China Plans Deep Drug Price Cuts

Following recent reports that China's Health Ministry is to ban hospitals from raising drug prices, the country's powerful National Development and Reform Commission (NDRC) has drafted plans to cut some drug prices by an average of 60%. The reductions will be the largest and widest since 1997.

China has attempted to reduce pharmaceutical prices on several occasions in recent years, but it appears that measures to date have largely failed to stop price growth. According to observers, cuts implemented in 2004 have reduced the value of drugs prescribed in hospitals by CNY30bn (US$3.6bn). However, many hospitals have simply replaced those products subject to reduced prices with others offering higher profit margins. This has reportedly led to shortages of key basic drugs.

The NDRC's plans are expected to order average price cuts of 20% on patented drugs manufactured by producers with foreign capital, as well as a 25% cut on such firms' off-patent drugs. Sixteen antibiotics such as ceftriaxone, levofloxacin, azithromycin and clindamycin HCl will be affected, as well as six products recently added to the reimbursement list including thymosin, interferon and water-soluble vitamins.

Unsurprisingly, drugmakers have strongly protested the plans, with four national and 20 regional pharmaceutical associations lobbying for a maximum cut of 20%. Most of China's leading drug manufacturers — which include North China Pharmaceutical, Harbin, Xinhua and Shandong Lukang — produce cheap, basic drugs, and the NDRC plans are set to boost consolidation in the sector. Official statistics show that the China's drug firms have decreased from 5,000 in 2004 to 3,500 this year alone. Competition for hospital procurement contracts is also set to become even fiercer