Balancing between consumer and producer
Health Minister, Datuk Seri Dr Dzulkefly Ahmad announced Ministry of Health will end Pharmaniaga’s concession to distribute drugs and medical supplies to all MOH institution and facilities, nationwide.
Parallel with PH’s manifesto on last election, Promise 23: Ensuring the government procurement system generates maximum benefit for the people’s money.
Pharmaniaga concession as a sole medical supply distributor in Malaysia was a result of privatization initiative by Tun Dr Mahathir back in 1994. Previously the role of supply chain for medical supply falls under the responsibility of MOH.
Since then, Pharmaniaga was awarded the concession to distribute medical supplies to MOH facilities nationwide, with the main KPI being the delivery period to all facilities, including facilities located in the remotes areas.
Reviewing the concession after so long is essential and may save the government some millions of Ringgit. According to Finance Minister Lim Guang Eng, Pharmaniaga is the concession holder for distribution of approved products purchase list (APPL) drugs which valued at RM1.2 billion in 2018.
Out of that amount, almost 30 percent is in-house products of Pharmaniaga while the rest is outsourced to other firms.
By theory, elimination of monopoly power and open market will lead to a competitive and lower price. Hence, applying open tender system for medical supply distribution, would lead to better services and lower prices.
Quoting former economic adviser of Saudi Arabia, Dr. Umer Chapra from his book ‘Towards a Just Monetary System’: all business practices that lead to the exploitation of the buyer or the seller or to a restriction of fair competition must be effectively prohibited.
Monopoly creates a class of idle market-player as it does not compete except politically in obtaining licenses and concessions. Thus, the profits earned without the element of risk-taking.
Furthermore, monopolistic practices if not managed properly, could possibly lead to oligopoly. Oligopolistic practices should be removed or at least substantially reduced, if not the pharmaceutical industry will be filled with cartels.
Nevertheless, the process of eliminating a monopoly power shall be in gradual process particularly in a sector which sensitive to the Rakyat. With due respect, Pharmaniaga has been in the market for years and highly experienced with the value chain of pharmaceutical and medical products in Malaysia.
On the other hand, Competition Act has been enforced since 2012 in Malaysia where it has clearly stated that any agreement that prevents, restricts or distorts competition is a violation of the Act.
Based on the consumer price index data published by Department of Statistics Malaysia, prices of health products and services do not increase hugely and contribute less to the overall inflationary pressure in Malaysia.
Inflation rates of pharmaceutical and medical products remain at good levels. For instance, average overall inflation rate for 2011-2018 is 2.4 percent while 2.6% for pharmaceutical and 2.2% for medical products.
With proper process and open tender system, the prices of health products and services can be much lower in the future.
The transition process should take some time perhaps few years in order to avoid supply disruption in the market, especially to public hospital and health centers. Supply disruption can lead to other issues such as sudden price hike, medicine quality and other health issues.
Hopefully Pharmaniaga as a big company does not retrench its staffs due to the changes made by MOH. The company is expected to remain stable given that its experiences and long involvement in Malaysia’s health sector.
Let us not forget last year’s motion tabled in the Dewan Rakyat by Klang MP to reallocate RM20bil to the Health Ministry from the PM’s Office and Defence Ministy.
He exposed that reduction in government subsidies in the last few years has resulted in costs being passed onto patients.
Careful steps needed to be considered as to not harm the Rakyat’s health and also financial health, both short and long terms.
Therefore, the government has made a responsible move and agreed to continue Pharmaniaga’s services until the open tender system is ready. This is to ensure the no disruption to supply chain of medical supplies.
Clean process and transparent government procurement are among promises made by the PH government to ensure good governance, better fiscal management and market efficiency
Looking ahead, open tender system can provide opportunities for new medical-related companies especially local SMEs to participate in the business of medical supplies and overall healthcare sector.
The move by the health minister is most welcomed by citizens of Malaysia, and should mark a new Era which transparent and clean government procurement process being conducted.
In the end, it is about the balance between consumer and producer. For the Rakyat, lower charges of medical services and cheaper medicine bills are the priorities.
For the producers, the government has to ensure fair and square market opportunities as to ensure good quality medical services and products available in the market.
There are many challenging issues in the healthcare sector. Malaysia’s public health expenditure to GDP is 2 percent in 2018. The ratio is low when compared to developed economies.
For comparison, Singapore spends 4.9 percent of GDP on health, Australia 9.4 percent, Japan 10.2 percent and South Korea 7.2 percent. Referring to statement made by the Health Minister Datuk Seri Dr Dzulkefly Ahmad in May last year, he targeted to reach 6-7 percent for Malaysia.
Increase in healthcare spending is important. Greater focus is highly required for the sector. Quality of health services, medical supplies to rural areas, research & development, glut of medical doctor graduates are among the key issues that need critical solutions.
Finally, the recent wake-up call from Tanjung Piai should motivate PH government to react faster and efficiently.
The government should focus on three things as guided by the Consumer Price Index data. Out of RM100, Malaysian spends on food & beverages about RM30, utilities & rental RM24 and transport RM15.
Prices of food & beverages can be lower by reducing the super-high food imports bill. Expand domestic production of agricultural products must be the focus which should be supported with proper policy action plans.
Transport prices can be taper down by the government. Fixing retail fuel price is important to ensure low inflationary pressure. The targeted fuel-subsidy scheme may not benefit the sandwiched group, M40.
Plus, the fuel price is based on global crude oil price which is very volatile. Sudden rise in the global price can trigger down to domestic fuel price and can eventually affecting B40 the most as other prices of goods & services increase significantly.
Rental price is difficult to adjust. The best government could do is providing affordable house to low income groups and certain areas. The sandwiched group remains drowning in high living cost.
For PH government to regain confidence, I suggest the government to focus on the two things, prices of food & beverages and transport. These are short term solutions.
For health sector, liberalizing the market and ensuring better quality of medicine and services is the long-term strategy which the government is focusing.