Pricing mechanism for drug firms in pipeline
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China is likely to establish a unified pricing mechanism this year to control the prices of some pharmaceutical products included on the essential drugs list (EDL), according to a member of a drug reform commission.
Experts said the move would benefit the large domestic pharmaceutical companies and help improve the quality and safety of the nation's drugs.
Song Dacai, director of the medicine pricing section of the National Development and Reform Commission (NDRC) was quoted in the First Financial Daily as saying that EDL medicines with sufficient supply and stable market prices would be selected for the first batch of drugs to be incorporated into the new pricing system.
Song said the government hopes the pharmaceutical companies will pay more attention to improving services and the quality of their products rather than engaging in price competition. He did not reveal whether the mechanism would cover all 307 drugs on the EDL in the future.
Experts said a unified price mechanism would be quality-oriented. It would turn the attention of drug manufacturers away from simple price competition and make producers focus more strongly on combining reasonable prices with product quality and safety.
"It will be difficult for some branded pharmaceutical companies to compete with the smaller manufacturers if the government promotes the Anhui-based 'tender model'," said Guo Fanli, an analyst from the Industry Research Center at China Investment Consulting.
The Anhui-based 'tender model' was developed and used in East China last year as a means of controlling the prices of essential drugs. Under the system, those producers offering the lowest price in a bidding contest were awarded contracts to manufacture the stipulated medicines.
"The prices offered by some small drug manufacturers are so low that they would not even cover the production costs of the large manufacturers," Guo said.
"The model might not be helpful in improving drug quality and safety, because the bid winners might be small companies whose costs may be low, but whose products may also be substandard," said Guo.
Zhao Chao, chief executive officer of the pharmaceutical company Buchang Group, said that in the most extreme cases the price set by small companies would not even cover the packaging costs of larger companies.
Some sections of the media have reported that a number of large manufacturers have been forced to withdraw from some local markets, because they were unable to break even if they sold their products at the prices offered by the smaller players.
"We think the Anhui model may experience resistance from both the administrative body and patients," said Ding Ding, director of the research division at UBS Investment Bank.
A unified pricing system will benefit branded drug makers, according to experts. Meanwhile, it may also promote consolidation in the industry.
Larger companies may win contracts because of the higher quality of their products, but smaller producers may lose their competitive edge if a combination of quality and price is used as a basis for judgement, according to Guo.
"Companies may seek joint ventures to strengthen their position in the industry and increase market concentration."
Though officials said a unified pricing mechanism would benefit both manufacturers and patients, experts said the government should improve the monitoring process to ensure that prices are set at a reasonable level, said Guo.
The NDRC said on Monday that it would start a new round of nationwide inspections in April, and will focus on inspecting drug prices and fees for medical services.
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