Are hospital drugs prices “at the expense of low-income patients”, as ex-NCMP says?

Are hospital drugs prices “at the expense of low-income patients”, as ex-NCMP says?
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Former Non-constituency Member of Parliament (NCMP), Gerald Giam, has questioned Health Minister Gan Kim Yong’s remarks that while drugs prices at public hospitals here do include a “margin”, this is not a “profit margin”.

“The minister finally acknowledges, after questioning by Mr Low Thia Khiang, that public hospitals do indeed make money from selling drugs to patients,” Mr Giam said on his Facebook page.

He asked: “While Singaporeans may have grown to accept that cost recovery is necessary for sustainability, are we prepared to let hospitals “make a margin” at the expense of low income patients?”

Mr Giam’s question echoes the perception among some members of the public that drug prices in public hospitals are costlier than other countries, and may not be subsidised as much as the government claims.

But let’s backtrack to what exactly the Health Minister had said in Parliament on Thursday.

Since the official record of the parliamentary exchange between Mr Gan and Mr Low is not yet available, we can only depend on what has been reported in the media or the press.

Mr Low had said, according to the Straits Times, that “some people still find medication expensive.” Mr Low also asked for the profit margins of drugs sold in public hospitals, and questioned if measures to lower the prices of medication have been effective.

“Based on feedback from residents, some Singaporeans still find the cost of medicine high,” Mr Low said. “I believe this is partly due to doctors prescribing drugs for a long duration, or prescribing non-standard drugs.”

The Straits Times reported Mr Gan as having responded thus (emphasis added):

“Our public healthcare institutions are not-for-profit organisations. While the drug prices include a margin, this is to offset overheads and operations costs… They are not profit margins.

“In fact, last year, we provided a total of $4.3 billion of funding to our public healthcare institutions to support their operations, to keep our healthcare costs low.”

Is Mr Gan correct in saying the hospitals do not make “profit margins” from the sale of drugs to patients, even though the prices of drugs do “include a margin”?

First, we have to understand that public hospitals in Singapore operate on a cost-recovery basis.

This was confirmed by a Ministry of Health (MOH) spokesman to the press in 2012, when hospitals upped their fees at the time.

“A spokesman for the Ministry of Health (MOH) pointed out that our public hospitals and the national specialist medical centres operate on a cost recovery model,” The New Paper said.

Further, public hospitals are “non-profit operating” entities, as Prime Minister Lee Hsien Loong explained in a speech in 2015.

So, on this point, Mr Giam is correct. But is he right to say this means that “public hospitals do indeed make money from selling drugs to patients”?

The term “make money” clearly refers to profits or “financial gain”. That is, money in the bank for the company or organisation. A net gain. And this “profit” or “money in the bank” can be used for anything the entity decides to use it for.

What Mr Gan probably referred to was “net gain” and not “gross gain” or “gross profit”.

And if this is so, Mr Gan would be right, insofar as saying that public hospitals here do not make net profit from the drugs they sell to patients, since they are supposed to be, in PM Lee’s words, “non-profit operating” entities.

The “profit” from the “margin” they make is channelled back to pay for “overheads and operation costs” – that is, cost-recovery.

The hospitals do not make a net financial gain which they can then lock away in the bank.

Having said that, however, the gist of what Mr Low was concerned about is the price of drugs, or medication, and this has been a constant or perennial issue with the public, given that healthcare costs are always on the rise.

The topic has also been raised in Parliament consistently by both PAP and opposition MPs.

For example, in 2014, MP for West Coast GRC, Foo Mee Har, asked the Health Minister whether the same medicines sold in our public hospitals are significantly more expensive than those in neighbouring countries such as Malaysia and Thailand; and if so, how can the price differential be narrowed to make medicines more affordable to Singaporeans.

In 2015, Workers’ Party MP, Pritam Singh, called on the Ministry to make the prices of various drugs public “for greater transparency in the healthcare sector.”

The Minister’s reply to these questions was that prices of goods differ between those in Singapore and other countries, such as Thailand and Malaysia, because of differences in costs, such as “distribution costs, exchange rates, purchasing power of the country and pricing strategy of suppliers.”

“These similarly apply to medicines, and are factored into the pharmaceutical firms’ pricing of medicines,” the Minister said.

“For the above reasons, the retail prices of medicines in Singapore are generally higher than in some of our neighbouring countries.”

Mr Gan also explained in 2015 that the government takes a multi-pronged approach to keeping prices low.

He told Parliament:

“First, our public hospitals procure the majority of their drugs in bulk to enjoy economies of scale. The savings are reflected in the pricing of the medicines in the public hospital pharmacies and passed on to patients.

“Second, subsidised patients enjoy heavy Government subsidies off the prices of drugs listed under the Standard Drug List (SDL) and the Medication Assistance Fund (MAF). These are drugs that have been assessed to be clinically- and cost-effective.

“Since 1 January 2015, subsidies for SDL drugs at the Specialist Outpatient Clinics and Polyclinics have been enhanced to 75% for lower- to middle-income patients. On top of the enhanced subsidies, Pioneers can enjoy an additional 50%-off for their subsidised drugs. This move has significantly lowered the cost of subsidised drugs in the public healthcare institutions, and widened the gap with prices in private retail pharmacies.”

In 2016, Mr Gan told the House that the government had to “be mindful of the long-term implications on sustainability” of the healthcare system.

“Our healthcare budget has more than doubled from $4.7 billion in FY12 to $11 billion this year,” he said. “This has come about partly because of ageing, and the need to invest in infrastructure, but also because of Government’s policy shift to take on a greater proportion of healthcare costs.”

So, do the prices of drugs in our public hospitals come at the expense of low-income patients?

You be the judge.

But perhaps it is time for the ministry to adopt Mr Singh’s suggestion and publish the cost and selling prices of drugs in our public hospitals, so that the matter can be laid to rest once and for all.