The Supreme Court ruled that the Philippine Health Insurance Corporation (PhilHealth) cannot unilaterally grant benefits and allowances to its employees without the approval of the President, emphasizing that PhilHealth’s fiscal autonomy is not absolute and is subject to existing laws and regulations. This decision reinforces the need for government-owned and controlled corporations (GOCCs) to adhere to the Salary Standardization Law and other fiscal policies, ensuring transparency and accountability in the use of public funds. Ultimately, this ruling safeguards public funds by preventing unauthorized disbursements and holding accountable those responsible for improper spending.

PhilHealth’s Balancing Act: Upholding Public Trust Amidst Claims of Fiscal Independence

The case of Philippine Health Insurance Corporation v. Commission on Audit revolves around the disallowance of various benefits and allowances granted to PhilHealth employees from 2011 to 2013. The Commission on Audit (COA) issued several Notices of Disallowance (NDs) questioning the legality of these benefits, citing a lack of legal basis, excessiveness, and the absence of presidential approval. PhilHealth, however, argued that its charter grants it fiscal autonomy, allowing it to determine the compensation and benefits of its personnel. This claim of fiscal independence became the central legal question, challenging the extent to which GOCCs can independently manage their finances.

PhilHealth anchored its defense on Section 16(n) of Republic Act No. 7875, as amended, which empowers the corporation to “organize its office, fix the compensation of and appoint personnel as may be deemed necessary.” They also cited Section 26 of the same act, asserting that these provisions provide an express grant of fiscal independence to PhilHealth’s Board of Directors. Furthermore, PhilHealth presented Office of the Government Corporate Counsel (OGCC) opinions and executive communications from former President Gloria Macapagal-Arroyo, arguing that these confirmed their fiscal authority. These arguments aimed to establish that the disallowed benefits were properly authorized and within PhilHealth’s discretion.

However, the Supreme Court rejected PhilHealth’s arguments, emphasizing that the corporation’s fiscal autonomy is not absolute. The Court reiterated its previous rulings, stating that Section 16(n) of Republic Act No. 7875 does not grant PhilHealth an unbridled discretion to issue any and all kinds of allowances, circumscribed only by the provisions of its charter. As the Court pointed out, PhilHealth’s power to fix compensation and benefit schemes must be exercised in consonance with other existing laws, particularly Republic Act No. 6758, the Salary Standardization Law. The Supreme Court unequivocally stated that PhilHealth is not exempt from the application of the Salary Standardization Law.

The Court also addressed PhilHealth’s reliance on OGCC opinions and executive communications, finding that these did not justify the grant of the disallowed benefits. Citing precedent, the Court clarified that OGCC opinions lack controlling force in the face of established legislation and jurisprudence. Additionally, the executive communications from President Macapagal-Arroyo pertained merely to the approval of PhilHealth’s Rationalization Plan, without any explicit confirmation regarding its fiscal independence. The Court emphasized that presidential approval of a new compensation and benefit scheme does not prevent the State from correcting the erroneous application of a statute.

Building on this principle, the Supreme Court affirmed the necessity of presidential approval, upon the recommendation of the Department of Budget and Management (DBM), for the grant of additional allowances and benefits. This requirement stems from Presidential Decree No. 1597, which mandates that allowances, honoraria, and other fringe benefits for government employees are subject to presidential approval. Because PhilHealth failed to obtain this requisite approval for the disallowed benefits, the Court found that the COA did not commit grave abuse of discretion in upholding the NDs. The benefits purportedly granted by virtue of a Collective Negotiation Agreement (CNA) also lacked the proper basis.

The Court clarified that while the Public Sector Labor-Management Council (PSLMC) authorized the grant of CNA incentives, several qualifications applied. These incentives must be funded by savings generated from the implementation of cost-cutting measures, and actual operating income must meet or exceed targeted levels. Moreover, Administrative Order No. 135 required that CNA incentives be sourced solely from savings generated during the life of the CNA. In this case, the shuttle service and birthday gift allowances were paid for a specific period and did not meet the requirements of being a one-time benefit paid at the end of the year, sourced from savings. Thus, the COA’s disapproval of these benefits was deemed proper.

Acknowledging the passage of Republic Act No. 11223, which classifies PhilHealth employees as public health workers, the Court ruled that the grant of longevity pay should be allowed. This law, enacted after the COA’s initial disallowance, retrospectively removes any legal impediment to treating PhilHealth personnel as public health workers and granting them corresponding benefits. However, the Court maintained that the payment of Welfare Support Assistance (WESA) or subsistence allowance lacked sufficient basis because the award of WESA is not a blanket award to all public health workers and that it is granted only to those who meet the requirements of Republic Act No. 7305 and its Implementing Rules and Regulations.

Having established the propriety of the disallowances, the Supreme Court addressed the issue of liability for the disallowed amounts. Referencing the guidelines established in Madera v. Commission on Audit, the Court clarified the rules governing the refund of disallowed amounts. Recipients of the disallowed amounts, including approving or certifying officers who were also recipients, are liable to return the amounts they received. Approving officers who acted in bad faith, malice, or gross negligence are solidarily liable to return the disallowed amounts. However, certifying officers who merely attested to the availability of funds and completeness of documents are not solidarily liable, absent a showing of bad faith, malice, or gross negligence.

The Court emphasized that the approving officers in this case could not claim good faith due to their disregard of applicable jurisprudence and COA directives. Given the prior rulings establishing the limits on PhilHealth’s authority to unilaterally fix its compensation structure, the approving officers’ failure to comply with these rulings constituted gross negligence, giving rise to solidary liability. However, the Court acknowledged that the records lacked clarity regarding which approving officer approved the specific benefits and allowances corresponding to each ND. Therefore, the Court directed the COA to clearly identify the specific PhilHealth members and officials who approved the disallowed benefits and allowances covered by each ND.

FAQs

What was the key issue in this case?	The central issue was whether PhilHealth has the authority to unilaterally grant benefits and allowances to its employees without presidential approval, based on its claim of fiscal autonomy.
Did the Supreme Court uphold PhilHealth’s claim of fiscal autonomy?	No, the Court rejected PhilHealth’s claim, stating that its fiscal autonomy is not absolute and is subject to existing laws like the Salary Standardization Law and the requirement for presidential approval for additional benefits.
What is the Salary Standardization Law?	The Salary Standardization Law (Republic Act No. 6758) prescribes a revised compensation and position classification system in the government, aiming to standardize salaries across different government agencies.
What is required for GOCCs to grant additional allowances and benefits?	GOCCs must obtain the approval of the President, upon recommendation of the Department of Budget and Management (DBM), to grant additional allowances and benefits to their employees.
Who is liable to refund the disallowed amounts?	Recipients of the disallowed benefits and allowances are generally liable to return the amounts they received, while approving officers who acted in bad faith or gross negligence are solidarily liable. Certifying officers are generally not held liable unless they acted in bad faith.
What did the Court say about the longevity pay?	The Court reversed the disallowance of longevity pay, recognizing that Republic Act No. 11223 retrospectively classifies PhilHealth employees as public health workers, entitling them to longevity pay under Republic Act No. 7305.
What was the basis for disallowing the shuttle service and birthday gift allowances?	These allowances, purportedly granted under a Collective Negotiation Agreement (CNA), were disallowed because they did not meet the requirements of being funded by savings generated from cost-cutting measures and paid as a one-time benefit at the end of the year.
What action did the Court order regarding the approving officers?	The Court directed the COA to clearly identify the specific PhilHealth members and officials who approved the disallowed benefits and allowances covered by each Notice of Disallowance.

This ruling underscores the importance of adhering to established fiscal policies and legal requirements in the management of public funds. By clarifying the limits of PhilHealth’s fiscal autonomy and emphasizing accountability for unauthorized disbursements, the Supreme Court has reaffirmed the need for transparency and prudence in government spending. It is crucial for government agencies and GOCCs to ensure compliance with relevant laws and regulations to avoid similar disallowances and uphold public trust.

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Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PHILIPPINE HEALTH INSURANCE CORPORATION VS. COMMISSION ON AUDIT, G.R. No. 258424, January 10, 2023