Announcement:

:
NDRC has released a draft document, Plan for Advancing Drug Price Reform (Draft), on Nov 25th to eight pharmaceutical industry
association for comments.
The purpose of this proposed regulation is to cancel government-set prices on drugs, and through insurance price controls and the
tendering process, to allow the actual transaction price of drugs to be set by market competition. The change will take in effect on
Jan 1st 2015.
Change
1)

From 1996, China drug pricing system is divided into NDRC pricing and price review and MOH & Provincial health
bureaus tendering and purchasing.
2) NDRC is ceiling imposed the retail prices of selected drugs. There are 2700 drugs
a. Around 23% market share is the government-set limits on drug prices.
b. 80% of drug market is under health medical institute
i. Tendering and purchasing has more power on pricing decision.
3) The latest regulation is to remove NDRC price cabs on a limited number of drugs
a. In order to let the prices be set by a combination of health insurance departments, existing tendering processes
and multi-stakeholder negotiations.
Measures:
1) Improving drug purchase mechanisms Drug products should be classified based on:
a. Be determined through market competition.
b. For drugs with multiple manufacturers and sufficient market competition-> centralized online purchase
c. For drugs with insufficient market competition-> price negotiation mechanisms with multiple stakeholders
d. For drugs with clinical demands, low consumption volume and short supply-> the government should designate
manufacturers through tenders;
2) Boosting the role of BMI cost containment and Strengthening regulation of pricing practices
a. set payment standards for reimbursable drugs
b. BMI and tender policies should be well integrated and a mechanism under medical institutions
c. Price control authorities should, through setting drug pricing practice rules, guide rational pricing of
manufacturers in the principles of fairness, regulatory compliance and honesty
d. Price violations and monopolistic practices should be cracked down and penalized severel
Impact
1)

Market
a.
b.
c.
d.
e.
f.

2)

Product
a.

The prices of hospital-sold drug products are not expected to rise under control of the tender purchase system.
At the initial phase of reform, the prices of some drugs may go up in retail pharmacies.
Guided by BMI payment standards and controlled by drug purchase tender system and BMI
Cost containment measures + strengthened market transaction price surveillance and regulation = most of the
markets will not increase.
In the long run, BMI payment standards will become the main guidance to market transaction prices
i. Thanks to the incentive mechanisms that the hospitals will benefit from using their model.
Following rounds of adjustments, BMI payment standards are expected to reflect actual market situations,
therefore sustaining market prices of drug products at a reasonable level.
Only blood product price will increase due to highly cost with existing low margin.

Conclusion
After concluding that restraining and tightly controlling the market benefited neither the consumer nor the suppliers, government has
decided to go for a liberalized market under external guidelines, and correcting measures to ensure fairness in price, quality, and
availability to the end customer.
This liberalization may not have a long term impact in terms of pricing but will be the foundation of a more dynamic environment
where shortage of products, unfairness, or monopolistic trends wont take control of this freedom
Existing Chinese market structure