October 18, 2005

According to official data, drug consumption at China's hospitals reached a record CNY22.2bn (US$2.72bn) in 2005, an increase of 30% over the previous year. Rising drug prices in hospitals, growing health awareness and demand for expensive high-tech medicines have driven the performance. China's hospitals account for 80% of the pharmaceutical market, due to their central role in both prescribing and dispensing.

As a result of soaring hospital expenditure, the government has implemented a series of wide-ranging price cuts. Last month, it was announced that prices for over 400 medicines in 22 therapeutic areas would be cut, a move expected to result in savings of CNY4bn (US$494.3mn) per year.

Meanwhile, the government has introduced measures to bar hospitals from raising drug prices. These new directives contravene previous government policy, which encouraged hospitals to increase pharmaceutical prices by up to 15% in order to make a profit. As a result, drug sales have soared in recent years and now account for over 60% of income for small and medium-sized hospitals. There have also been allegations that hospitals are over-prescribing as well as dispensing excessively.

Despite these measures, China's drug market is forecast to grow rapidly in the short term — reaching US$40.8bn by 2009 — due to the sheer size of the population and the country's currently low drug consumption levels.