Selling medicine on the retail level is big business in China, but mostly for hospitals. Various estimates put the hospital share of all pharmaceuticals sales at 60-80% – another cash cow for establishments operating under a fee-for-service business model.
One of the long-term goals of China’s health reform is to move traffic away from overcrowded hospitals. Retail pharmacy chains are likely to emerge as winners from this shift. “In terms of the retail sector, there are massive opportunities for growth in retail pharmacies and drugstores,” said Robert Pollard, director of Synovate Healthcare, a health care consultancy.
The retail pharmacy market grew 20% year-on-year in 2008 to US$14.2 billion, according to the China Association of Chain Drug Stores and the China Association of Pharmaceutical Commerce. On top of the oft-cited macro growth drivers for any retail industry in China – GDP growth, a huge population and urbanization – pharmacy chains can now count on a larger customer base.
Jon Zifferblatt, managing director of health care consultancy General Biologic in Shanghai, says retail pharmacies are increasingly being designated as reimbursement pharmacies where patients can use government insurance to purchase medications. “Any policy that makes it easier for patients to bypass the hospital pharmacy will fuel retail pharmacy revenues,” he said.
Qian Ranting, vice president of New York-listed China Nepstar, one of China’s largest pharmacy chains, believes health care reform will help the industry by spurring consolidation and elevating the role of retail pharmacies. She noted, however, that the plan does present retail chains with new challenges.
“The government will increase investment and develop community service centers which will sell drugs at the same price. It will certainly squeeze the profits for retail pharmacies,” she said.