China's pricing authority, the National Development and Reform Commission, has held a series of meetings with the National Health and Family Planning Commission regarding reforms to drug price management structures for 2014; while retail price ceilings will remain in place for the foreseeable future, reimbursement price caps and clinical pathways will be tested among other cost-containment measures in pilot schemes in four provinces from next year.
IHS Global Insight perspective | |
Significance | The current drug price management system of retail price ceilings imposed by the National Development and Reform Commission (NDRC) is now viewed as an ineffective price-containment tool, with China's authorities considering reimbursement caps among a number of other cost-containment measures to complement the wider health reforms. |
Implications | From next year, the National Health and Family Planning Commission and other ministries will apply pressure on drug prices at the hospital tender level. Also under consideration is the introduction of a second round of price negotiation for drugs that win through in tenders, between pharma firms and hospitals. |
Outlook | From 2014, pilot schemes will trial the use of caps on the level of reimbursement paid per drug by the national health insurance schemes, as well as the use of clinical pathways, in Qingdao, Chongqing, Henan, and Shaanxi. |
Discussions of reforms to China's drug pricing structures have been ongoing over recent weeks, with China's national pricing authority the National Development and Reform Commission (NDRC) and the National Health and Family Planning Commission (NHFPC) holding a series of meetings in Beijing, Jiangsu province, Taizhou, and Hangzhou. There is now greater clarity on the reforms to be carried out in 2014, as Menet.com.cn reports.
Retail price ceilings to continue, further pressure through NHFPC policies at the hospital tender level
The NHFPC and NDRC are united in continuing to prioritise reducing the general level of drug prices in China. The current structure of NDRC-set retail price ceilings is no longer viewed as effective, as has been made clear by recent reports, but will continue for the foreseeable future. Rather than structural changes to the way the retail price ceiling system is applied, further pressure on prices will be brought by other ministries including the NHFPC, principally within the hospital tender process.
Policies to be implemented at the tendering level from 2014 include grouping originator drugs and generics in the same pool, reducing the number of preferential categories currently in place that grant different tender status according to perceived drug quality, and reducing the number of tenders held each year. These plans were revealed during the 2013 Annual Work Conference on Central Drug Procurement, as reported by IHS (see China: 13 November 2013: China considers policy to promote EDL in 2014, non-essential drugs to face pricing pressure). The NDRC and NHFPC are also moving towards adding a second layer of price negotiation after the provincial tender stage, so that having won a drug tender, price would again be negotiated with each hospital.
Reimbursement-led price guidance, clinical pathways to be trialled in pilot schemes
The NDRC will continue to make use of retail price ceilings to guide drug prices, and in 2014 will make use of data gathered through recent surveys of drug manufacturers' costs to bring down prices of drugs of high price which it views as unjustified by underlying costs (see China: 5 July 2013: China's NDRC to survey 60 firms' ex-factory prices, international JVs included).
More clarity was also provided on longer-term plans to eventually replace the retail price ceilings with caps at the reimbursement level, as first revealed by NDRC director of drug pricing Song Dacai in August (see China: 9 September 2013: NDRC plans to replace retail price ceilings with reimbursement caps). As reported by the source, an NFPC official responsible for drug tenders stated this plan will see national health insurance scheme reimbursement caps applied, where patients pay out-of-pocket when this price cap is exceeded. An example is provided by Caijing.com.cn, where a foreign-made off-patent originator drug would be priced at CNY50 (USD8), its locally produced generic priced at CNY20, but the reimbursement cap would be set at CNY10. The scheme would also allow hospitals that sell drugs below the reimbursement price cap to keep the difference as "profits".
According to the source, initial pilot schemes trialling the system will be rolled out in 2014 in four provinces and cities: Qingdao, Chongqing, Shaanxi, and Henan. As well as trialling reimbursement caps, these will reportedly also pilot use of clinical pathways among other cost-control reforms, following a successful multi-province trial that reported positive results last year (see China: 19 April 2013: NICE-inspired clinical pathways and payment reform pilot in China's rural hospitals reports positive results).
Outlook and implications
China's current drug price management structure of NDRC-set retail price ceilings is now viewed by the central authorities as ineffective, and failing to influence market realities. Reforms to the structure will be the new focus of ministerial efforts, and are viewed as complementary to wider health reforms being carried out on national health insurance schemes, and addressing hospitals' management and revenue structures.
For 2014, further retail price ceiling cuts will be made against "high-priced" drugs; no indication is given at this stage as to which drugs will be affected, but this will likely focus on off-patent originator drugs that have high sales. Provinces are already beginning to change hospital tender rules to put much greater emphasis on price over quality, and reduce negotiation space between pharma companies and hospitals, as implemented in Guangdong province in August (see China: 17 September 2013: China's Guangdong province implements third-party hospital online tenders).
The proposed national reimbursement price capping scheme, as described, will not be a short-term prospect. In theory, such a scheme would tie in with plans to unify management of the national health insurance schemes under one ministry (see China: 23 October 2013: Moves towards cross-province health insurance pilot scheme falter in China). In practice, there will be considerable difficulties in applying national standards and pricing rules over China's 31 provinces, municipalities, and autonomous regions. There are also fears that the scheme will entail risks of greatly increasing the spending burden on patients, undoing progress made since 2000. Greater influence of the payor at the hospital drug-purchasing level will generally lead to greater emphasis on price over quality, with the concurrent risk of falling drug quality levels within the public system. Authorities will tread carefully, and will continue to push for greater convergence in terms of the quality of domestic-made generics with foreign-made originators through good manufacturing practice guideline implementation, while the use of clinical pathways may be a surer way to ensure more rational prescribing by doctors and impose some form of control by the payor over hospitals' spending.