China Signals More Pressure on Drug Prices in 2016 Policies

Drug companies operating in China can expect more pressure on prices this year after the central government laid out its priorities for medical reform and highlighted its focus on curbing the cost of medicines.

The State Council, China’s cabinet, is putting heavy emphasis on lowering drug prices through measures such as negotiations, cutting distribution costs and reducing use of some expensive therapies, according to a policy blueprint for 2016 that was published on Tuesday.

China has for years sought to make medicines cheaper, and the latest plans laid out by the State Council reiterate that push. Managing health-care costs is becoming more important to the government as the public system struggles to keep up with rising incidence of cancer, diabetes and heart disease. The world’s largest pharmaceutical companies as well as their local competitors have already felt pressure in the country as a state-led campaign to slash drug prices has triggered a slowdown in sales growth.

For Related Story See: Big Pharma’s China Dream Meets Reality of Price Cutting Campaign

Researcher IMS Institute for Healthcare Informatics estimates that more than $115 billion of medicines were sold in China last year, making it the world’s second biggest market after the U.S.

The policy document released Tuesday said the Chinese government will establish a system to trace manufacturer prices, a number often obscured by multiple distributors, each of whom adds a mark-up. The information will be provided to price regulators, health and industrial authorities as well as insurance management departments to control prices.

The government will also try to limit "unreasonable" growth of medical expenses by strictly monitoring the use of expensive but non-essential treatments.

Public hospitals, which treat the vast majority of patients in China, are encouraged to settle payments directly with drug manufacturers to reduce prices by bypassing layers of middlemen in the distribution process, the document said. The challenge for China’s government will be to ensure that hospitals, which currently depend heavily on drug sales for income, will be able operate despite cuts in revenues from sales of medicines.

In the policy document, Beijing also asked local governments to lay out quantifiable caps on medical expenses by the end of June, while it works on a national target.

China will gradually increase the number of medicines in a national drug price negotiation pilot program to "reasonably lower" the prices of patent-protected therapies, according to the document. Li Bin, director of the National Health and Family Planning Commission, said at a press conference last month that the program had already sought price cuts of more than 50 percent from drug companies on about five kinds of costly imported drugs for illnesses including cancer.

— With assistance by Hui Li

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