Government Survey Could Lead To New Round Of Drug Price Cuts In China

China’s National Development and Reform Commission is conducting a nation-wide drug price survey this month. The first such survey was conducted last year, and led to a major round of drug price cuts.

The survey is being carried out by provincial food and drug regulators and price-setting agencies, the commission said in a May 22 announcement, with the surveys due back at the end of June. According to the commission, pharmaceutical companies need to report wholesale and retail drug prices and production costs.

Chongqing-based Southwestern Pharmaceutical Co. has already received the forms it needs to submit.

“We are cooperating with the authorities,” Southwestern’s Director of Production He Xiaojiang told PharmAsia News. “It’s necessary and useful for the drug price market at present,” He said, but declined to comment further on the process.

In China, drug prices are reviewed by regulators, and drug caps are routinely imposed on individual medicines in an attempt to keep prices low for consumers. Since 1997, the government has reduced prices in 23 different rounds, with an average decrease of between 15 percent and 20 percent. Certain drugs saw cuts of as much as 60 percent at one time.

Some drugs, however, are exempt from price caps, such as new drugs.

“We don’t need to participate in the survey because biotech companies set prices themselves for class one new drugs,” Ji Xiaofei, Shenzhen sales director at Wuhan-based Hiteck Pharmaceutical Co., told PharmAsia News.

Foreign-made drugs, for the most part, are exempt from the price caps, Ji noted.

The pricing system has come under criticism by organizations related to the pharmaceutical industry; though no pharmaceutical companies interviewed by PharmAsia News directly criticized the process.

“I have doubts about the necessity for the drug price survey, as well as the timing of the drug price cap revisions,” said Xu Yingyun, a senior consultant with the Beijing-based China Medical Economics Research Center.

Pharmaceutical companies have different drug cost structures, Xu noted.

“At present, the government needs to develop criteria for reducing drug prices, instead of blindly cutting price or conducting price and production costs surveys,” Xu said in an interview.

The pharmaceutical distribution network includes manufacturers, distributors, resellers, and pharmacies. The extra costs added by each layer of the distribution network are passed on to end customers.

“It is urgent to fix the problems that exist in the pharmaceutical supply chain,” Xu said. “The drug distribution system could be the main cause for high drug prices.”

Another reason for high drug spending in China could be overly aggressive prescribing by doctors and hospitals. In China, doctors sometimes get a commission on the drugs they prescribe to patients, creating an incentive to choose the most expensive products.

“The unreasonable dispensation of drugs has increased consumer drug costs,” said Liu Zhenqiu, deputy director of NDRC’s pricing department, in an online discussion hosted by the government June 14. “This is a systematic problem within the whole medical industry.”

The drug price survey is part of a deliberate process to set drug prices “scientifically,” Liu said. Drug prices will be evaluated by experts, and then the agency will solicit public comments before making final pricing decisions. Surveys will be conducted on a regular basis, once every two years, he said.

As part of the process, NDRC’s pricing department established a separate unit in 2005, the Drug Price Review and Adjudication Commission.

In the future, Liu said NDRC plans to revamp the process of investigating and setting drug prices, but gave no details about how the process will change.

Drug costs are a particularly sensitive issue in China because many patients — including most rural residents — have to pay for medications themselves. Even insured patients typically pay high out-of-pocket costs.

“The government still has much work to do to finish setting up the health insurance system,” Liu said.

- Rachel Liu

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