Critical Makeover
China advances medical reform to substantially lower drug prices
Representatives of over 100 pharmaceutical companies gathered in a hotel in Shanghai on February 3. Documents in hand, they were there to attend a central - ized procurement session organized by China’s health authority.
This was the fourth time such a centralized procurement took place. The organizers had collected the information on the needs of public hospitals across the country for 45 kinds of drugs. They invited pharmaceutical companies there to bid for procurement contracts.
The competition was fierce. At the end of the meeting, 158 products were chosen with price cuts of 52 percent on average and a maximum of 96 percent.
The meeting was part of a reform aimed at lowering medicine price by eliminating the need for pharmaceutical companies to promote drugs to individual hospitals. First trialed in 11 cities in 2018, the reform has now expanded nationwide. The four rounds of national centralized procurement involved 157 kinds of drugs, with an average price cut of 50 percent.
Reform underway
The mechanism works through combining needs of public hospitals across the country for a particular medicine into one order for qualified pharmaceutical companies to bid for. Bidders with the lowest prices will share the order. Since a considerable amount of sales is guaranteed, pharmaceutical companies can offer lower prices and still earn money.
To ensure quality despite price cuts, conformity evaluation is performed before centralized procurement and only those that meet the standard become candidates for the bids. More measures are being developed to ensure both quality and reasonable profit in special cases such as a price rise of raw materials after winning the bid.
On January 28, the State Council accelerated the reform by issuing guidelines. The guidelines stated that the reform will first focus on drugs frequently used and then expand to include all reliable drugs sold in China and necessary in clinical practice, and that all public hospitals in the country should participate in centralized procurement.
The new system is being embraced by pharmaceutical companies operating in the country. In the fourth session of centralized procurement that came one week after the issuance of the guidelines, the procurement of all target drugs was completed, with no failure in bidding as found in the first three sessions.
The reform has also expanded to the medical device sector. In November 2020, people were startled by the news that coronary stents previously sold for 13,000 yuan ($1,998.1) on
average were included in the health insurance directory for a median price of around 700 yuan ($107.6).
Benefiting people
The price cuts have brought immediate benefits to patients, especially frequent users of previously expensive drugs. For example, gefitinib, a cancer drug prescribed three boxes per month, was previously sold at 2,280 yuan ($350.4) per box. Patients had to pay over 3,000 yuan ($461.1) a month despite insurance coverage, which was a heavy burden, especially for the low-income population. The price of the drug has now dropped by 76 percent and the patients pay only around 700 yuan ($107.6) each month.
By the end of 2020, the first three sessions of centralized procurement have brought over 100 billion yuan ($15.37 billion) in savings for patients, as well as for the health insurance fund, according to the National Healthcare Security Administration.
Apart from a smaller medical bill, the reform has brought other important benefits. The traditional way of drug marketing allows for a profit for hospitals stemming from drug prescriptions. As a result, hospitals may prescribe more drugs than needed and prefer the expensive ones. This not only increased the economic burden for patients, but also wasted medical insurance funds. With the new reform squeezing out that part of profits, hospitals will have no motive to overuse the drugs from centralized procurement. This helps solve the problem of overtreatment, which has long been a hot spot of public discontent.
It also helps improve patients’ access to medicine. Besides, the money saved allows more drugs to be included in the health insurance directory.
Multiple measures have been taken to ensure preferred use of the medicine from centralized procurement. Hospitals are encouraged to adjust the prices of medical services provided by doctors so that they are less dependent on drug sales for income. They are also rewarded with part of the money saved for the medical insurance fund from prescriptions.
Reshaping the industry
Hu Hao, Marketing Director of a leading pharmaceutical manufacturer in China, called the reform “groundbreaking.”
“It can be seen as the most powerful reform in decades that may bring fundamental changes to China’s pharmaceutical industry,” he told Beijing Review.
In his opinion, the direct effect is that the low prices of the drugs may lead to a new way of marketing, which is no marketing at all. “We simply won’t have the money to do marketing,” he said.
And they don’t need to now. The centralized procurement has eliminated the need for pharmaceutical companies to promote their products to individual hospitals, which constituted the major part of their marketing activities. The focus of the company now is to win bids for its products in centralized procurement, as it is a do-or-die game.
The reform is targeted at established drugs no longer protected by patent rights. These drugs can be easily developed and approved, and are usually produced by multiple manufacturers. New drugs, on the other hand, will not be affected by the policy.
Hu said very few Chinese companies can develop new drugs. Considering the expertise required, the huge investment, and the duration and chance of failure, it is a difficult decision to make to initiate new drug programs, even for leading companies.
China’s insufficient capacity in drug research and development is no secret, although it is the world’s second largest pharmaceutical market and has over 6,000 pharmaceutical companies. Hu believes that the reform will weed out most of the players in the pharmaceutical sector, leading to the development of Chinese medical giants that have strong capacities to develop new drugs. “We will face a difficult time, but we are on the right track,” he said.