Big Step Forward in Medicine Price Reform
Approved by the State Council, seven ministries on May 5 jointly promulgated the opinions on pushing forward medicine price reform.
Previous market-oriented medicine price reform was once deemed a failure, primarily due to flawed administrative control. Without basic conditions for market-oriented pricing mechanisms in place, blindly pursuing marketization will turn out to be reckless and counterproductive, which may end up in the hands of related interest groups.
Presently, drug pricing is halfway liberalized. Due to the absence of overall planning, many policies are indecisive and liable to be blamed. To crack down on the unreasonable surges in medicine prices, authorities have introduced maximum retail prices since 2000, and tried to bring down prices by way of centralized purchasing, which may have squeezed pharmaceutical companies out of profit.
Restrictions such as maximum retail price and ex-factory price have been removed since January 1 this year. The new policy will lift controls on the price of about 2,700 medicines from June 1, accounting for about 23 percent of medications available. The central authorities also want to lower the overall cost through medical insurance and public bidding.
Centralized procurement bidding is a viable option for authorities to drive down medicine prices. Given that it's the government that pays for medical insurance, it should also be the one to invite public bidding. The Ministry of Human Resources and Social Security, which is in charge of medical insurance, has good reasons to play a leading role in inviting bids.
By letting provincial-level medical insurance departments directly invite bids and intensifying targeted supervision of them, the overall operation cost of medical insurance will be substantially reduced.
As a matter of fact, the profits of pharmaceutical companies have been dwindling, and this trend will continue in days to come. Under these circumstances, the scope of exclusively manufacturing medicines should also be contracted and further defined, and an accurate price discovery mechanism needs to be set up.
As the notice on issues concerning the price setting of independently priced medicines released in 2001 stipulates, drug products which feature higher efficacy and safety or shorter treatment cycle and lower treatment cost than others, or can't be priced through comparison, can apply for the privilege of independent pricing. So far, there has been no explicit definition about the likes of higher efficacy, and reference listed drugs (RLDs) can still maintain the privilege after patent protection term ends. The contortion of related regulations has resulted in myriad loopholes of the existing medicine pricing regime.
A Guangzhou-based pharmaceutical company once lodged a complaint that another company, whose Azithromycin was priced 20 times higher than other similar products, won a bid just because it's classified as a RLD, despite the fact that its patent expired as early as 2012. The concept of RLD has long been employed as a protective umbrella by drugs out of patent protection term. Some medicines have even stolen into the "exclusively manufactured" category to jack up their prices just by changing its dosage form from a conventional capsule to a gel capsule.
The new policy will set medical insurance payment standards to control the prices of the more than 2,000 varieties of medicines that can be paid by the medical insurance fund and set up a transparent, multi-participated negotiation mechanism to make sure the more than 200 patent and exclusively manufactured medicines are reasonably priced. Moreover, the prices of blood products, prophylactic immunization products of centralized purchasing, AIDS antiviral drugs and contraceptives out of the directory of insured drugs will be decided through bidding or negotiations.
Given all that, the power and responsibility of the market and the government in drug pricing should be clearly defined, and related government departments should accurately perform their duties.
Inviting bids is the best way to eliminate power rent seeking. The price reform may trigger a wave of mergers and acquisitions among pharmaceutical companies, which is conducive to enhance their development and research capacity and service quality.
With the establishment of a rational medicine pricing mechanism, relying entirely on building good relationships with the government will not be feasible and workable any more.
This is an edited excerpt of an article by Ye Tan, a financial commentator, published in the National Business Daily
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Copyedited by Kylee McIntyre
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