Public

Car e D e li v e ry
An Unhealthy Public-Private
Tension: Pharmacy Ownership,
Prescribing, And Spending In
The Philippines
Physicians who are linked to pharmacies do not prescribe more-costly
medicines, but they do persuade patients to use those pharmacies.
by Chris D. James, John Peabody, Orville Solon, Stella Quimbo, and Kara
Hanson
ABSTRACT: Physicians’ links with pharmacies may create perverse financial incentives to
overprescribe, prescribe products with higher profit margins, and direct patients to their
pharmacy. Interviews with pharmacy customers in the Philippines show that those who use
pharmacies linked to public-sector physicians had 5.4 greater odds of having a prescription
from such physicians and spent 49.3 percent more than customers using other pharma-
cies. For customers purchasing brand-name medicines, switching to generics would reduce
drug spending by 58 percent. Controlling out-of-pocket spending on drugs requires policies
to control financial links between doctors and pharmacies, as well as tighter regulation of
nongeneric prescribing. [Health Affairs 28, no. 4 (2009): 1022–1033; 10.1377/hlthaff.28.
4.1022]
P
u b l i c - s e c to r d o c to r s i n l o w- a n d m i d d l e - i n c o m e countries are
often poorly paid.1 Consequently, many undertake additional work or invest
in the private sector; some even leave the public sector altogether. One com-
mon strategy is for doctors to have financial links to pharmacies, diagnostic clin-
ics, and other private health facilities.2 Such linkages potentially create a perverse
financial incentive for physicians to overprescribe, prescribe products with higher
profit margins, and convince patients to use their pharmacy.
A doctor’s incentive to obtain a share in a private pharmacy, and the perverse in-
centives that can emerge from this, are more marked when patients pay directly
Chris James (chrisdjames@fastem.com) is a Ph.D. student, Department of Public Health and Policy, at the London
School of Hygiene and Tropical Medicine in the United Kingdom. John Peabody is an associate professor of
epidemiology and biostatistics and medicine at the University of California, San Francisco. Orville Solon and
Stella Quimbo are associate professors in the School of Economics, University of the Philippines, in Quezon City.
Kara Hanson is a senior lecturer at the London School of Hygiene and Tropical Medicine.
1022 J u l y /A u g u s t 2 0 0 9
DOI 10.1377/hlthaff.28.4.1022 ©2009 Project HOPE–The People-to-People Health Foundation, Inc.
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P h a r m ac y O w n e r s h i p
for drugs themselves or when drugs are retrospectively reimbursed by insurers on

a fee-for-service basis (as compared with prospective drug payment). In such cir-
cumstances, financial gain is directly linked to prescribing strategies.
Whether or not doctors actually act on these incentives depends on the relative
weight they place on personal financial gain and a patient’s well-being, assuming
that these two objectives are not aligned. That is, their clinical behavior depends
on how “perfect” an agent the doctor is for the patient.3
To evaluate whether public-sector doctors are affected by these personal finan-
cial incentives, we interviewed pharmacy customers in the Philippines after they
had purchased medicines from a pharmacy. Customers were asked whether they
had a prescription and, if so, from whom and how much they spent. Data on the
price and availability of selected essential medicines were also collected from
pharmacies and public district hospitals. Accordingly, this paper addresses three
related research questions: (1) Do physicians having financial links with a private
pharmacy influence patients to purchase medicines from their pharmacy? (2) Do
patients with prescriptions from pharmacy-linked physicians spend more in
pharmacies than patients with prescriptions from other physicians? (3) Would
patients with prescriptions from a pharmacy-linked public-sector physician
spend less on medicines if generics were fully available within public district hos-
pitals?
Although our study refers only to the Philippines, the problem of physicians’
linkage with pharmacies is potentially important in many low- and middle-
income countries, particularly where public-sector salaries are low and regulation
is lax.
Study Data And Methods

n Study context. A network of public-sector health facilities offers integrated
health care services in the Philippines. There are also many private providers, partic-
ularly in the larger urban areas. Public facilities are predominantly financed by local
government units (LGUs). However, this is not sufficient to cover their operating
costs, so shortfalls are financed through contributions from the Philippine Health
Insurance Corporation (PHIC) and user charges. The PHIC, the publicly sponsored
national health insurance company, does not yet provide universal coverage. Benefits
are capped and limited mainly to inpatient care, so copayments for the insured can
be high, particularly for those with protracted or serious illnesses.
The pharmaceutical retail market in the Philippines is dominated by commer-
cial pharmacies, which account for 85 percent of drugs sold.4 Patients can also
purchase medicines in hospital pharmacies, but availability is limited, particularly
in government hospitals. Patients with PHIC membership, however, can later
claim reimbursement for prescribed medicines purchased in pharmacies up to a
prespecified ceiling if the medications and supplies were not available in public
hospitals.
H E A L T H A F F A I R S ~ Vo l u m e 2 8 , N u m b e r 4 1023

Car e D e li v e ry
Our study was connected to the Philippine Child Health Experiment, known
locally as QIDS.5 QIDS is an ongoing study exploring the impact of two policy in-
terventions: expanded insurance coverage for children; and performance-based
payments for hospitals and physicians. It was undertaken in thirty randomly se-
lected districts in the Visayan Island group and the northern tip of Mindanao.
QIDS provided us with detailed information on these districts’ hospital facilities,
including the physicians working there; and anecdotal information on public phy-
sicians’ potential linkages with private pharmacies.
n Pharmacy sample frame. Seven districts were purposively selected from
among the thirty QIDS study districts. Selection was based on there being at least
one pharmacy linked to a public hospital physician; all intervention arms of the
QIDS study were represented.
The inclusion criteria for pharmacies in these seven districts were as follows:
(1) pharmacies must be owned by or have direct familial links (parent, sibling, or
offspring) to a public hospital physician; (2) pharmacies must be owned by or
have direct familial links to a private clinic physician; or (3) pharmacies must be
located next to a hospital (on the same street and within two minutes’ walk). We
also included controls of two or more randomly selected independent pharmacies
per site, with ideally at least one of these next to the hospital and at least one far-
ther away (that is, five to thirty minutes’ walk away). An independent pharmacy is de-
fined as a pharmacy that is neither owned by nor has direct familial links with a
public or private physician.
Screening interviews were administered with the pharmacy owner or chief
pharmacist, or both, establishing who owned each pharmacy. Interviews were un-
dertaken for all pharmacies within each district’s main commercial center. Of the
forty-six screened pharmacies, all but seven were eligible for our study. Of those
seven, three refused to be interviewed (all independently owned), and four were
closed throughout the study period (two independently owned; two with familial
links to public hospital physicians).
n Collection of patient data. Data collection took place during March–May
2007. We interviewed patient respondents immediately after they had purchased
medicines from one of the study’s pharmacies. Respondents were asked if they re-
ceived a prescription and, if so, from whom and what they bought; they were also
asked about their socioeconomic status and the illness for which the medicines
were purchased. Some 40–60 percent of customers purchasing medications were in-
terviewed per pharmacy, with a minimum time frame of one day per pharmacy. In-
terviewing was sequential and done by local research assistants trained by the lead
author. Interviews were administered in the local dialect, encompassed fourteen
questions, and took about ten minutes to complete. All interviewees were adults, al-
though approximately a quarter of them were purchasing medicines for children.
n Model specification. Three models were specified, each addressing one of the
paper’s three research questions. These are summarized below, with further details
1024 J u l y /A u g u s t 2 0 0 9

given in an online technical appendix.6 (1) Do physicians who own or have financial
links with a private pharmacy influence patients to purchase medicines from their
pharmacy? The approach was to model the probability that a patient (the pharmacy
customer or the person for whom the customer was buying the medicines) received
a prescription from a public hospital physician. This used a logistic model, with the
main variable of interest indicating whether a pharmacy is linked to a physician.
Various control variables at both the pharmacy and pharmacy customer levels were
included. Reasons given for why a customer chose to use a physician-linked phar-
macy were also analyzed.
(2) Do patients with prescriptions from pharmacy-linked physicians spend
more in pharmacies than patients with prescriptions from other physicians? This
analyzed pharmacy spending, using a semi-logarithmic ordinary-least-squares
(OLS) specification. It focused on the subsample of customers with prescriptions
from a public hospital, comparing the spending of customers with a prescription
from a pharmacy-linked public physician to the spending of those with a prescrip-
tion from other public-sector physicians. The data collected did not distinguish
between patients with prescriptions for inpatient or outpatient use.
(3) Would patients with prescriptions from a pharmacy-linked public physi-
cian spend less on medicines if generic versions were fully available in public dis-
trict hospitals? This involved analyzing the subsample of people with a prescrip-
tion from a pharmacy-linked public hospital physician. These people’s observed
drug spending in pharmacies was compared with what they could have spent on
the same medicines if generic versions were fully available in public district hospi-
tals. Quantities of medicines purchased in a hospital were assumed to be the same
as observed quantities purchased in pharmacies.
Study Results
n Descriptive statistics. Of the thirty-nine pharmacies, six were owned by
public physicians, three were owned by private physicians, and thirty were inde-
pendently owned. Eleven pharmacies were located on the same street as the hospi-
tal; the remaining twenty-eight were five to fifteen minutes’ walk away.
Just under half of the sample had a prescription (compared with over-the-
counter, or OTC, purchases). Further, 32 percent had a prescription from a public
hospital physician—17 percent from a pharmacy-linked public physician and 15
percent from other public physicians. More than 60 percent of the sample re-
ported household incomes that were in the bottom quintile of the national income
distribution (Exhibit 1).7 Asset ownership was positively associated with re-
ported household income.
n Probability of receiving a prescription from public hospital physicians.
Pharmacy customers using a pharmacy linked with a public-sector physician were
5.4 times more likely to receive a prescription from such a physician than were cus-
tomers using pharmacies not owned by such a physician (Exhibit 2). Further, those

Car e D e li v e ry
EXHIBIT 1
Characteristics Of Pharmacy Customers In The Philippines, 2007
Variable Number Percent

Type of purchase
Over-the-counter 697 53
Rx from pharmacy-linked public physician 204 15
Rx from other public physician 221 17
Rx from pharmacy-linked private physician 77 6
All other (non-hospital-based) prescriptions 123 9
Socioeconomic/demographic characteristics
Household assets
Radio 1,093 83
TV 930 70
Refrigerator 594 45
Washing machine 244 18
Air conditioning 57 4
Sala (living room) set 321 24
Cell phone 735 56
Car 110 8
Annual household income (Philippine pesos) a
<10,000 317 24
10,001–25,000 307 23
25,001–50,000 228 17
50,001–75,000 157 12
75,001–100,000 93 7
100,001–150,000 99 7
150,001–200,000 50 4
200,001–600,000 67 5
>600,000 4 0
Health insurance status of patient
PHIC member and will claim 132 10
PHIC member but won’t claim 393 30
Not PHIC member 797 60
Age of patient (years)
≤5 204 15
6–17 146 11
18–39 357 27
40–59 364 28
60+ 251 19
Sex of patient
Female 730 55
Male 592 45
SOURCE: Authors’ analysis of survey data.

NOTE: PHIC is Philippine Health Insurance Corporation.
a
At the time of the customer survey, March–May 2007, Philippine pesos traded at an average of 47.6 to the U.S. dollar.
using pharmacies located in the immediate vicinity of the town’s public hospital,
rather than other pharmacies, had 6.2 higher odds of having their prescription come
from a public-sector physician. Customers with PHIC insurance and planning to
submit a claim for their purchase had 1.8 greater odds of having a prescription from a
public-sector physician. There was also noticeable variability in results across dis-
tricts.
n Customers’ reasons for using a particular pharmacy. To better understand
physicians’ ability to influence a patient’s drug-purchasing behavior, we analyzed
1026 J u l y /A u g u s t 2 0 0 9

EXHIBIT 2
Odds Of A Patient’s Receiving A Prescription From A Public Hospital Physician In The
Philippines, 2007
Variable OR SE p value
Pharmacy linked to public physician 5.427 2.17 <0.0001
Pharmacy located next to hospital 6.152 2.20 <0.0001
District
Abuyog 3.319 1.32 0.0020
Bais 2.034 0.83 0.0810
Guilhulgnan
Palompon 28.703 14.24 <0.0001
Oras 6.172 2.31 <0.0001
Taft 10.036 3.69 <0.0001
Household assets index 0.502 0.26 0.1880
PHIC member and planning to claim 1.796 0.52 0.0430
Patient’s age (years)
40–59 0.632 0.15 0.0520
NOTES: PHIC is Philippine Health Insurance Corporation. OR is odds ratio. SE is standard error. Bayawan is the reference
district for geographic odds; case-mix proxies also included. Age 60+ is the reference group for the age variables. Data
clustering at the pharmacy level were adjusted for. Several variables (age ≤5, ages 6–17, ages 18–39, and female) were
excluded from the final model on the basis of the Akaike Information Criterion (AIC). Statistics based on model 1: n = 1322.
2
Likelihood ratio = 619, Prob > LR = 0.00. Pseudo R = 0.37; AIC x n = 1,085.
the reasons customers gave for using physician-linked pharmacies (Exhibit 3).
Among the customers with a prescription from a pharmacy-linked public-sector
physician and using that physician’s pharmacy, 61 percent cited the influence of a
health professional as the main reason. The respective figure for customers with pre-
scriptions from other public-sector physicians was 26 percent. This difference was
statistically significant (chi-square = 5.29, p < 0.025).
n Determinants of pharmacy spending. A first analysis showed that custom-
ers using a public physician–linked pharmacy spent 49.3 percent more than those
using other pharmacies (Exhibit 4). However, it also showed that those with a pre-
scription from a pharmacy-linked public-sector physician spent 37.4 percent less
than those with prescriptions from other public-sector physicians.
Patients who used pharmacies located in the immediate vicinity of a town’s
public hospital spent 63 percent more than those who used other pharmacies (Ex-
hibit 4). There was also variability in results across districts.
A second analysis, comparing four customer subgroups, showed that customers
with prescriptions from pharmacy-linked public-sector physicians spent less
than those with prescriptions from other public-sector physicians only if they
used pharmacies not owned by physicians who were linked to a pharmacy. These
subgroups were (1) customers with prescriptions from pharmacy-linked public-
sector physicians and using their pharmacies; (2) customers with prescriptions

Car e D e li v e ry
EXHIBIT 3
Reasons Given By Customers For Using A Particular Pharmacy, Philippines, 2007
Prescription from pharmacy-linked

public doctor and using that Prescription from other
doctor’s pharmacy (n = 166) public doctor (n = 222)
One reason Main reason One reason Main reason
Reason Number Percent Number Percent Number Percent Number Percent

Proximity to home 24 14 5 3 59 27 28 13
Proximity to work 4 2 3 2 24 11 8 4
Knew medicine was

available here 35 21 20 12 140 63 52 23
Knew medicine was
cheap here 18 11 15 9 72 32 35 16
Recommended by
health professional 88 53 86 52 77 35 52 23
Referred here 15 9 15 9 6 3 6 3
Proximity to hospital 14 8 12 7 41 18 35 16
Other 12 7 10 6 6 3 6 3
from pharmacy-linked public-sector physicians but using other pharmacies (re-

gression reference group); (3) customers with prescriptions from other (non-
pharmacy-owning) public-sector physicians and using pharmacies linked to
public-sector physicians; and (4) customers with prescriptions from other public-
sector physicians and using other pharmacies (Exhibit 4).
n Extent of potential savings if customers purchased generics. Extrapolat-
ing these results to all pharmacy customers with a prescription from a pharmacy-
linked public hospital physician shows that noticeable savings could be generated.
For the 88 percent of these customers who purchased brand-name medicines,
spending could be reduced by 58 percent, on average (median), saving US$4.60 per
prescription (their average expenditure was US$7.70) if they purchased generic
medicines (Exhibit 5). For the 20 percent of these customers purchasing both
brand-name and generic medicines, their spending would be reduced by 49 percent,
on average (median), saving US$3.10 per prescription (their average expenditure
was US$6.40). This assumes that price differences between generic and brand-
name versions for other medicines are the same as for medicines analyzed in the sim-
ulation subsample.
Discussion
This study investigated whether doctors respond to the incentives created by fi-
nancial links with pharmacies, and it evaluated the financial implications of that
behavior. We found that pharmacy-linked physicians in the Philippines appear to
persuade patients to use their pharmacy in preference to other pharmacies. After
other factors were controlled for, results demonstrated that customers using pub-
1028 J u l y /A u g u s t 2 0 0 9

EXHIBIT 4
Determinants Of Pharmaceutical Spending, For Prescriptions From Public Hospital
Physicians, Philippines, 2007
Model 2a: all customers Model 2b: customers by subgroup
Coeff. SE p value Coeff. SE p value
Pharmacy linked to doctor 0.493 0.16 0.0050 –a –a –a

Prescription from pharmacy-
linked public hospital doctor –0.374 0.18 0.0480 –a –a –a
Prescription from
Pharmacy-linked doctor
Used own pharmacyb –a –a –a 0.545 0.16 0.0020
Other doctor
Used doctor-linked pharmacyb –a –a –a 0.880 0.26 0.0020
Used other pharmacy –a –a –a 0.436 0.25 0.0900
Pharmacy located next to hospital 0.631 0.25 0.0190 0.644 0.26 0.0220
Abuyog district –0.362 0.18 0.0500 –0.345 0.20 0.0960
Bais district –0.493 0.25 0.0640 –0.512 0.27 0.0740
Palompon district 0.632 0.28 0.0330 0.645 0.28 0.0310
Oras district 0.358 0.20 0.0890 0.357 0.20 0.0890
Household asset index 0.619 0.47 0.1970 0.613 0.46 0.1910

Ages 18–39c –0.166 0.12 0.1610 –0.167 0.11 0.1590
Constant 4.261 0.24 <0.0001 3.835 0.30 <0.0001

NOTES: Bayawan is the reference district; case-mix proxies were also included. Pharmacy-level data clustering was adjusted
for. Several variables (Guilhulgnan and Taft districts; PHIC member and will claim; ages ≤5, 6–17, and 40–59; and female)
were excluded from the final model on the basis of the Akaike Information Criterion (AIC). For model 2a: n = 425; F = 24.4, Prob
2 2
> F = 0.00; R = 0.1831; AIC = 1,253. For model 2b: n = 425; F = 20.7, Prob > F = 0.00; R = 0.1834; AIC = 1,255. SE is
standard error.
a
Not applicable.
b
For the customer subgroups for model 2b, the reference group is “prescription from pharmacy-linked doctor, used other
pharmacy.”
x
Age 60+ is the reference group for the age variables.
lic-sector physician–linked pharmacies had 5.4 greater odds of having a prescrip-

tion from a public-sector hospital physician and spent 49 percent more than those
using other pharmacies.
In determining expenditures, the type of pharmacy a customer purchased med-
icines from was more important than who prescribed the medicine. Doctors who
owned pharmacies did not prescribe more-costly medicines than other hospital
physicians. However, physicians’ linkage with private pharmacies remains a con-
cern because of the finding that pharmacy-linked public-sector physicians per-
suade patients to use their pharmacies. Further, for customers purchasing brand-
name medicines, switching to generics would reduce pharmaceutical spending to
an average of 42 percent of their actual spending. This finding implies that there
are potentially significant savings for both people paying out of pocket and third-
party payers.
n Consistency with other studies. Our results are consistent with those of
other studies that have analyzed financial links between doctors and health facili-

Car e D e li v e ry
EXHIBIT 5
Actual Versus Simulated Average Expenditures On Surveyed Medicines, Philippines,
2007
Brand-name drugs Only generics

purchased (n = 32) purchased (n = 16) Full subsample (n = 48)
Percent of Percent of Percent of

Philippine actual Philippine actual Philippine actual
pesos spendinga pesos spendinga pesos spendinga
Actual expenditurea 153 100 121 100 142 100
Sim_exp, lowest drug price 29* 19 50* 41 36* 25
Sim_exp, mean drug price 62* 41 82* 68 69* 49
Sim_exp, median drug price 65* 42 88** 73 73* 51
Sim_exp, highest drug price
in private pharmacy 109* 71 153 126 124*** 87
Sim_exp, max drug price in
private or hosp. pharmacy 124*** 81 170 140 139 98

NOTE: Simulated expenditure (sim_exp) statistically less than actual expenditures, at significance level noted.
a
On drug(s) for which pricing data were collected (average total expenditure in pharmacy is higher).
*p < 0.10 **p < 0.05 ***p < 0.01
ties. In the United States, physicians linked to private facilities consistently had dif-
ferent referral behavior, resulting in policy regulations—the Stark laws—that se-
verely limited self-referrals.8 Many studies showed how utilization and profits of
U.S. facilities providing ancillary and outpatient services were higher if these facili-
ties had financial links with physicians.9 In Taiwan, researchers analyzing outpa-
tient clinics found that the probability of prescription and drug spending per visit
were, respectively, 17–34 percent and 12–36 percent less among visits to clinics with-
out “on-site” pharmacists (pharmacists hired by physicians to dispense the drugs
they prescribe).10 Later studies found that pharmacies linked with physicians ac-
counted for a large and growing proportion of prescriptions in Taiwan.11
Other studies evaluated the prescribing practices of dispensing doctors. In
South Korea, prescriptions for antibiotics and injections fell following the separa-
tion of drug prescribing and dispensing in 2000. However, these were offset by
physicians’ demands for compensatory higher medical fees and an increase in pre-
scriptions of high-price drugs.12 In Zimbabwe, dispensing doctors prescribed
more medicines than nondispensing doctors, and dispensing with a prescription
lowered the quality of care.13 In the United Kingdom, practices that also dispensed
drugs prescribed more items per patient (and fewer of them generically) than non-
dispensing practices.14 More broadly, the empirical literature on provider payment
mechanisms demonstrates that the amount of services a physician gives a patient
is dependent on the financial incentives he or she faces.15
n Study limitations. Still, our study has some important limitations. First, data
were not collected from patients who bought medicines in the hospital pharmacy,
nor from patients who bought none of the medicines they were prescribed. None-
1030 J u l y /A u g u s t 2 0 0 9

“Improving the availability of generic medicines in public hospitals

could produce sizable savings for patients and third-party payers.”
theless, other data from the QIDS study showed that for 98.7 percent of inpatient
cases younger than age six, the parent/caregiver had to obtain additional prescribed
medicines outside of the hospital, so bias from this source is unlikely. Second, dis-
tricts and pharmacies were selected purposively; however, the participation rate
among both pharmacies and pharmacy customers was high, and there is no a priori
reason to think that the results are driven by the sampling frame. Third, some physi-
cians with links to pharmacies might not have been not identified, because of infor-
mal links between pharmacies and physicians that were not captured in the screen-
ing interview. This would mean that certain pharmacies classified as “independent”
actually had physician links. This form of misclassification would tend to underesti-
mate the actual differences between pharmacy ownership types. Fourth, although
results illustrated that pharmacy-linked public-sector physicians were able to per-
suade patients to use their pharmacy, the research only began to explore how they
were able to do this. Qualitative research methods might have captured this more ef-
fectively. Further, we did not analyze a physician’s decision to obtain pharmacy own-
ership stakes and consequently if (and if so, how) pharmacy-linked physicians differ
from other physicians. Finally, the analysis could not analyze the linkage between
physicians owning private pharmacies and the number of prescriptions they wrote.
Pharmacy-linked physicians face a stronger financial incentive to overprescribe. Al-
though our analysis showed that health spending was higher in public-sector physi-
cian–linked pharmacies, it cannot show if this is explained by more prescriptions or
more expensive medicines being prescribed; thus, it is not possible to disentangle
price and quantity effects. Potential overprescribing also implies that the cost sav-
ings in our analysis would have been underestimated.
n Potential policy responses. Our findings suggest a range of policy responses
to physicians’ ownership of private pharmacies. At the one extreme, banning physi-
cians from owning pharmacies would remove the perverse financial incentives asso-
ciated with pharmacy ownership. However, such a policy is likely to be difficult to
enforce, and physicians might still maintain financial links with pharmacies with-
out actually owning them, particularly if the underlying issue of low physician sala-
ries is not addressed. Experiences from South Korea and Taiwan suggest that such a
policy cannot succeed in isolation.16
Another policy option is to improve the availability of generic medicines in pub-
lic hospitals. This could produce sizable savings for patients and third-party pay-
ers and could also offer revenue opportunities for hospitals. Further, it would
pressure outside pharmacies to carry generic medicines and to offer medications
at competitive prices. However, as this study indicates, there would also need to
be adequate monitoring of prescribing practices, because there is no guarantee

Car e D e li v e ry
that pharmacy-linked public-sector physicians would not continue to try and per-
suade patients to use their pharmacies. Policymakers might also focus on ensuring
that private pharmacies stock generic versions of essential medicines (already the
law). However, if pharmacy customers regularly demanded generics, private for-
profit pharmacies would more readily supply them.
This implies a more general problem with generics: customers might perceive
them to be of inferior quality to brand-name medicines, or physicians might rec-
ommend brand-name products, or both. Indeed, anecdotal evidence from this
study suggests that prescriptions often exclude the medicine’s generic name, even
though this is in conflict with Philippine law (Republic Act no. 6675). Thus, for
generics to be more widely used, there needs to be better monitoring of physicians’
prescribing, and, more generally, any concerns about the quality of generics needs
to be assuaged. PHIC could regulate physicians’ prescribing practices, given its
experience in evaluating physician claims, and because it has the incentive of sig-
nificant cost savings to do so. However, for this to cover a large proportion of pre-
scriptions, PHIC reimbursement would need to be expanded to cover outpatient
prescription medicines.
Finally, policymakers must recognize that public physicians’ salaries are typi-
cally low, relative to what they could earn elsewhere. Physicians’ ownership of pri-
vate pharmacies and the associated perverse financial incentives that emerge are
likely to be driven by the need to cope with low public-sector wages.
This paper was presented at the conference, Provider Payment Incentives in the Asia-Pacific, 7–8 November 2008,
at the China Center for Economic Research, Peking University, Beijing, People’s Republic of China. Funding of
primary data collection was provided through a joint Economic and Social Research Council/Medical Research
Council (U.K.) studentship to the lead author. The paper was connected to the Philippine Child Health Experiment
(PHIC), which provided technical and logistical support to the lead author’s fieldwork. PHIC was funded by the
U.S. National Institute of Child Health and Human Development (NICHD). The authors thank research
assistants Pearly Badon, Fern Balasabas, Emy Baltazar, Ruth Curiosa, Ani Dore, and Lyne Tevez for conducting
the interviews. Thanks also to Aleli Kraft for her insights on regulation of the Philippine health system, and Romi
Marcaida for his support in arranging fieldwork.
1032 J u l y /A u g u s t 2 0 0 9

NOTES
1. W. Van Lerberghe et al., “When Staff Is Underpaid: Dealing with the Individual Coping Strategies of
Health Personnel,” Bulletin of the World Health Organization 80, no. 7 (2002): 581–584.
2. Y.J. Chou et al., “Impact of Separating Drug Prescribing and Dispensing on Provider Behaviour: Taiwan’s
Experience,” Health Policy and Planning 18, no. 3 (2003): 316–329; L. Manchikanti and E.B. McMahon, “Physi-
cian Refer Thyself: Is Stark II, Phase III the Final Voyage?” Pain Physician 10, no. 6 (2007): 725–741; and M.A.
Rodwin and A. Okamoto, “Physicians’ Conflicts of Interest in Japan and the United States: Lessons for the
United States,” Journal of Health Politics, Policy and Law 25, no. 2 (2000): 343–375.
3. T.G. McGuire, “Physician Agency,” in Handbook of Health Economics, ed. A.J. Culyer and J.P. Newhouse (Am-
sterdam: Elsevier, 2000), 461–536.
4. Department of Health, The National Objectives for Health: Philippines, 2005–2010, http://www2.doh.gov.ph/
noh2007/NohMain.htm (accessed 12 May 2009).
5. R. Shimkhada et al., “The Quality Improvement Demonstration Study: An Example of Evidence-Based
Policy-Making in Practice,” Health Research Policy and Systems 6 (2008): 5. Also see the QIDS home page at
http://QIDS.ph.
6. The Technical Appendix is available online at http://content.healthaffairs.org/cgi/content/full/28/4/1022/
DC1.
7. Philippine National Statistics Office, “Table 4C: Average Annual Income, Average Annual Expenditures,
and Average Saving of Families at Current Prices, by National Income Decile: 2000 and 2003,” http://www
.census.gov.ph/data/sectordata/2003/ie03fr18.htm (accessed 23 April 2009).
8. Manchikanti and McMahon, “Physician Refer Thyself.”
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Car e D e li v e ry

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for drugs themselves or when drugs are retrospectively reimbursed by insurers on

Study Data And Methods

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Variable Number Percent

SOURCE: Authors’ analysis of survey data.

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Prescription from pharmacy-linked

One reason Main reason One reason Main reason

Reason Number Percent Number Percent Number Percent Number Percent

Knew medicine was

SOURCE: Authors’ analysis of survey data.

from pharmacy-linked public-sector physicians but using other pharmacies (re-

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Model 2a: all customers Model 2b: customers by subgroup

Coeff. SE p value Coeff. SE p value

Pharmacy linked to doctor 0.493 0.16 0.0050 –a –a –a

Household asset index 0.619 0.47 0.1970 0.613 0.46 0.1910

Constant 4.261 0.24 <0.0001 3.835 0.30 <0.0001

SOURCE: Authors’ analysis of survey data.

lic-sector physician–linked pharmacies had 5.4 greater odds of having a prescrip-

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Brand-name drugs Only generics

Percent of Percent of Percent of

SOURCE: Authors’ analysis of survey data.

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“Improving the availability of generic medicines in public hospitals

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