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China’s New Health-Care Push

The economic reform of the 1980s brought many benefits but  also meant that the health care sector was changed from the previous “universal coverage” to paid only service. This means that many of the poorer people  was unable to afford health care. It is one of the biggest source of grief for  the society. One component of affordable health care is the price of the  medicine. By allowing the various provinces to experiment with various system,  it seems the central government has decided to go with this  system. There are still many reforms ahead be it in education, health care  or governance but at least this is what I consider a big step ahead.

Full article reposted:

Aug. 5 (Bloomberg) — China’s efforts to make medicines  cheaper for 700 million rural people have dragged its biggest health-care stocks down 26 percent this year. Plans to expand the program to wealthy cities  may also hurt Pfizer Inc. and Merck & Co.

A new way to buy essential drugs being tested in Anhui  province caused prices to fall by as much as 90 percent. The system, which  encourages drugmakers to compete on price and quality for state contracts, may  go national and be widened to include other medicines, according to lobbyists  representing 38 foreign drugmakers in China.

Foreign companies oppose that because they say it will force  them to lower prices to compete with generic-drug makers. That may erode the  profit earned from every prescription they sell in the world’s fastest-growing  pharmaceutical market, which was worth $41.1 billion last year, according to  IMS Health Inc.

“There is some consideration within the government to expand  the Anhui tender system beyond the essential drugs list, and that would be an  even worse situation for us,” said Joseph Cho, who heads the Research and  Development-Based Pharmaceutical Association Committee in Beijing.

“We can understand if some poorer regions need to use this  process. But for those regions with better finances, they should not be restricted by the government to just low-priced generics.”

No. 3 Market

Prescription drug sales in China have more than doubled  since 2006, making it the world’s third-largest market, according to Norwalk,  Connecticut-based IMS Health. Wider health-insurance coverage and higher  incomes have improved people’s access to medical care, especially in cities  including Shanghai and coastal provinces including Jiangsu and Guangdong.

The government is trying to make medicines more affordable for everyone by encouraging competition among suppliers and favoring generics  over brand-name treatments.

Anhui, China’s fourth-poorest province, started seeking bids  from pharmaceutical companies in September, one of five provinces testing the  system. Now, medicines on the government’s essential list — including  treatments for heart disease and high blood pressure — are 53 percent cheaper  on average than the maximum retail price set by the government, said Xu Hengqiu, the local deputy director of health.

Stock Slump

“We’re guided by one principle: when drug prices are low, the common people benefit,” Xu said.

A seven-pill pack of a generic version of Merck’s  cholesterol-lowering drug Zocor has plunged to 2.45 yuan (38 cents) from about 25 yuan, and copies of Novartis AG’s Lopressor blood pressure medicine go for  4.75 yuan for 20 tablets, compared with 9.5 yuan.

Shares of companies supplying products on the essential- drugs list have slumped. The MSCI China/Health Care Index is down 26 percent this year, making it the second-worst performer of 10 industry groups in China tracked by MSCI.

Shineway Pharmaceutical Group, which sells traditional remedies, has lost half its market value on the Hong Kong exchange this year, making it the worst performer of 137 stocks on the MSCI ACWI/Health Care Index.

The company, based in Hebei province, was beaten in two  tenders earlier this year, said Eva Chun, a Hong Kong-based equities analyst at Kingsway Group, citing discussions with the company’s management. Shineway,  which earns a third of its revenue from remedies for fever and hepatitis,  didn’t respond to a request for comment on its sales.

‘Lot of Uncertainty’

“The policy changes have generated a lot of uncertainty,”  said Jason Siu, a health-care analyst with OSK (Asia) Securities Hong Kong Ltd.
“The concern is that the price cuts will affect profits along the entire supply chain, from finished drugs to retail stores and drug distributors.”

China’s central government maintains a list of 307 drugs that it deems necessary for state-run hospitals and clinics to stock.

Those medicines typically generate a higher sales volume,  though only account for about 10 percent of China’s pharmaceutical market by value, said Du Jinsong, a health-care analyst with Credit Suisse AG in Hong Kong. The government has ordered 27 rounds of price cuts during the past  decade, Du said.

“Many companies had thought the essential drugs-list market  would be very attractive, but are gradually moving away because the tender price is too low,” Du said.

‘Important Task’

Credit Suisse describes the system as the “lowest-price- win Anhui model.” It was introduced under Sun Zhigang, the former provincial vice-governor who now is director of the Office of Medical Reform, a unit of the policy-setting State Council that reports to Premier Wen Jiabao.

The introduction of a new procurement system “has become an  urgent and important task,” and the State Council has requested that 22  provinces implement a tendering method modeled on Anhui’s, Sun told the official Xinhua News Agency in June.

Patients in the wealthier provinces of Jiangsu, Zhejiang and Guangdong already use foreign drugmakers’ products, said Cho, who is also  chairman of the Chinese unit of Astellas Pharma Inc., Japan’s third-largest pharmaceutical company.

“If the ‘Anhui Model’ is fully implemented throughout China, then even those patients would not be able to use our products,” he said.

Cho’s group speaks for all its members on the tendering system, Xi Qing, a spokesman for Pfizer China in Shanghai, said in an e-mail.

Better Options

In Guangdong, which neighbors Hong Kong, some drugmakers have threatened to boycott the tenders because of price competition, the Nanfang Metropolis News, part of the Chinese Communist Party-controlled Nanfang Daily Press Group, reported July 28, citing interviews with drug-company executives it didn’t identify.

“I might as well invest in funds or go buy a property — anything is better than drugs these days,” said Tang Changshou, who runs Yangcheng Pharmaceutical, a maker of generic medicines including the antibiotic  cefixime and the diabetic treatment metformin.

Tang’s company has lost out in all the provincial tenders it has participated in, he said. After a meeting on May 24, China’s six biggest pharmaceutical industry associations issued a statement urging the government to avoid focusing on price cuts.

WHO Critique

Yet the measures are helping people like retired rice farmer Lin Hecai, who lives in a village at the foot of a mountain 80 kilometers (50 miles) outside Anqing, in Anhui province.

Cheaper medication and a new insurance policy means he pays 10 yuan to see a doctor, compared with 30 yuan two years ago, he said.

“Even for just small ailments — flu and fever — I can afford to see the doctor whenever I fall sick,” the 64-year-old said as he waited for a consultation in the village clinic.

The benefits of China’s economic growth “haven’t been shared equally” among rural dwellers like Lin, the Geneva-based World Health  Organization said in an April report.

Public-health needs should be addressed even at the expense of the pharmaceutical industry, said Xu, Anhui’s deputy health director.

“If there are drug companies that fail, we will let them fail,” said Xu, a professor of rural medical reform at Anhui Medical University. “It’s not our responsibility to help them survive.”

 

 

  1. August 5th, 2011 at 14:27 | #1

    Great article and even better policy. America could learn from China to curb the run-away health care costs.

  2. August 5th, 2011 at 17:03 | #2

    @YinYang
    It would be hard if not impossible to push the same system in the US as multi-national pharmaceutical corporations are among the largest contibutors to both parties. The original title of the article is “China’s Health-Care Push May Curb Growth for Pfizer, Merck”. Stories like this would get very little attention in the mainstream press unless they want to push an agenda like “China declares war on Pfizer, Merck etc”.

  3. August 5th, 2011 at 22:28 | #3

    @Ray
    Right. The point is for Americans to have some introspection. What China working towards is exactly what many Americans want. They need to think how come they can’t do it. You dropped a big hint.

  4. zack
    August 6th, 2011 at 01:12 | #4

    if american drugmakers are making millions rather than billions of dollars in drug sales to China, i’m not going to be losing any sleep over it.
    those greedy fucks can just STFU and live with it, yes a capitalist environment where competition brings prices down.

  5. August 10th, 2011 at 00:19 | #5

    A good friend wrote in with his thoughts. He is a practicing doctor in the U.S..

    Did some more critical thinking on the situation. Overall, it’s a good thing to get drug prices down. I know they are one of the fastest increasing aspects of healthcare costs in the US.

    However, pharmaceuticals are not like Tupperware. They should not be subject to an aggresssive/pure capitalistic economic model. There are a couple of things to watch out for:

    There needs to be additional potential capacity factored in for additional treatment during outbreaks or unusual situations. During that last flu scare, hospitals ran out of influenza medications between the demand and the stockpiling that occurred.

    Corollary: There needs to be multiple companies that are part of the bid. There is a current shortage of vaccines and chemo drugs in the US. One of the factories is temporarily down (unknown reason). One of the other companies may be currently under investigation for safety reasons.

    Corallary #2: Although I support driving the “name” pharma companies out, the market still needs to be sufficiently profitable for generic drug makers to continue to function. You run the risk of losing the above ramp-up capacity and diversification of companies if you drive out generic makers by reducing profit margins too much.

    The biggest fear would be this: because the low profit margins, only companies who cut safety or efficacy corners would be able to bid for these contracts. They would then be at risk for producing inferior, ineffective, or contaminated products.

    Like I said, there are many reasons why drugs are not the same as Tupperware. A simple plan of supporting only generic drugs in the state-run insurance coverage should achieve a lot of cost savings without the extreme risks associated with driving prices down so sharply. This is true for both the US and China!

  6. November 12th, 2011 at 18:45 | #6

    Officials across the country are seeking to rein in drugmakers’ profits

    http://www.businessweek.com/magazine/bashing-big-pharma-in-china-11102011.html

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