Public spending must be regulated, even in an emergency: reflections from the Philippines

In times of crisis, rules regulating the procurement process and the disbursement of public funds are often discarded, to speed up the acquisition of necessary goods and the provision of services. But, argues Nelia Lagura Prieto, anti-corruption lawyer and CSC alumnus, this makes it far too easy to divert emergency funds away from the intended beneficiaries and into the hands of a few opportunistic entities.  

On 23rd March 2020, in view of the threats to public health brought about by the coronavirus pandemic, the Philippine Congress placed the entire country under a state of national emergency through Republic Act No. 11469 (R.A. 11469). The said law granted the President emergency powers necessary to carry out the declared national policy (R.A. 11469, Section 4).  Among those powers are: 

1)  the power to discontinue appropriated programs or projects of any agency of the Executive Department and utilize the savings generated to augment the allocation for any items necessary to address the CoVid19 emergency; and 

2) the power to procure said items (e.g. personal protective equipment (PPEs), laboratory equipment and their reagents, medical equipment and devices, and medical supplies) in the most expeditious manner, exempt from the country’s procurement law.   Resolution 06-2020 of the Philippine Procurement Policy Board (GPPB) reveals that these emergency procurements do not need to undergo competitive bidding. Written formal offers are not even necessary.  Under the interim rules, verbal agreement on the price and compliance or commitment to comply with legal, technical and financial requirements of the project are sufficient bases to recommend award to a supplier, manufacturer, contractor or consultant (section 3.3 of GPPB Resolution 06-2020).

With the suspension of bidding requirements, relevant government agencies immediately awarded contracts for much-needed medical and laboratory equipment and supplies through the so-called emergency procurement mechanism.  Several of these contracts and transactions have become controversial.

Overpriced Personal Protective Equipment (PPE)

The Department of Health (DOH) purchased 1 million sets of PPE worth 1.8 billion pesos at 1800 pesos (around USD37) per set.  A Senate inquiry on the alleged overpriced PPE and test kits revealed that locally sourced PPE would have cost as little as 400 pesos (around USD8.25).  It was also disclosed that the Office of the Vice President (OVP) who, as of March had already distributed 32,000 full sets of PPE, acquired them at only 397 pesos per set from a local supplier.  

One senator has therefore claimed that the government could have saved 1.4 billion pesos had DOH contracted with local suppliers.  The DOH purchase is an anomaly even under the emergency rules, since procurements are still subject to a requirement to negotiate the most advantageous price to the government based on existing price data of the agency or on prevailing market prices, even in emergencies. 

In addition to the unconscionable price difference between those purchased by DOH and by the OVP, it was also reported during the Senate hearing that 727 million pesos’ worth of contracts for PPE and vitamins were awarded to one company despite it having been blacklisted.  

Release of Covid-19 Funds to Health Care Institutions (HCI) under the Interim Reimbursement Mechanism (IRM) 

In early 2020, when the world started to panic about CoVid19, the Philippine Health Insurance Corporation (PhilHealth), a state-run agency under the DOH, began providing funds for HCIs through its IRM. While called a reimbursement, IRM is really a cash advance scheme to provide available funds to HCIs in times of emergency.  

The Senate inquiry revealed that as of April and prior to the dissemination of standard operating procedures for the release of funds through IRM, PhilHealth had already  released 9.29 billion pesos of the 30 billion pesos allocated to 279 HCIs for hospital assistance.  The initial release of funds to several HCIs did not correspond with the prevalence of Covid19 in the areas covered.  Two hospitals from Davao in Mindanao received the first and third-largest sums: 326 million pesos for Southern Medical Center and 209 million pesos for Davao Regional Medical Center.  The allocation raised questions since Davao had only 2,600 cases compared to 144,000 in the National Capital Region (NCR)  and 20,829 in Central Visayas.

PhilHealth chief, retired general Ricardo Morales, explained that when they started releasing funds through IRM prior to the guidelines, there were as yet no established  concentration areas of Covid19 cases.  They instead used the 90-day historical claims of HCI beneficiaries to determine the amount to be released.  He also stressed that the cash advances were subject to liquidations.  However, only 1 billion pesos have been liquidated and there is no evidence that unused cash advances have been returned or should be returned.

It appears that PhilHealth officials responsible for the release of the funds prior to the guidelines exercised an almost unrestricted discretion in deciding which hospitals should receive funding and how much.  As a result, funds allocated for Covid-19 response were disbursed to HCIs that until now have yet to deal with Covid-19-positive patients. Among them is B. Braun Avitum (a dialysis center) which received 45 million pesos from PhilHealth’s IRM. B. Braun Avitum despite not admitting Covid-19 patients. 

The release of funds in such a highly discretionary manner has led to an outcome which largely defeated the intended purpose of the funds.  While HCIs with no, or just a few, Covid-19 cases have plenty of response resources, those with patients in excess of their bed capacity have to make do with what they have. Many patients are denied hospitalization because of this flawed allocation of resources.

Even in times of emergencies, government spending must still be governed by reasonable rules that balance urgency and propriety.  In countries like the Philippines where national emergencies brought about by calamities such as typhoons and earthquakes are common, laws should be put firmly in place to avoid recurring fund wastage due to negligence, lack of wisdom or outright corruption.

Posted in Politics, Regions

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