Healthcare Reform in China and Its Impact on the Pharmaceutical Industry

1
Healthcare Reform in China and Its Impact on the
Pharmaceutical Industry

• Hengpeng Zhu
• Institute of Economics
• Chinese Academy of Social Sciences
• zhp0904_at_gmail.com

2
The Size of Pharmaceutical Market in China

• Pharmaceutical Expenditure in China will exceed
  100 billion in 2010. Medicines sold through
  healthcare institutions account for 75 in
  domestic retail market.
• In recent years, drug spending accounts for about
  42 of the total health cost(1.9 of GDP).

3
Characteristics of Chinas Drug Market

• Drug sales concentrates in the large and
  medium-sized cities .
• Public healthcare institutions have been granted
  administrative monopoly power in drug dispensing.
• Healthcare institutions prefer high-priced
  medicines to low-priced generic drugs. For most
  of health care institutions, drug sales revenue
  amounts to 60 of the total revenue, and in a few
  middle and small hospitals it is as high as
  70-80. Profit in drug dispensing becomes the
  major source of the hospitals financing.

4
The Structure of Drug Dispensing in Hospital

• The share of top 20 companies accounts for 32 of
  hospitals drug retail sales.
• The top 100 drugs sales accounts for 53 of
  hospitals drugs retail sales. Top 200 drugs
  account for 73.

5
Why So ?

• Financing for healthcare institution comes from
  drug-dispensing profits
• Public healthcare institutions have been granted
  administrative monopoly power in drug dispensing
• The regulation on price markup rate from
  wholesale to retail
• Administrative priority pricing for new drugs and
  lenient reviewing and approval of new medicine
  application
• Fee-for-service system adopted by public medical
  insurance

6
Main Objectives in Chinas Healthcare Reform

• Universal coverage of social health insurance.
• National Essential Medicines System(EMs).
• Perfect primary health care system.
• Public hospital reform.
• Access to equal public health services

7
Achievements

• 94 of the population is covered through one of
  the four social health insurance.
• Minimum per capita premium of social health
  insurance is 150 RMB (New Rural Cooperative
  Medical Scheme).
• Doctor visits more than doubled from 3 to 7
• Hospital admission increased from 6 to 9 of
  every 100 persons.

8
The EMs System in China

• Completed reviewing and revision of the essential
  medicine list.
• Annual open tender and centralized procurement at
  provincial level.
• Released the new guiding retail price ceiling of
  EMs (NDRC).
• Zero markup for EMs dispensing in public
  healthcare institutions
• 100 reimbursement of EMs by public health
  insurance.
• The financial loss of health care institutions
  caused by the sharp decline of drug sale will be
  made up in two ways raising medical service
  price and increasing government subsidies.

9
Challenges of the EMs System

• Local governments are unable to offer adequate
  fiscal subsidy to compensate healthcare
  institutions.
• Primary healthcare institutions are unable to
  raise price of medical services.
• Therefore, primary medical institutions are
  incapable of implementing EMs system.

10
Consequences of Forceful Enforcement of EMs

• Enforcement of the EMs in primary medical
  institutions will exhaust the healthcare funding
  of local governments, leave them with no
  financial resources for public hospitals.
• It will dis-incentivize doctors and medical
  service in primary medical institutions will
  deteriorate.
• It will increase the volume of out-patient visits
  to and drug sales in the hospitals.

11
Objectives of Public Hospital Reform

• Separation of regulation from management
  operation
• Corporatization (making the public hospital
  corporate organizations)
• However, due to lack of motivation, local
  authorities and public hospitals have not
  initiated the above reform.

12
Alternatives

• Restructure the incentive mechanism of doctors
  and medical institutions through reforming
  provider payment of public medical insurance.
  E.g.,adopting capitation in outpatient
  reimbursement policy, DRGs and prospective
  payment system. This has become a general
  consensus between some central ministries and
  some local authorities.
• Some local authorities have begun piloting.

13
Result

• Early evidence indicated that it has changed the
  prescribing behavior of doctors and the drug
  dispensing pattern of medical institutions,
  together with universal coverage of social
  medical insurance, pharmaceutical companies with
  good cost-effective drugs are beneficiaries.

14
Per Capita Medical Spending from 2007 to 2009
15
Opportunities

• Growth rate of the total output of pharmaceutical
  industry in China has been 19.1 from 1993-2009.
  Its total output value will exceed 3,000 billion
  RMB(450 billion) by 2015 and 5,000 billion
  RMB(750billion) by 2020.
• To achieve this goal,China must dramatically
  improve the innovation of its pharmaceutical
  industry, especially make great effort to support
  the development and growth of biomedical
  pharmaceutical industry. Central governments
  objective total output value of biomedical
  industry should reach 40 of the entire pharma
  industry.
• Local governments in economically developed
  regions all list the biomedical industry as their
  strategic priority in their 12th Five-Year-Plan.

16

• Thank you!