October 4, 2005

Chinese authorities have reduced the price of over 400 medicines in 22 therapeutic categories by as much as 40%, but some industry observers claim the move will do little to make healthcare more affordable. Nevertheless, the government expects the decision to save approximately CNY4bn (US$494.3mn) per year.

In the last eight years, China has carried out 16 separate price cuts on more than 1,000 different medicines. As a result of the cuts, many drugmakers have simply halted production of products such as amoxicillin, and instead introduced more expensive medicines with similar therapeutic functions.

Meanwhile, hospitals — which account for the majority of drugs sales in China — are refusing to prescribe low-margin drugs. Such practices are likely to become more widespread in light of recent government legislation banning hospitals from raising drug prices.

Much of the problem lies in the fact that drug prices in China are inflated by the wholesale sector, and final selling prices can be up to a dozen times the manufacturer's cost. This can make even generic drugs — which account for the majority of drug consumption in the country — prohibitively expensive for China's large and predominately low-income population.