New China price probe a policy portent?
This article was originally published in Scrip
China's National Development and Reform Commission (NDRC) has initiated a new three-month long investigation into the cost and price of drugs supplied by 60 selected pharmaceutical companies nationwide, with the ultimate aim of adjusting the prices of medicines covered by the national healthcare scheme.
The move comes against a background of rising costs under China's expanding insurance program and follows a series of regular drug price cuts over the past few years by the commission, which has price capping authority over such products. This January, it cut the maximum prices of around 400 medicines by an average of 20%, in part to help contain patients' out-of-pocket payments (scripintelligence.com, 15 January 2013).
According to the NDRC, 27 companies will be examined over the July-October period for product costs and 33 for FOB (free on board) prices, with companies required to provide extensive details by filling out standard questionnaires.
The form on pricing for example requests data on packaging materials, sales and sales volume, as well as on the lowest and highest prices for each preparation. On the cost side, companies will have to provide a range of information including on labor, ingredients and depreciation expenses for each preparation.
While most of the 33 companies in the FOB survey - which include the big domestic groups Guilin Sanjin and Zhejiang Dade Pharmaceutical - manufacture traditional medicines, a number of the other 27 companies being probed on costs are major multinationals, including MSD (Merck & Co), Boehringer Ingelheim, GlaxoSmithKline, Astellas and Novartis's generics arm Sandoz.
All have drugs listed on national medical insurance schemes, such as Hepsera (adefovir dipivoxil) from GSK for hepatitis B, the antihypertensive nicardipine from Astellas, and Sandoz' generic cholesterol lowerer simvastatin.
One goal of the survey is apparently to get a better handle on how the prices of these and other products compare with local generic equivalents. "This is part of the efforts by the Chinese government to improve the quality of Chinese-made generics. In the long-run, I think generic drug prices should not vary so much like now," Ling Sun, a Shanghai-based analyst for Datamonitor, told Scrip.
While the NDRC sets a maximum price, in practice this is discounted to varying degrees at the provincial and individual hospital levels, resulting in a spread of final prices between similar products. At present, foreign companies' drugs can be priced much higher (under the cap) than those from domestic companies, due mainly to differences in perceptions of quality and efficacy. For example, Hepsera is priced at CNY263 ($41.50) per bottle (10mg x 14 tablets), compared with CNY151 for a version from Shandong province-based Cisen Pharmaceutical.
China currently has no formal bioequivalence requirement for generics, although the China FDA is drafting standards for 50 drugs this year and aims to set these for all oral generics by 2015.
Given such price differences and the pressure to control rising costs under government insurance schemes, price cuts are set to become the new norm in China's pharma industry, regardless of the new cost investigation, Mr Sun predicted. Branded products with generic equivalents and generics themselves supplied by multinationals will come under particular scrutiny, he said.
Yang Changshun, a veteran private consultant for Chinese pharma companies, agreed, telling Scrip that not only is price lowering part of national healthcare reform moves but also that "China's economy is slowing down, which affects government reimbursement for the healthcare scheme-listed drugs."
Although it was not mentioned by the NDRC as a factor in the new survey, China also substantially expanded its list of essential drugs in March, from 307 to 520 products, in a move that will increase government-subsidized drug costs alongside improving patient access (scripintelligence.com, 26 March 2013).
The NDRC has already indicated that Chinese manufacturers of traditional medicines - an important treatment option and therefore cost component within China's healthcare system - will also be targeted in future "price adjustments".
In 2012, the Chinese government spent CNY554.3 billion on medical insurance schemes in urban areas nationwide, up fully 25% from CNY443.1 billion in 2011, according to data from the Ministry of Human Resources and Social Security.
provincial moves
Mr Yang observed that a draft drug procurement regulation released in May by Guangdong province, although for a pilot scheme and regional in nature, gave an important signal that there could well be more price cuts across the country.
According to the regulation, regional hospitals must purchase their medicine needs through an e-commerce website, which also acts as a bidding platform for manufacturers. The website gives no manufacturer details, only drug names and preparations, the idea being that medical facilities simply choose the lowest price for the target product regardless of supplier.
Nor surprisingly, the regulation was immediately attacked by Chinese pharma companies and five major Chinese industry associations, including one representing traditional medicine firms, which sent a joint letter to the Guangdong government and NDRC expressing strong concerns over drug safety and asking for a complete revision.
Nonetheless, Mr Yang noted that Guangdong province is always one step ahead when it comes to policy, predicting that "there will be followers."
(With contributions from Ian Haydock in Tokyo.)