Guangdong’s Online Bidding System Drives Down Drug Prices
SHANGHAI – Public medical institutions in China’s Guangdong province will look to lower drug prices by purchasing pharmaceuticals directly from manufacturers via a new online bidding system set to launch in August, according to government officials.
In a July 2 announcement on the Guangdong Radio Station, the Guangdong Department of Health said it will switch from a public bidding system to an open online bidding system.
According to the Guangdong DOH, 943 medical institutions, 3,600 pharmaceutical enterprises – out of a total of over 5,000 manufacturers – and 1,850 other companies will participate in the program, which will manage 15 billion yuan ($2 billion) worth of drug purchases.
A limited form of the system has been running in Guangdong since the start of this year.
The system is a joint project between 14 Guangdong government departments, bureaus and banks including the province’s DOH, the provincial Price Bureau and the Guangdong branch of the Bank of China.
“This new system makes it easier for our products to enter hospitals through centralized purchasing,” Huang Tianming, sales director for Guangdong province at the Guizhou Hanfang Pharmaceutical Co., told PharmAsia News. “However, with the increased competition between manufacturers, it will also be more difficult for medical institutions to choose drugs because of the rise in options.”
Speaking at the Drug Procurement and Enterprise Development Summit held in the city of Zhongshan on July 7, Guangdong DOH Deputy Director Zhang Shousheng told reporters that nearly 30,000 drugs are already listed on the system.
Zhang also said that a more precise drug price evaluating system and a quality evaluating system will be established next year, which will strengthen drug flow supervision and the monitoring of medical institutions.
According to Zhang, drug prices will drop with the introduction of the online system. “Patients are the ones who benefit from the new system the most, as they can now save 15 percent to 20 percent on drugs costs,” said Zhang. “This system will cut prices, as it directly moves the drugs from the manufacturers to medical institutions.”
“This reduces the links in the distribution chain, reducing costs,” he added.
Under the new drug procurement system, all public medical institutions in Guangdong are required to purchase their drugs from those available on the online bidding system. Participating pharmaceutical enterprises must provide prices directly to the online bidding system for comparison by an evaluation group made up of 20 pharmaceutical and medical experts.
“Our hospital strictly abides by the rules,” Guangdong Provincial Chinese Medical Hospital Spokesman Hu Yanbin told PharmAsia News. “We will only select drugs for our patients from categories in the online bidding system.”
For drugs not listed on the online system, Zhang told reporters that hospitals should purchase alternative medicines of similar efficacy.
Although medical institutions must use the online system, patients could opt instead to purchase drugs through private pharmacies. “If patients think that the price is acceptable, they can buy these drugs at the pharmacies,” Zhang said.
"However, we will do our best to cut the prices from pharmaceutical manufacturers to bring them into the online bidding system.” he added.
But the online system is not foolproof. Zhang acknowledged that a conflict remains between the profit motives of hospitals and the need to centralize purchasing, reduce costs, and create efficiencies.
“In China, hospitals can mark up drugs by at most 15 percent when they resell them to patients,” said Zhang at the summit. “As a result, hospitals have an incentive to opt for the higher-priced drugs.”
“The bidding system is vulnerable to participants indulging in gaming it,” Chen Yuehua, a lawyer specializing in pharmaceutical regulations at the Guangzhou-based Scihead Patent Agent Co., told PharmAsia News.
“Manufacturers entering the bidding program will compete on price, which may cause artificially high or low prices," he said. “Hospitals also might choose the drugs with a higher purchasing price as that means more profit for the hospitals."
In addition, Chen noted that “Sometimes, the bid prices are lower than the production costs, which eventually may hurt new product research and development.”
Guangdong is not the only province adopting an online bidding system, according to a Ministry of Health report. Sichuan province has run a similar system since 2004 covering 81 percent to 91 percent of medical institutions, while Henan province and the Minhang District of Shanghai are currently testing an online system.
– Ying Huang
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