Chinese hospital patients have long complained of long waiting times and high drug prices. Waiting times aren’t getting any shorter, but patients can at least look forward to lower bills thanks to a new government initiative.
In late August, Beijing released a list of 307 basic drugs to come under government pricing regulation as part of its US$124 billion health care reform plan. Regulated pricing will apply to mostly low-cost generic drugs for common diseases at China’s primary health care facilities, which include community clinics and first-tier hospitals.
To ensure affordability, prices will be tightly controlled – up to 25% lower than at present, while the poor will receive 100% subsidies. Pharmaceutical companies will be able to get their products on the list through a competitive bidding process managed by the Ministry of Health. Drugs for diseases such as AIDS and heart conditions will appear on lists for second- and third-tier hospitals in the next few months.
While the essential drug list may be a good thing for patients, it presents problems for drug companies. Getting drugs on the list can mean a large market for manufacturers, but not being on the list could cause suppliers to lose market access. Suppliers without drugs on the list may have to look at acquiring portfolios of listed drugs to stay profitable in China.
“As a company, if your drugs are not on the list then it’s becoming very urgent to get a strategy together on how you’re going to market your drugs,” said Beatrijs Van Liedekerke, director of advisory services for PricewaterhouseCoopers in Beijing.
However, having drugs on the list does guarantee profitability. As the primary care facility list is focused on basic drugs that often have generic versions readily available, drug companies’ profits will be driven by factors including whether drugs can be produced in high enough volumes. Government-controlled pricing also means manufacturers will have to cope with thinner margins. This may force multinational drug companies to refocus their China strategies to place more emphasis on generic drugs in order to compete.
Small companies unable to mass-produce drugs at low cost will either be acquired by larger players or forced to close their doors, said Jon Zifferblatt, managing director of General Biologic, a health care consultancy.
The list may also raise distribution costs for drug makers. In the future, distributors will have to bid to become provincial distributors through regional drug distribution centers. Manufacturers will need to develop strategies to ensure their drugs continue to be distributed in different regions, said Van Liedekerke.
Additional costs will also be a factor in future drug development. Drug makers must justify a new drug’s pricing before it can be included on a government list.
“Drug manufacturers need to invest more in academic research, so researchers can conduct economic evaluation of the effectiveness of their drugs,” said Gordon Liu, professor of economics at Peking University’s Guanghua School of Management.