Health-care spending in China will almost triple to $1 trillion annually by 2020 driven by an aging population and government efforts to broaden insurance coverage, according to a McKinsey & Co. report.
China will spend more on drugs, medical devices and hospital treatments as it lifts spending to 7 percent of gross domestic product, from 5.5 percent, or $350 billion, in 2010, McKinsey said yesterday. This will make it the biggest market globally by 2020 after the U.S., which in 2009 spent $2.5 trillion, or 17.6 percent of its GDP, on health care, said the consulting company.
“This will be a key priority for China in the coming years. The government is trying to promote social harmony, and closing the gap on health care is a big part of this,” Franck Le Deu, a Shanghai-based McKinsey partner, said in an interview. “This is a market that is still extremely early in the stage of development,” he said by telephone.
China’s government raised its own spending on health care to 737.9 billion yuan ($116 billion) in 2011, up from 359.4 billion yuan in 2008, the Ministry of Health said in an Aug. 17 statement. It raised medical insurance coverage to more than 95 percent of the population and added diseases including lung and gastric cancer to an insured list, the ministry said.
Easy Days Over
Global drugmakers including Pfizer Inc. (PFE), Novartis AG (NOVN), and GlaxoSmithKline Plc (GSK) have hired more sales representatives and expanded product lines in China, in search of growth to offset losses of patent protection on best-selling drugs elsewhere. Those ambitions are being curbed by Chinese government policies aimed at reducing medical costs.
“Back in the early 2000s, it was pretty easy for multinationals to grow 25 to 35 percent a year in China,” said Le Deu, who heads McKinsey’s Greater China Healthcare practice. “To some extent those easy days are over. The going is getting tougher in terms of complexity and requirements for success.”
Multinational drugmakers that want to expand in China face a more difficult environment amid policy changes such as how drugs are priced and bought by the government, according to the report. They will also need local partners in order to better compete, according to McKinsey.
There will be “a string of major deals over the next few years” as foreign drug companies rush to partner with Chinese producers, McKinsey said. “The days of being able to do it alone in China have ended,” the report’s authors wrote.
Companies that have announced deals include Pfizer, which said in February it will own 49 percent of a $295 million venture with Zhejiang Hisun Pharmaceutical Co. (600267) to develop off- patent drugs in China, while Merck & Co. (MRK) inked a deal with Nanjing-based Simcere Pharmaceutical Group (SCR) last year to produce cardiovascular medicines.
Multinational companies should also shift their focus toward more innovative products that are partly researched and developed in China, as these will be able to reach the market sooner, and offset competition from locals offering low-priced generics, Le Deu said.
“They’ve had success with mature products that are largely off-patent in other markets. But over time those products will come under increasing pressure, so it’s more important to have innovative, patented drugs launched in China,” he said.
While China risks posting its weakest expansion in 13 years amid an economic slump, the government is unlikely to trim health care spending, according to Le Deu. Premier Wen Jiabao has urged extra measures to support exports and help meet economic targets, as a decline in industrial companies’ profits added to evidence the nation’s slowdown is deepening.
China aims by 2020 to raise life expectancy to 77 years, from 74.8 years in 2010, and lower the infant mortality rate to below 10 percent from 12 percent in 2011, according to a health- care strategy report distributed at a conference in Beijing on Aug. 17. It also wants to cut smoking rates among its men to 40 percent by 2020, from 53 percent in 2010.
China, the world’s biggest cigarette market, may suffer slower economic growth because of cancer and other chronic diseases that are hurting the labor force, Health Minister Chen Zhu said in an interview in April.
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