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Several dozen pharmaceutical companies had opposed the price cuts, saying they would not improve people's access to healthcare, as the cost of doctor visits remained high. Instead, they warned that such cuts would cause the collapse of domestic pharmaceutical companies.
In fact, repeated price cuts have had little effect. Why? This is because after the price is reduced, a medicine will disappear from the market. Then a "new" medicine (actually the old one) will appear bearing a high price tag. In addition, in the past, new drugs were readily approved by the Medicine Supervision Department, resulting in over 10,000 new drugs coming into the market each year. Yet even in the United States, a leader in the research and development of drugs, only a few dozen new medicines are approved each year. The Medicine Supervision Department's loose approach to drug approval is related to the lack of government funding for public hospitals, which depend on drug sales for their survival. Also, corruption certainly plays a part in this process. The price cuts are only a show to conceal the cheating that goes on in the pharmaceutical business.
China is now reforming its drug supervision system, which will definitely change the almost automatic approval of new medicines. Nevertheless, price cuts will probably still be necessary. Medicine currently accounts for 52 percent of total healthcare expenditures. This compares to 20 to 30 percent in most countries. When bidding to produce one medicine, the quotes offered by one company can be several times higher than another, even up to 200 times higher. This is unreasonable.
Proper price cuts in medicine can make doctor's visits and medical treatment more affordable for patients. More importantly, they can optimize and upgrade the drug industry by eliminating incompetent and corrupt players. Pharmaceutical companies that lack research and development capacity and economies of scale should be eliminated. At present, there are over 6,000 pharmaceutical enterprises in China, many of them small scale, resulting in duplication of effort and waste of resources. Most of these companies survive through high prices, high sales commissions and inappropriate marketing methods. By contrast, there are less than 20 pharmaceutical enterprises in the United States. The pharmaceutical industry is regarded as capital and technology intensive.
To solve China's problems with medicine and healthcare, on one hand, drug prices should be cut, but on the other, the government needs to invest more in healthcare, speed up the reform of the drug approval system, and separate drug sales from the cost of hospital visits. Above all, the government needs to set national standards for basic medicines. It should reexamine and approve the several hundred basic drugs that account for over 80 percent of patients' needs. It should designate approved companies to produce medicines, set unified and affordable prices, and organize a centralized system for the purchase and distribution of drugs to public hospitals and clinics. Under most circumstances, public hospitals and clinics should be required to use these nationally approved basic medicines. Under this system, the only pharmaceutical companies that would survive would be those capable of large-scale production of basic medicines, as well as those few with the capacity to research and develop new drugs.
China's pharmaceutical companies need to be restructured through competition, to expand their production scale, reduce costs and enhance their research and development capacity. This is the only way for the domestic pharmaceutical industry to prosper.
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(Hu Xingdou is professor of economics and China issues at the Beijing Institute of Technology and an expert on social problems. This article is translated and edited from the Chinese. ©Copyright Hu Xingdou.)
