Drug Price Negotiation Gains Real Momentum in China
2015/2/1 E药经理人

     In 2015, what the “drug reform” will be focused on is changing the drug pricing mechanism. The market will be given more say in this process.

     In 2015, the focus of the so-called “drug reform”, of which the official name is called medical reform in China, will be changing the drug pricing mechanism by giving the market more access. To follow this idea, new policies such as “public payers dominating drug pricing”, “second price negotiation”, “online prescription drug deregulation” are to be executed, which would loosen up the illogical drug regulations performed in the pharmaceutical industry of China.

     The ultimate goal of drug price reform is to abolish the price ceiling and establish a reasonable pricing mechanism dominated by the medical insurance department and the market. However, the dominationg force in drug price of China comes from the bid system. When the bidding continues, the publicly performed “second price negotiation” becomes a better solution for the hospitals and the companies. Besides, once the online access to prescription drugs is attainable, the access to drugs will be diversified immediately and in return the price will go down due to more competition. So the hospitals are going to need the bidding system changed to regain the benefits used to be brought by the drugs.

     It has been a public secret that under the bidding system, the drug price is commonly higher. But with the payers in China more involved, the hospitals will be more cautious on the expense of the drugs. Take the global budget payment, which is one of the main forms of paying system reform, as an example. If the hospital charges the patients more with the drugs, they will have to deal with the medical insurance departments when it comes to the bill and usually they would have to take care of the over-spent expenditure by themselves.

     Whether letting the payers take a dominant role in how much money should be paid for the medical behaviors will work or not depends on two factors. One is how the payers are going to give the money. The other one is how the bidding regulations are going to change. From the pilot projects, there are two models to look at. One is Chongqing. The other one is Sanming. Although the Chongqing model seems more reasonable but Sanming is obviously more welcomed by authorities because in Sanming model, the lower, the better.

     It is still believed that if the medical insurance departments take charge of the bidding, they would make better choice because of the budget pressure. Shanghai and other cities have shown this signal by delegating the bidding power to the insurance department. When this happens, hospitals will be the main party to negotiate prices.

     But from the message sent by the National Health and Family Planning Commission, the current bidding system is unlikely to be utterly changed which makes the “second price negotiation” stays as the mainstream. This has been apparent in Sunming model and some southern cities in China. With the “second price negotiation” getting more popular, the centralized drug bid will be weakened and may end up being canceled.

     What would definitely help the situation is the deregulation on online prescription access. More favorable polices are highly likely to come out in terms of pharmaceutical e-commerce and problems such as the payment or prescription access will gradually disappear.

     All above is screaming that a new era in which payers and customers are starting to have a critical say in drug pricing process is coming to the Chinese pharmaceutical market.

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