PhilHealth

Did Gordon’s P100M Red Cross deal with PhilHealth violate laws?

Camille Elemia

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Did Gordon’s P100M Red Cross deal with PhilHealth violate laws?

DEAL. Senator Richard Gordon, chair of the Philippine Red Cross, and former PhilHealth CEO Ricardo Morales sign a deal on COVID-19 tests.

The mass-testing deal also raises the issue of conflict of interest, as PRC chairman Richard Gordon is a sitting senator and chair of the blue ribbon committee that investigated PhilHealth
AT A GLANCE
  • The Philippine Health Insurance Corporation (PhilHealth) and the Philippine Red Cross (PRC), chaired by Senator Richard Gordon, entered into a contract deemed disadvantageous to the government, following the advance payment of P100 million for PRC’s COVID-19 tests.
  • While PRC is pivotal in mass testing, several laws clearly prohibit advance payments. They mandate reimbursement for the protection of public funds – meaning, the party has to incur costs and render services first before it is paid back.
  • The deal also raised the issue of conflict of interest, as Gordon is a sitting senator and is the chair of the blue ribbon committee that investigated PhilHealth.
  • PRC maintains the government contract is above board.

The Philippine Health Insurance Corporation (Philhealth) in May entered into a multi-million agreement with the Philippine Red Cross (PRC), chaired by Senator Richard Gordon, for a massive COVID-19 testing program.

PhilHealth made an advance payment of P100 million to PRC on the same day the deal was signed, according to a copy of the agreement obtained by Rappler. This runs counter to state audit rules and Republic Act 11469 or the Bayanihan to Heal as One Act, which Gordon himself approved as senator.

In the fight against COVID-19, the government relied on PRC – a private, non-governmental organization mandated to help the state’s humanitarian efforts – for assistance and action, citing efficiency and reliability. The ensuing deal, however, highlights the importance of scrutinizing how public funds are spent.

Other issues also hound the agreement, including the lack of caution in the disbursement of public funds and possible conflict of interest, which Gordon’s camp has denied. Gordon is a sitting senator and the chairman of the blue ribbon committee that investigated corruption in PhilHealth in 2019.

During the pandemic, both chambers of Congress launched investigations into the PhilHealth mess, but the mass testing deal did not get sufficient focus. (CHEAT SHEET: Alleged PhilHealth anomalies uncovered in Congress probes)

Reimbursement, not advance payment

Former PhilHealth chairman and CEO Ricardo Morales and PRC chairman Gordon signed a memorandum of agreement on May 5, 2020.

The MOA said PhilHealth “sought the assistance of PRC in the mass-testing of Filipinos for COVID-19.” In turn, “PRC is constrained to charge service fees for its testing services” to defray costs and expenses.

On the day of the signing, PhilHealth immediately paid the advance amount of P100 million to the PRC “to cover mobilization for the COVID-19 testing services.”

The agreement also requires PhilHealth to replenish the funds within 3 days of PRC’s request so that PRC will always have a revolving fund of P100 million for testing supplies and inventory.

While the PRC charter allows the humanitarian organization to enter into government agreements, advance payments violate PD 1445 or the state auditing code, the Philhealth charter, and the Bayanihan law.

Morales, who used to head PhilHealth, said the MOA was meant to “build testing capacity” following a shortage of facilities. He also said funds were meant to finance PRC’s operations – contrary to reimbursements mandated by law.

Pertinent laws

The auditing code clearly prohibits advance payment on government contracts.

Section 88 states: “Except with the prior approval of the President the government shall not be obliged to make an advance payment for services not yet rendered or for supplies and materials not yet delivered under any contract.”

The Bayanihan law, which Gordon voted for in July, also mandates government agencies to partner with PRC but “subject to reimbursement” – meaning, the agency has to incur costs first before it gets paid back by the government.

The PhilHealth charter – RA 7875 and later amended by RA 10606 – also mandates reimbursements of medical providers’ claims within 60 days from filing.

Rappler sought PhilHealth Executive Vice President Arnel de Jesus for comment on the issue, as he was “on top of the agreement,” according to resigned senior vice president for the legal sector Rodolfo del Rosario Jr.

De Jesus’ office said he would respond even as they sought 3 requests for extensions. But he has yet to comment as of posting.

Leniency towards PRC

The agreement is so lenient towards PRC that it does not even require PhilHealth to verify Red Cross’ claims and expenses.

The “only accepted proof of testing services” submitted to government agencies for whatever purpose are those from PRC – the accomplished customer information form signed by the person tested and a PRC summary of test results certified by its pathologist.

At the time the deal was signed, President Rodrigo Duterte had just designated Bases and Conversion Development Authority chief Vince Dizon as coronavirus testing czar.

Dizon earlier told a Senate panel that testing capacity was at only 8,500 per day as of May 2. The capacity more than doubled to 17,300 per day, two weeks after the deal was signed.

Dizon said PRC, which owns the largest laboratories in the country, accounted for 45% of the tests then. It was not clear, however, how many of the PRC tests were covered by PhilHealth.

As of September 6, PRC said it has conducted 718,501 tests, with 501,601 tests to be paid for by PhilHealth. This was part of the government’s earlier goal of two million tests completed by August this year – a target set after the government struggled to achieve its earlier goal of 30,000 daily tests by the end of May. It reached this target only two months later, in mid-July.

Under the MOA, PhilHealth must also provide PRC with facial recognition software and hardware for capturing data of all persons tested. Rappler asked PhilHealth if it indeed gave this technology to PRC but it did not respond. 

CERTIFIED. A soft copy of PRC’s certification. A hard copy costs an extra P500. The PRC also sends a copy of the molecular lab result form signed by its medical technologists and pathologists.

The deal also has provisions exonerating PRC from possible testing-related issues.

“[I]n view of the inherent limitations of the present state of existing laboratory protocols and diagnostic capabilities, PhilHealth acknowledges and agrees that testing results to be provided by PRC cannot be error-free or 100% accurate.”

“PhilHealth holds PRC free and harmless from any damage or liability that may arise from the services provided by the latter, including actions brought by those who underwent testing,” the agreement says.

In an earlier TV interview, Gordon said there is no reason to suspect the PRC of “cheating.” PhilHealth can easily cross-check the PRC’s bills with other government agencies such as the Philippine Coast Guard and local government units (LGUs).

Gordon said he even invited PhilHealth to send watchers to its testing facilities but the state insurance agency did not do so.

But past and present state auditors, who requested anonymity, told Rappler that due diligence and verification should be done by both contracting parties.

“It is even more important to ensure proper spending of funds during the pandemic, due to limited government money. It is the duty of both contracting parties to ensure verification and vetting,” one former auditor said.

Auditors said since both PhilHealth and PRC are long-existing institutions, they could both have adopted additional verification and vetting measures. 

Under the MOA, PhilHealth priced each PRC test at P3,500 – a bit higher than PhilHealth’s highest COVID-19 test rate of P3,409. PRC said this was because the MOA was signed before PhilHealth approved the new amount in June 2020.

For those not covered by free tests, PRC is charging a higher price of P4,000 plus an additional P500 just for certification. Asked why, PRC told Rappler they need to defray costs and pointed out it is still one of the cheapest in the country.

PRC: Fair deal 

In a 17-page reply to Rappler on September 8, PRC maintained that advance payments by PhilHealth are allowed and that the deal was not disadvantageous to the government. It said the Bayanihan law should be viewed in relation to Section 18 of the Universal Health Care (UHC) Act and the March 28 Memorandum of the Office of the Executive Secretary (OES). 

Audit rules are, however, clear about its prohibition. The UHC law and the memo also do not expressly allow advance payments. 

The UHC law provides for prospective payment. It states: “PhilHealth shall endeavor to shift to paying providers using performance-driven, close-end, prospective payments based on disease or diagnosis related groupings and validated costing methodologies and without differentiating facility and professional fees; develop differential payment schemes that give due consideration to service quality, efficiency and equity; and institute strong surveillance and audit mechanisms to ensure networks’ compliance to contractual obligations.”

“Prospective payment” is a type of payment mechanism based on a predetermined and fixed amount, subject to reimbursement. A specific example is PhilHealth’s case rates, or fixed amounts that the agency reimburses medical providers for specific illnesses they treat.  

A former state auditor told Rappler the deal could also violate the Anti-Graft and Corrupt Practices Act. The law prohibits public officers from causing any undue injury to any party, including the government, or giving any party any unwarranted benefits, advantage, or preference.

But PRC said: “First, the PRC spends for its own machines. We were ahead of everyone in automated machines. We purchased them way before the MOA was entered into…. What would have been disadvantageous to the government [was] if PRC did not agree to the government’s request to conduct testing at such a massive scale.”

“How was the government put in a disadvantage if the PRC performed its services, was paid from the P100 million, and is now owed over P800 million while not ceasing its services to PhilHealth even if it legally may do so under the MOA. Who is at a disadvantage now?” PRC said.

Gordon earlier slammed PhilHealth for its P700-million debt to PRC. According to him, it has taken PhilHealth an average of 8.2 days to pay. At one point, he said the reimbursement took 26 days. In a post on August 17, PhilHealth said it has already paid P504.2 million to PRC. 

Going by current laws – and not the MOA – PRC should really pay first then be reimbursed by PhilHealth within 60 days of filing a claim. 

Senator Panfilo Lacson earlier questioned the government’s advance payment for PRC services that have not yet been rendered.

“We are concerned because you know these are public funds and we should be careful with public funds,” Lacson said in a Senate hearing in May.

Conflict of interest?

As senator, Gordon is involved in budget deliberations, raising possible conflict of interest, according to state auditors.

RA 6713 says “conflict of interest arises when a public official or employee is a member of a board, an officer, or a substantial stockholder of a private corporation or owner or has a substantial interest in a business, and the interest of such corporation or business, or his rights or duties therein, may be opposed to or affected by the faithful performance of official duty.”

For over a week, Rappler repeatedly sought Gordon for comment – through texts, calls, and messaging app – but he did not respond. Rappler also sent questions through his media relations officer but it was the PRC that replied.

One former state auditor said: “It’s like the government entering into a contract with a company owned by a public official.” But PRC said Gordon never sat in the deliberations on the PhilHealth budget.

PRC also said that while the agency is a private company, it is a non-stock, non-profit organization. Gordon has been PRC chairman since 2004, the same year he first became senator.

“Sen. Gordon is not a shareholder in the PRC. He may be chairman and CEO but he has no stock in the PRC because it is precisely a non-stock organization. Moreover, he is a volunteer and receives no salary whatsoever…. It is obvious that Senator Gordon is being hit politically,” PRC said.

In 2019, Gordon led the chamber’s investigation into PhilHealth anomalies. He has yet to officially present his findings to the plenary. He was supposed to present it on Monday, September 7, but he decided against it so as not to “divide the Senate.”

Gordon’s draft report tagged PhilHealth’s regional vice presidents (VPs) as members of the alleged mafia in PhilHealth. Some senators, however, refused to support the report as these PhilHealth officials provided evidence and documents to the body.

One high-ranking official and one former PhilHealth officer told Rappler on condition of anonymity, due to ongoing investigations and pending cases in the agency, there has been a longstanding rift between the current leadership and the group of the regional VPs.

The regional VPs reportedly opposed certain policies of PhilHealth, including the controversial Interim Reimbursement Mechanism, among others. This supposedly did not sit well with the other officials, who put rivals on floating status, transferred them to far regional areas, and suspended or dismissed them.

On the other hand, the management has accused the group of regional VPs of pocketing billions of PhilHealth funds.

With corruption and politics in PhilHealth and its pandemic response, Filipinos are left with no option but to fend for themselves during this crisis. – Rappler.com

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Camille Elemia

Camille Elemia is a former multimedia reporter for Rappler. She covered media and disinformation, the Senate, the Office of the President, and politics.