China's State Council releases measures to control pharmaceutical pricing

China's State Council has issued a policy circular containing several measures pertaining to the pharmaceutical industry, including controls on drug pricing, according to a statement. The policy document outlines several measures aimed at deepening China's healthcare reform and raise standards in its pharmaceutical sector.

(I) Raising quality and efficacy of medicines, reforming pharmaceutical sector

• The State Council calls for stringent reviews of pharmaceutical marketing-approval applications, with a focus on clinical value for new drugs. In addition, reviews of generic treatments must ensure that the drug quality and efficacy is consistent with the originator drug. The policy document also calls for better co-ordination with and guidance of drug makers to accelerate the drug-approval process, in particular for drugs that are in short supply. Attention should also be given to treatments for rare diseases and vulnerable patient groups such as children and the elderly, including the use of compulsory licensing if required.
• Speed up the raising of quality standard for listed generics, and ensure that quality is consistent with originators.
• Prioritise the approval of new drugs from the trial licence holder system and improve consistency within the system.
• Strengthen the supervision of and raise drug-manufacturing standards.
• Speed up structural adjustment of the pharmaceutical sector, including boosting technological innovation, support the development of innovative drugs and support the withdrawal of substandard companies, and promote the merger and reorganisation of drug makers.
• Ensure adequate drug supply and reduce shortages.

(II) Promote drug circulation system reform and address shortcomings

• Promote the transformation and upgrade of the pharmaceutical distribution sector.
• Implement the "two-vote" drug procurement system. The State Council urges the provinces and public hospitals participating in the piloted "two-vote" system to encourage other regions to implement the system, which is expected to launch nationwide in 2018.
• Improve China's drug procurement mechanism, including boosting transparency and fair competition, as well as encourage cross-regional and specialist hospital joint procurement.
• Strengthen the management of drug procurement and sale contracts.
• Implement inspections in the areas of food and drug regulation, healthcare, human resources, social security, price, taxation, business administration, public security, and other sectors on a regular basis.
• Strengthen monitoring and transparency of pharmaceutical pricing information and data sharing.
• Promote the use of the internet in the area of drug circulation to reduce transaction costs and promote efficiency and sharing of information.

(III) Regulate incentives within healthcare sector and behaviour of public healthcare institutions

• Promote the rational use of drugs by optimising the provision of essential medicines, including to public hospitals.
• Strengthen the role of health insurance standards and control costs.
• Encourage pharmacists to actively participate in the rational use of drugs.

Outlook and implications

Although the policy document addresses a broad range of issues, the most pertinent measures are related to the pricing of pharmaceuticals and regulation of the drug-distribution sector. In particular, the State Council emphasises that medicines launched within China should not receive a price higher than in originator markets. To this end, the State Council spells out a range of measures authorities can draw on to ensure this, including: pricing negotiations and conditional marketing approval, as well as the use of compulsory licensing if required for branded treatments. This indicates that pricing pressure within China is expected to increase, particularly for branded treatments, several of which are subject to pricing negotiations which have resulted in steep price cuts (see China: 23 May 2016: China cuts prices of innovative drugs by two-thirds, including GSK's Viread and AstraZeneca's Iressa).

The State Council's call for a "weeding out" of substandard domestic drug makers is expected to propel a wave of consolidation within the sector, as the demand for higher standards and greater supervision leads to significant reorganisation. However, although this is expected to boost local manufacturing standards, it may also represent increasing competition for pharmaceutical multinationals over the longer term.

In addition, the State Council's measures call for increasing transparency of drug pricing, including among public hospitals that until recently have relied on drug-price mark-ups as a form of operating profit. The call for greater transparency and price control is also expected to have a significant effect on China's drug-distribution sector, and follows a statement last month by China's National Health and Family Planning Commission (NHFPC), which plans to simplify its pharmaceutical distribution chain by reducing the number of middlemen as part of the country's ongoing campaign to bring down drug prices (see China: 30 January 2017: China's NHFPC issues changes to pharmaceutical distribution chain).