Seeking the Drug Price Cure-all

Previous public bids for drug procurement, which began in late 2018, only specified price, not quantity.　

In January 2020, Chinese health authorities released a list of 33 drugs for group procurement. German pharmaceutical giant Bayer lowered the price of Acarbose, a drug used to treat type 2 diabetes, to 5.42 yuan (US$0.77) per bottle, a 90-percent decrease compared to last year. Available in China since 1995, Acarbose cornered the country’s market for diabetes medications. 

Not only name-brand drugs, but generics have dropped in price.　

Official data showed that 25 drugs named for bulk purchase bidding in December 2018 have dropped in price an average of 52 percent, ultimately saving buyers 25.3 billion yuan (US$3.5b).　

“We are stabilizing market orders rather than repricing drugs,” a representative for the National Healthcare Security Administration (NHSA) told NewsChina in an email interview. “Drug price reduction is important to the public since China implemented its group buying program. In the long term, it is also important to guide how the industry develops.”　

As Anhui Province was not included in the pilot group buying program, Zhang had to buy similar drugs from another pharmaceutical company priced dozens of times higher.　

The situation was similar in Shanghai. According to Gong Bo, director of the Drug Price and Bidding Department at Shanghai Healthcare Security Bureau, Shanghai was looking into group purchases in August 2012. Previously, there were considerable pricing differences between hospitals. Some drugs were several times more expensive than the market price while other drugs were priced near cost.　

Before 2019, branded imported drugs were grouped separately from generic domestic drugs in the provincial drug procurement platform. This worked out for international firms, as there was less competition between imports to participate in the program. However, dozens of domestic pharmaceutical companies were left to scramble over a single slot.　

In some provinces, more than a dozen pharmaceutical companies won bids for the same drug, but hospitals would often pick one foreign and one domestic maker. This led to cutthroat competition between company representatives.　

“China’s high drug price stemmed from unscrupulous promotion tactics of pharma company reps. China’s medical reforms over the past 20 years have a history of combating such activities,” a senior official from NHSA told NewsChina on condition of anonymity. 　

Zhu Hengpeng, director of the Center for Public Policy Research, Chinese Academy of Social Sciences (CASS), said that by the end of the 1990s, China had 16,000 pharmaceutical distributors, most of which were notorious for poor logistics and chaotic management.

　

Public hospitals have been the largest consumers of China’s drug market. There are 2,709 drugs included in basic health, work-related injury and maternity insurance. Public hospitals contributed to roughly 80 percent of total drug sales nationwide.　

Zhu Hengpeng said hospitals would profit from a combination of markups, public discounts from pharmaceutical companies and under-the-table kickbacks. As a result, hospitals would opt for higher-priced drugs with larger kickbacks, which eventually narrowed patients’ choice for cheaper drugs.　

“Drug purchases in large quantities have been crucial to eliminating collusion between hospitals and pharmaceutical company reps,” the NHSA official said.　

Chen Qiulin, director of the Division of Social Security of the Institute of Population and Labor Economics at CASS, told our reporter that while pharmaceutical companies are pessimistic about the group buying program, the public welcomed the prospect of lower prices. “Widespread public support is the biggest difference compared with previous drug pricing reforms,” he said.　

In an October 2018 article headlined “Access to Antihypertensive Drugs in China” published in the American Heart Association’s weekly journal Circulation, Wang Jiguang, director of the Department of Hypertension at Shanghai’s Ruijin Hospital, and co-authors compared five common hypertension drugs in China and the US, including Amlodipine and Nifedipine. The article found that domestic drugs were priced between 1.5 and 6.25 times higher than those sold in the US.　

“Drugs sold in China or the US are high in price but have different characteristics,” said the NHSA official. While generic drugs in the US are cheap and patented drugs are expensive, in China there are fewer innovative drugs available. Also, generics and imports are widely used but expensive. During the group buying opening bids, many international firms provided the lowest prices for generic drugs anywhere in the world.　

“It sent a clear message to foreign-owned pharmaceutical companies that generic drugs should be sold at the same price and even cheaper in China than abroad,” said Gong Bo. “Only new innovative drugs should be sold at a premium.”　

Beijing released similar regulations and 843 medicines were removed from the local drug procurement website. On April 27, 2020, pharma firm Huadong Medicine in Zhejiang Province said in its annual report that six of its generic drugs had been removed from the procurement list. 　

In a letter to shareholders, company head Lu Liang wrote that the golden era for innovative drugs has arrived and generic drugs are being phased out. The company plans to increase its R&D expenditure to more than 10 percent of its sales revenue in 2020.　

“Market competition will force enterprises to innovate,” said Gong Bo, adding that there are hundreds of smaller drug firms producing the same generic drugs in China, but over the years many have failed to transform and upgrade their products. “They have to step out of their comfort zones and do away with their outdated production.”　

According to an Ernst & Young industry report, China’s pharmaceutical market reached US$1.37 billion in 2018, the world’s second-largest. Data from two of China’s previous group buys shows that most of the firms that won public bids were either international or leading domestic companies. 　

Ding Yilei, deputy director of the NHSA’s department of drug pricing and bidding, told NewsChina that drug price reductions stemmed from reductions in “unreasonable gray income” and transaction costs, saying that companies would have to remove unnecessary frills that bumped up the price. 　

A recent NHSA draft regulation outlines establishing a monitoring system for drug pricing and bidding among enterprises. Under the system, pharma firms would be held responsible for bribery committed by bidding agents, and discredited enterprises would be penalized. 　

“The pharmaceutical industry should expect a reshuffling from the drug group buying program,” Ding said. “For the long term, guiding industrial transformation is as important as alleviating the financial burden on patients.”