Mid 2015, a Drug Price Policy was introduced in China, which has been spreading throughout the healthcare system and affecting the medication procurement systems. This article will discuss how the current drug procurement works in China, and what the implications and expected trends of the new policy are for the pharmaceutical pricing market.
Decision-makers and steps in the Chinese drug purchasing process
In 2016, China is estimated to have a nominal GDP of €8,562 bn, of which 6.2% is spent on healthcare, equivalent to a healthcare spending per capita of €384.
There are various levels of authority influencing and controlling the drug product market in China. The following authorities and stakeholders are key in deciding over the prices and the actual procurement processes of medication used in Chinese hospital healthcare:
- The Ministry of Health (MOH) – Is the highest level nationally, overseeing the entire Chinese healthcare system and creating relative policies.
- The National Development & Reform Committee (NDRC) – Formulates concrete policies for pricing medicine, and validates the approval of the final product price list.
- The Provincial Development & Reform Committee (PDRC) –A supplier and or manufacturer may only start the distribution process after registering their product prices here. The PDRC compiles a list of approved reimbursable products for its region; each manufacturer wishing to be included partakes in tenders for their products to be included in this list. These committees are present at provincial or regional levels.
- Healthcare providers– Hospitals purchase drugs directly from wholesalers. Public hospitals, for example, will use a Pharmaceutical Affairs Council (PAC), composed of the hospital’s director, key management and heads of departments. They will evaluate the efficacy, safety and final price of the medication prior to approving the purchasing of the product.
In China, patients are most commonly reimbursed according to individual diagnostics and treatments. The provincial authorities are allowed to place restrictions on the scope of the national essential drug list, and thereby reduce their mandatory state insurance coverage.
Changes that accompany the Drug Price Policy
The new Drug Price Policy, effective since June 2015, has as a principle objective and effect, to remove the double pricing control of the government, to facilitate decentralization, and to create greater opportunities and reliance upon tendering mechanisms.
Decentralization of drug pricing
In order to enable a decentralized drug purchasing system, the National Development and Reform Commission (NDRC), the National Health and Family Planning Commission (NHFPC) and the Ministry of Human Resources & Social Security (MOHRSS) have withdrawn the government ruling over prices for of all drug products, except for narcotics and class I psychoactive medication.
Accordingly, the prices of drug products will no longer mainly be determined by the national government, but instead be decided by basic medical insurance systems and market forces.
Greater decision power for hospitals
Due to the new policy, hospitals play a more crucial and authoritative role in the procurement of drugs throughout the entire process, and a smaller proportion of the process is determined by the regional governments. There are still many other associations, such as clinical and professional stakeholder groups, that will also play a greater role in the procurement and pricing decisions.
Previously, hospitals’ medicine suppliers would participate in tendering mechanism where most commonly the drug prices would already have been established. Now, however, the hospitals have started bargaining for particular drug prices.
Trends arising from and after the Drug Pricing Policy
TforG also expects that one of the direct -and most important- impacts of this policy will be a much more frequent negotiation and coordination process between the different stakeholders; successively, prices will depend on the real market forces.
There will be even more group purchasing; a trend which can already be observed in the last years. Group purchasing also includes regional purchasing, which for a market with the proportions and volumes of China, is a substantial opportunity.
Social security departments and healthcare bureaus will also continue to play a big role in the purchasing process.
Concerns, intentions and possibilities
The reform policy also causes concerns voiced by different groups. Most patients are worried that the drug prices will skyrocket, whilst the pharmaceutical companies are afraid that the prices will decrease.
The very intention of the policy is to avoid either of these scenarios. All the Policy intends is:
- To replace the government double pricing control
- To rely more on well-organized tenders
- To enable decentralization
Nonetheless, we still do not know which parties and stakeholders will be influenced the most by the new policy, and how provincial hospitals will implement it in reality.
In the long term, most of the drugs will remain at reasonably controlled price levels, as there are still controls within the bidding processes; accordingly, most drugs will be “price-stable” products.
It is possible that there will be price differences between different provinces. However, for foreign brands or joint brands the prices will remain quite similar.
In China, there is a preference for joint brands, rather than purely foreign or national ones, because of the higher quality guarantee/expectation, and due to the relatively stable prices of joint brands.
Substantial price fluctuations are to be expected for two particular drug categories:
- In the majority of cases, the relatively cheaper drugs –characterized by mostly local brands- will increase in price
- Expensive higher end drugs, which were protected by the government in the past, will now have more competitors and thus have greater pressure on them to decrease their price.
Both groups will have a more stable price in the long term.
Quality remains the key success factor
Irrespective of the new policy, to maintain a high degree of quality guarantee and reliability, accompanied by stable and reasonable prices, is what will keep companies running sustainably and profitably in China in the long run.
For further quantitative and qualitative information on the Chinese healthcare system and the macroeconomic climate, please look into our Business intelligence platform or order the TforG Deep Dive report for China containing volumes of 920 unique surgical procedures in 13 specialisms.
About Laura Weynants
Performs primary and secondary market research to create country reports at TforG. Interviews KOLs and medical sector professionals to build on TforG’s healthcare market expertise and competence networks. Complementing five years of sustainability policy and CSR communication, she now focuses on grasping key medical market trends, structures and opportunities in medical sectors worldwide. Coming from an international background of living in Germany, Spain, USA, UK and Belgium, she has gained a keen insight in international organizations and language skills to perform first hand investigations. She graduated from Sussex University Brighton, UK with a BA English Literature and Sociology and achieved a Master Degree in Sustainability and Corporate Social Responsibility in EOI Business School in Madrid, Spain.