.10 in private drugstores, and the anti-diabetes glibenclamide at 78 centavos against P8.90.
But even though medicines are cheaper at Botika outlets, these community drugstores have failed to gain a foothold in the drug market. The village drugstores number 12,000 against the 700 or so Mercury Drug outlets, but their market share is only 5 percent as against Mercury’s 60 percent. Unable to make a dent, health experts doubt whether the Botika ng Barangay program can pull down drug prices to half of 2001 levels, as it aims at by next year.
One problem is that the industry is still very much dominated by big pharmaceutical companies that dictate drug prices and promote branded medicines. Another problem is that Botika ng Barangay stores are inefficiently run enterprises that are no more than medical sari-sari stores, where procurements are irregular, unsystematic and even overpriced.
As cheap as they are, drugs sold by the Botika ng Barangay could cost even less. The government is in fact buying drugs at prices two times higher than the international price index set by the World Health Organization (WHO), as suppliers, middlemen and government agencies make layers of profit on these procurements.
President Gloria Arroyo launched the Botika ng Barangay program shortly after assuming the presidency in 2001, her own version of the community-based drugstore that started out as Botika sa Barangay during the Marcos years. The program aims to improve access to medicines and promote the use of generic drugs as cheaper alternatives to expensive branded medicines.
The main buyer and supplier of drugs for the Department of Health and the Botika ng Barangay is the Philippine International Trading Company Pharma Inc. (PPI). It is a government corporation that President Arroyo created to procure drugs locally or abroad to enable the Botika ng Barangay program to sell “half-priced medicine.”
PPI supplies the Health department with 21 essential drugs, among them paracetamol for aches and loperamide for diarrhea. But this investigation shows that 16 of these drugs can be cheaply bought from 11 other wholesale drug distributors at 9 percent to 48 percent less.
The Botika ng Barangay program has been weighed down by violations of procurement laws and bureaucratic inefficiencies, according to interviews with a dozen sources and reports from the Commission on Audit and the National Statistics Office, as well as Health department administrative orders and academic studies.
The Department of Health procurement plan and the Audit commission report for 2007 show that based on the prices of six drugs, PPI markups anywhere from 20 percent to as much as 107 percent.
The price of a 5-milligram glibenclamide tablet more than doubled from 29 to 60 centavos in the Health department price list set by the PPI. The 2007 Health department price list showed that the price of a 500-milligram paracetamol tablet was 39 centavos. The PPI originally pegged its price at 29 centavos, with a 58-percent profit margin going to the state company. Yet when the League of Municipalities bought a dozen types of branded medicines from PPI, the markup was only 15 percent, the COA noted.
The final price that consumers pay for their purchases in Botika ng Barangay outlets includes the allowable 30-percent markup of Botika operators, markups from the PPI itself ranging from 20 percent to 107 percent, and markups from local suppliers with whom the state company is doing business and manufacturers from whom the distributors get their products. In all, the markups jack up the original price of generic drugs by a low as 50 percent to as high as 150 percent.
PPI is a self-sustaining state company surviving on sales and not on government subsidies, said Joe Cortez, its vice president for sales and marketing. It has been borrowing money to finance procurement programs and is in fact in the red.
The Health department’s Administrative Order 144 issued in 2004 allows Botika ng Barangay operators to purchase from department-accredited suppliers or directly from the PPI when it is more advantageous. Cortez admitted, however, that some drugs might be priced higher than others because of “cross subsidy.” PPI loses when it sells certain drugs at prices that the Health department sets below market standard but recovers losses through higher markups on other drugs. Cortez said the Health department sets the price range when it prepares its bidding plan for the drugs it procures.
“There was a time when we bought amoxicillin at P2.05, [but] sold it to the DOH at only P1.70 just to complete the whole package of the 19 products. You will have to look at the total package because the 20-[percent] to 25-percent markup is an average of the whole package,” he added.
The standard markup, Cortez said, includes 7 percent for warehousing, 5 percent for VAT and 18 percent for operating costs. “Well, there is a 6.5-percent distribution fee, but we’re not putting all those costs because we are sort of doing a cross subsidy.”
Cortez acknowledged that the PPI prices may be higher than those of 11 drug suppliers interviewed for this report. “I will not deny [about the costly PPI drugs] for the reason that it is true. We are not entertaining companies without CGMP [current good manufacturing practice certification from the Bureau of Food and Drugs],” he said.
Cortez added: “I don’t want to say that [other suppliers’ products] are substandard. At least in [our products], the consumers are assured of quality. Not all drugs are [with] CGMP.”
According to 2008 records, drug procurement from the PPI amounting to about P80 million was subject to a 10-percent VAT, further raising drug prices.
Besides the tax imposed on the drug purchases from the PPI, the Health department also paid 10 percent VAT for the drugs it bought from the Philippine Institute of Traditional and Alternative Health Care (PITAHC), an attached agency that manufactures herbal drugs, lagundi and sambong that are also sold in Botika ng Barangay outlets.
Lapses in procurement
Health Undersecretary Alexander Padilla said the Health department allows “different” kinds of procurement. He clarified, however, that local government units, and not the department’s regional offices, are designated to hold public bidding for stock re-orders.
Administrative Order 144 requires department’s regional centers for health development to conduct a centralized bidding twice a year to accredit competent suppliers who offer the best quality of drugs for Botika ng Barangay operators at the lowest possible price. The order does not prescribe sanctions in case of violations.
With the regional center’s go-signal, operators can negotiate directly with their chosen suppliers, in violation of Republic Act 9184, or the Government Procurement Reform Act, which stresses competitive bidding as the mode of procurement. Even then, Botika ng Barangay operators cannot influence price setting because they buy in limited quantities, defeating the purpose of pulling down the prices of drugs at a most affordable level.
Procurement by outlets
One operator in Quezon City confirmed that the Health department’s regional office lets operators in Metro Manila purchase stocks on their own. When capital is finally revolving, operators rely heavily on private suppliers for re-orders as long as the outlet exists.
Julio Garcia, coordinator of the Botika ng Barangay program in Metro Manila, reasoned that conducting biddings entails too much work from the regional offices—preparations of bidding rules and documents, publication of bidding to the awarding, all of which need financial and human resources.
Garcia also disclosed that some officials of Health department’s regional offices banded together at one convention of department representatives in 2007 and acted as a sort of middlemen in procuring suppliers for Botika ng Barangay operators, saying their regions have few suppliers. Transactions such as these, he said, are prone to corruption and abuse
The COA castigated the department’s regional offices for failing to establish a revolving fund for stock replenishment authorized under the general appropriations law. In the Cordillera Administrative Region and Northern Mindanao, state auditors discovered that operators obtained stock from non-accredited suppliers, provincial health teams and “ambulant vendors,” including motorcycle-riding retailers.
Meanwhile, an analysis of the Health department’s price list and WHO price reference shows that department’s drug purchases are on the average two times higher than the international price index, an indication of the government’s inefficiency in drug procurement.
Cortez said PPI imports only branded, not generic, medicines from India. Generic drugs are procured locally and sold to the Department of Health and other government units with some profit margin.
A check with the Medclik drug price reference in India, however, reveals that prices of nine of the 12 drugs available for comparison can be bought 30 percent to 391 percent cheaper than the Health department-procured drugs.
Problems have dogged the Botika ng Barangay program from the very beginning. A World Bank study, for example, found the P20-million budget for drugs in 2002 “too big” for the 300 botika outlets established at the time. The bank said the government was wasting money in an outlet with an absorptive capacity of only P5,000.
According to informants for the study, the P25,000 capital the Health department invests in each Botika ng Barangay outlet is not enough to sustain the outlet.
“Wala ‘yon. Masyadong maliit [It’s nothing. It’s too small],” said one supplier, adding that the P25,000 can only purchase 100 boxes of amoxicillin. This results in incomplete lists of drugs. The supplier said that around P200,000 to P300,000 capital is needed to start a small drugstore business like the Botika ng Barangay.
Delayed procurement and stock shortages also threaten the financial viability of the program.
Around 200 Botika ng Barangay outlets have closed since the program started in 2001 because of flawed management and bankruptcy. This translates to at least P5 million losses in capital seed.
Despite the problems, Padilla is confident that the Botika ng Barangay program has attained its goal of reducing drug prices through aggressive competition. Based on the price comparison made by the Health department, drug prices were supposedly reduced by as high as 95 percent, even exceeding the goal since the program was introduced.
Indeed, former health secretaries and experts believe that reduction in prices is in sight. But they also said that as long as big pharmaceutical companies remain dominant and dictate prices and in the process monopolize the market, the government’s efforts to regulate prices of essential, life-saving drugs through the Botika ng Barangay and other programs would be dwarfed.
Former Health Secretary Jaime Galvez Tan said government must address the imbalance. The problem is, he said, “wala lang talagang guts eh, walang political will [It has not guts, no political will].”
Second editor’s note: The authors are senior journalism students of the University of the Philippines. This two-part report is an abridged version of their thesis, which was done under the supervision of UP journalism professor and VERA Files trustee Yvonne Chua. –Jan Marcel Ragaza And Alliage Morales, Vera Files, Manila Times