Will the drug price negotiation mechanism lead to more reasonable drug prices in China?

China’s National Development and Reform Commission (NDRC) issued a drug price reform policy, which officially withdraws government price setting of all drug products except narcotics and class 1 psychoactives, in an attempt to allow the centralized drug purchase system, basic medical insurance system and market forces to determine actual drug prices from 1st June 2015.

Since the launch of the policy, there have been some levels of price volatility.

Drugs with extremely high or low prices before were impacted the most. For some drugs that were protected previously by the patent or government or with many competitors, their prices tend to decrease. At the beginning of 2016, Bosentan Tablets, a targeted drug for the treatment of pulmonary hypertension, was lowered its price by 80%, from 19980 RMB to 3996 RMB each box, which was then the biggest-price-dropping drug. It indicated the cracking of the solid ice of the imported patented drugs as “noble drugs”. In contrast, the price tend to increase for low-cost drugs or drugs with less competitors, such asmethimazole, digoxin, drugs for diabetes and hypertension, etc. In the past, government set some of the basic drugs at a very low price, in order to benefit the patients.

At present, patients carry a huge economic burden for some expensive drugs. The key point to solve the problem was establishing a rational and scientific drug pricing system. Analysts have regularly predicted that drug prices would become more reasonable if the national drugs procurement system was canceled, and a price negotiation mechanism was established with pharmaceutical firms.

As part of a new program, the National Health and Family Planning Commission (NHFPC) took the lead with 16 national ministries to negotiate with 5 pharmaceutical firms about the price reduction. The negotiation and the agreement was done one by one with the pharmaceutical companies according to the way and the reduction percentage they could accept, as each company has its pricing principles. NHFPC chose 5 drugs that involved with the treatment of cancer and other major diseases as a pilot. After the negotiation, the price of some expensive patented drugs and imported drugs can be reduced by more than 50%.

So far, three drug manufacturers have agreed with NHFPC on major reductions in the price of three patented drugs. The agreement may provide a blueprint for resolving the conflicting interests of patients seeking access to essential drugs, and also major drug companies trying to earn a profit in China.

If the drug price negotiation is successful, NHFPC will then consider including the related drugs into the drug reimbursement list to put down the drug price. Meanwhile, the NHFPC will pay more attention to the R&D and localization of the generic drugs.

Since the medical care is paid by the government via the medical insurance the drug price negotiation has been the breakthrough point of the national drug price reform. The companies obtain the qualification to be included in the medical insurance drug list by reducing the drug price and thus they can have stable sales and market. Therefore, there will be more medicines that can be used by the patients.

The drugs in the first batch of the negotiation are for lung cancer, chronic hepatitis B, etc. These diseases have high incident rate and also put a heavy load on the patients, due to the high R&D cost and hence high price of these drugs. For example, Iressa (Gefitinib), produced by UK company AstraZeneca, was sold at 5000 RMB each box containing 10 tablets; Tarceva (Erlotinib), produced by Swiss company Roche, was sold at 4500 RMB each box containing 7 tablets; Icotinib Hydrochloride Tablets, produced in China, was sold at 2750 RMB each box containing 21 tablets.

For some rare diseases, the R&D cost and prices are even higher due to the small quantities of the patients and hence narrow market. The Chinese government hopes to lighten people’s medical burden by reducing the price of them.

The aim of the pricing policy of the novelty drugs, from the perspective of the pharmaceutical companies, is to increase their revenue and also market accessibility. From the perspective of the government, the aim is to achieve a win-win situation that on one hand drugs should be priced reasonably based on the affordability and the will of the public, and on the other hand the innovation of drugs in the companies are encouraged.

For multinational companies, to consolidate and expand the current market by lowering the drug price is gradually becoming a future “new normal”. Due to the expiration of the drugs patents, the abolishment of some preferential policies, and also fierce competitions with the domestic companies, the profits for these multinational companies are decreasing and the life for them is not as easy as before. As the “golden age” is gone, they have to adapt to the changes to survive. The Chinese government is also helping them by reducing the tax and favorable pricing. Meanwhile, the medicine research innovation is greatly encouraged.

As early as in 2013, some developed provinces in China began to try the drug price negotiation at the provincial level. Due to the different economic development levels in different areas leading to different payment ability of the medical insurance, the negotiation principles and drug types were different. More than half of the brands are foreign brands. A lot of serious illness patients were treated thanks to the reduction of the special drugs price due to this policy.

The R&D-based Pharmaceutical Association Committee (RDPAC) welcomes the national drug price negotiation and expressed that they understood and supported the government to reduce the drug price and realize timely reimbursement in order to gradually lighten the burden of the patients. They also suggested that all the related parties should participate in this reform and also the supporting policies and regulations should be established in order to achieve desirable outcome.

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About Dr. Huanpo Ning

Dr. Huanpo Ning is a PhD at Donghua University, Shanghai and is TforG's correspondent in the AsiaPac region. He reports on the local healthcare markets & trends, and investigates the latest healthcare reforms in the region.