Healthcare Reform in China and
Its Impact on the Pharmaceutical
Industry
Hengpeng Zhu
Institute of Economics
Chinese Academy of Social Sciences
zhp0904@gmail.com
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).
Characteristics of China’s Drug Market
1. Drug sales concentrates in the large and medium-sized cities .
2. Public healthcare institutions have been granted administrative
monopoly power in drug dispensing.
3. 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.
The Structure of Drug
Dispensing in Hospital
1. The share of top 20 companies accounts for 32% of
hospital’s drug retail sales.
1. The top 100 drugs sales accounts for 53% of
hospital’s drugs retail sales. Top 200 drugs account
for 73%.
Why So ?
1. Financing for healthcare institution comes from drugdispensing profits
2. Public healthcare institutions have been granted
administrative monopoly power in drug dispensing
3. The regulation on price markup rate from wholesale to retail
4. Administrative priority pricing for new drugs and lenient
reviewing and approval of new medicine application
5. Fee-for-service system adopted by public medical insurance
Main Objectives in China‘s Healthcare Reform
1.
2.
3.
4.
5.
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
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.
The EMs System in China
1.
2.
3.
4.
5.
6.
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.
Challenges of the EMs System
1. Local governments are unable to offer adequate fiscal subsidy
to compensate healthcare institutions.
2. Primary healthcare institutions are unable to raise price of
medical services.
3. Therefore, primary medical institutions are incapable of
implementing EMs system.
Consequences of Forceful Enforcement
of EMs
1. 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.
2. It will dis-incentivize doctors and medical service in primary
medical institutions will deteriorate.
3. It will increase the volume of out-patient visits to and drug
sales in the hospitals.
Objectives of Public Hospital Reform
1. Separation of regulation from management &
operation
2. Corporatization (making the public hospital
corporate organizations)
However, due to lack of motivation, local authorities
and public hospitals have not initiated the above
reform.
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.
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.
Per Capita Medical Spending
from 2007 to 2009
Average spending/visit :
outpatient
（RMB）
Growth
rate
in 2009
2009
2008
2007
MOH-owned
305.2
281.5
281.5
8.4%
Province-owned
238.4
219.8
200.0
City-owned
164.5
152.6
County-owned 1
126.8
County-owned 2
109.8
Growth
rate
in 2008
Average spending: inpatient
（RMB）
Growth
rate
in 2009
Growth
rate
in 2008
2009
2008
2007
0.0%
15197.3
13980.7
13117.4
8.7%
6.6%
8.5%
9.9%
12121.6
11084.1
10200.6
9.4%
8.7%
139.2
7.8%
9.6%
7216.2
6557.1
5892.5
10.1%
11.3%
117.8
112.5
7.6%
4.7%
4381.1
4115.3
3774.9
6.5%
9.0%
98.9
93.2
11.0%
6.1%
2978.6
2712
2491.9
9.8%
8.8%
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 government’s 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-YearPlan.
Thank you!