China backs away from price controls on basic drugs 18/2/18, 2'51 PM

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HEALTH NEWS APRIL 17, 2014 / 9:40 PM / 4 YEARS AGO

China backs away from price controls

on basic drugs
Li Hui, Adam Jourdan 6 MIN READ

BEIJING/SHANGHAI (Reuters) - China has backtracked on its policy of capping retail

prices on medicines and will allow pharmaceutical companies to set prices for some
drugs, after criticism that controls had caused a drug drought that derailed treatment for
millions of patients.

A worker packs Chinese patent capsules the medicine which tops the list of a Diagnosis
and treatment scheme for human contracted H7N9 virus released by Chinese government
earlier, in Bozhou, Anhui province, April 8, 2013. REUTERS/China Daily

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China backs away from price controls on basic drugs 18/2/18, 2'51 PM

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Beijing has been struggling with rising healthcare costs, violent conflicts between
patients and doctors and medicine safety issues, and President Xi Jinping has said What are the characteristics o
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providing affordable, accessible healthcare is a government priority. AXA Investment Managers

The partial reversal of the price control policy, in an announcement quietly posted on a What sustained higher oil pri
government website on Tuesday, will give drug companies that were reluctant to supply means for EM FX
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low-cost medicines greater incentives to do so and likely ease shortages.

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But the move is limited to a specific number of drugs and falls short of tackling the Singapore info session
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It follows a series of critical articles in Chinese media that exposed a shortage of the
drug Tapazole faced by millions of hyperthyroidism patients since last year.
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Essential drugs for other conditions have also vanished from the shelves in the past few Nikkei Asian Review

years, as domestic manufacturers have found it not viable to produce them.

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China will loosen price controls on a list of “commonly used low-cost medicines”,
allowing pharmaceutical companies to set prices as long as the daily cost of taking the
drug “remains in a certain range”, according to a statement on the National Health and
Family Planning Commission’s (NHFPC) website.

The statement did not specify what that range was and which medicines would be
included in the list.

“Drug shortages directly impact clinical treatment for patients, and threaten the health
and life of the masses,” an unnamed official said in a Q&A posted on the website.
“Securing the supply of low-cost medicine… is an important part of deepening health
and medical system reforms.”

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Shares in Chinese drugmaker CSPC Pharmaceutical Group Ltd rose 3.8 percent on
Thursday, while Shanghai Fosun Pharmaceutical (Group) Co. shares rose 1.3 percent.

PROCUREMENT SYSTEM

The new regulations will also allow hospitals to choose suppliers of these medicines.
Under the current drug procurement system, suppliers are chosen through provincial
bidding systems geared to keeping costs low, driving drug companies to cut or suspend
production of many basic medicines.

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China backs away from price controls on basic drugs 18/2/18, 2'51 PM

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“The most important reason (for the drug shortages) is inappropriate management and
control by government bidding departments in the bidding and procurement process,” Ad closed by
said Yu Mingde, president of the Chinese Pharmaceutical Enterprises Association, an
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organization supervised by China’s cabinet.
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The new policy is expected to improve the supply of inexpensive basic medicines. A
proposal submitted to an advisory body to China’s parliament in March cited a survey
that showed more than 200 kinds of inexpensive medicine were in short supply, over Top 25 Business Apps
half of which were priced under 10 yuan ($1.61). The Best Apps & Software
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About 300-400 kinds of inexpensive basic medicines, such as Tapazole, are widely used
in China, covering 80 percent of medicine use of all patients, according to the proposal.

The official price caps and government-run bidding have forced prices down at the
expense of quality, said Yu, with some companies cutting corners to supply at below-
cost prices.

For other essential medicines supplied under public health programs, local governments
will remain in control of purchasing and distributing.

Alexander Ng, a Hong Kong-based principal at McKinsey & Co, a consulting firm,
predicted bankruptcies among many small local pharmaceutical companies, partly due
to price pressures.

Such pressures, along with the increased cost of meeting regulations and probes into
corruption in the sector, dragged on profit growth and squeezed margins last year,
according to a Reuters’ analysis of over 50 Chinese healthcare firms.

Combined profit growth in 2013 fell to around 2.6 percent from 15.2 percent the year
before, while profit margins shrank from close to 17 percent to 10.5 percent.

China has poured more than 3 trillion yuan ($482 billion)into medical reforms over the
past five years, focusing on expanding health insurance coverage and improving access
to medical service and medicines.

The country’s healthcare bill is set to hit $1 trillion by 2020, according to a report from
McKinsey & Co.

Some pharmaceutical companies had told Reuters they were unwilling to continue
supplying loss-making products.

“We stopped producing in June 2012 because the price was too low,” said a worker
surnamed Yang at Beijing Yanjing Pharmaceutical, one of the major suppliers of
Tapazole.

“Our cost is above 2 yuan, but the bid price used to be 1.27 yuan until the first half of
last year, we lost millions each year supplying this medicine.”

The shortage of Tapazole, used to treat over-activity of the thyroid gland that can cause
rapid weight gain or palpitations, last year sent patients scrabbling for an imported
alternative, forcing them to pay a hefty premium.
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China backs away from price controls on basic drugs 18/2/18, 2'51 PM

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The existing healthcare system also discourages doctors from prescribing essential
medicines because hospitals make very little or no money from selling them, making it Which type of investors could be interested
short duration?
more difficult for patients to get treatment with low-cost medicines. ($1 = 6.2214
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