Reform on Drugs Pricing

Focusing on the reform on drugs pricing, on 26 April 2015, the General Office of the State Council released the Circular on Work Summary for 2014 and Important Tasks for 2015 regarding Continuing Pharmaceutical and Health Regime (“Circular”). Later on 5 May 2015, the National Development and Reform Commission (“NDRC”), together with the National Health and Family Planning Commission (“NHFPC”) and Ministry of Human Resources and Social Security (“MHRSS”), released the Opinion on Proceeding with the Reform on Drugs Pricing (“Opinion”). Respectively on 7 May and 8 May 2015, the General Office of the State Council released Guidance for Trial of Comprehensive Reform on Urban Government-Supported Hospitals (“Guidance”) and the Opinion on Implementation of Comprehensive Reform of Rural Government-Supported Hospitals (“Implementation Opinion”). The main reforms on drugs pricing embodied in the Circular, the Opinion and the Guidance are the following:

1. The regime that government controls the prices of drugs is abolished from 1 June 2015 to large extent. Except narcotics drugs and Class I psychotropic drugs, the other drugs, whose cap ex-work price or cap retail price were originally controlled by the government, are no longer subject to such price control from 1 June 2015. Their price shall be decided by the market. The narcotics drugs and psychotropic drugs are still subject to the government control, i.e. cap ex-work price or cap retail price.
   
   
   
2. Being one of the factors affecting drug pricing, hospitals centralized drugs procurement regime will also be reformed. The procurement plan shall include the actual procurement quantity for each drug in order to avoid under-table negotiation of prices after the procurement price is decided. The purchase price of patented drugs and exclusively-manufactured drugs will be subject to negotiation by parties. According to the Circular, each province should formulate its own detailed reform plan on centralized procurement. At present, many provinces have published the draft of their own plans and are seeking for public comments.
3. Another important factor affecting drug pricing, i.e. the ratio of drugs reimbursement from medical insurance, will also be reformed. According to the Circular, the administrative measures on payment ratio of medical insurance for drugs should be released before the end of September 2015 by the NHFPC and MHRSS.
4. The right of hospitals to 15% add-on price on the sale price of drugs (excluding traditional Chinese medicine herbal pieces) is cancelled. At present, such cancellation is only applicable to government-supported hospitals in the trial urban area and rural area. Each province, except Tibet Autonomous Region, has at least one city under trial. Such reform means the revenue of hospitals generated from the sale of drugs will be vigorously reduced. According to the official statistics, the revenue that hospitals have gained from drugs sale represents more than 40% of their total revenue in 2013. It is anticipated in the Guidance that by 2017 such percentage shall be reduced to 30%.
5. In order to fill up the revenue gap due to cancellation of the right to add-on price of drugs, the medical service price of hospitals is planned to be increased. According to the Guidance, the reform of medical service price will focus on increasing the medical service price, particularly diagnosis, operation, medical care, bed, and traditional Chinese medicine. The guidance on this aspect, according to the Circular, shall be released by the NDRC before the end of 2015. Further, it is also debatable whether hospitals may be officially granted the right to re-negotiate the price of the drugs after the success of drug tenders in order to have a second chance to reduce the price of drug manufacturers, and thus, increases its margin.

So far, the Circular, the Opinion and the Guidance have only pointed out the direction of the reform on drugs pricing. The implementation of the reform is expected in the following regulations released by the authorities at national level and local level.