The Price of Cheap Medicine in China

The National Health and Family Planning Commission (formerly the Ministry of Health), headed by Chen Zhu, formerly China’s Minister of Health, revealed in October 2009 an ambitious plan for a comprehensive reform of the Chinese healthcare system. The scheme would be called Healthy China 2020 and would provide universal healthcare access and treatment for all of China by 2020.

Ten years since the announcement of the plan, China has made some significant progress. An independent review of the Chinese healthcare reforms, conducted by Dr. Winnie Yip, Professor of Global Health Policy and Economics and the Harvard T.H. Chan School of Public Health, found that between 2008 and 2017, governmental health expenditure quadrupled from 359 billion RMB to 1.52 trillion RMB. Moreover, 95% of the population currently benefits from at least basic health insurance, which covers about 50% of medical costs. Nonetheless, China has limited experience with Western medicine, the practice only gaining wider acceptance in the 1970s and 1980s. As such, Chinese public healthcare is still lacking in areas such as quality and efficiency of care, public satisfaction and control of non-communicable diseases. Yet through the aforementioned reforms, hospital admission rates and financial protection for the population have improved, China thus benefitting from an overall enhanced equal access to healthcare.

This reform programme culminated in November 2018 with the implementation of a pilot scheme in 11 cities whereby a centralised procurement programme would cover 60 to 70% of public hospitals’ total annual medicine supply. Over the last year, on average, the price of 25 medicines has dropped by 52%, with price cuts even reaching 96% for certain generic off-patent drugs. This scheme has lifted some of the economic burden that the price of chronic and terminal medicine poses on patients. What is more, patients do not benefit just monetarily from this programme. Through the government subsidisation of medicine, hospitals no longer rely on drugs for profit, and doctors no longer over-prescribe medicine to obtain secret commissions from drug companies. The deputy director of the National Healthcare Security Administration summarises the impact of this programme well, declaring that ‘the amount-based rendering creates a new, healthier profit chain, so that companies can focus more on developing new drugs and quality’.

The quality of cheap drugs is indeed a concern for healthcare regulators. It seems implausible that the Chinese public healthcare system will be able to sustainably support the 1.3 billion people insured by the state with high-quality, effective and affordable medicine incessantly. Yet China plans to do just that. While the need to strengthen supervision and halt the collaboration with pharmaceutical companies that produce cheap rip-off drugs does exist, China has other strategies to facilitate cheap drug prices.

With China having a wealthier and aging population, it is the world’s second largest pharma market, and worth 130 billion USD. It thus presents itself as a very interesting market for foreign pharma multinationals. AstraZeneca, Merck and Roche all see China as a key growth market and are ready to pay the price of getting their products on the list of 2,700 drugs approved for reimbursement, the most consumed medications in China. The price is steep, and foreign pharma groups have found themselves offering discounts on their drugs of 61% on average and up to 85%, in order for the drugs to make the coveted list. Such steep price cuts mean rising pressure on profit margins, making it harder on pharma companies to recover their investments in new drugs during the decisive years after market approval. This will only be exacerbated by rising research costs. Even Sino Biopharma, China’s largest pharma company is suffering from such price cuts, which have driven its operating expenses to double over the last five years. As China shifts the economic burden of drugs from its people to foreign pharma companies, it is the latter that will pay the price for cheap Chinese medicine.

Due to China’s overall protectionist policies and “tradition” of asking foreign companies for a dividend in return for greater future returns and prospects, it is not hugely surprising that foreign companies significantly shoulder cheap drug prices in China. Moreover, the short tradition of Western medicine in China restricts the quality of the country’s public healthcare system. As such, healthcare reforms are a must. The introduction of cheap and effective medicine, subsidised by the Chinese government, as well as by foreign pharma groups, is a firm step towards the alleviation of both the economic and systemic burden that befall the average Chinese patient.


By Flavia Gaspar

Sector Leader: Fabian Piga

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