China is changing the way it procures drugs in its major cities. The result: Prices are set to tumble.
According to some media reports, the declines for some drugs could be as much as 90%.
Here are five things to know about the new cost-cutting effort.
What exactly is China doing?
Eleven major cities — including Beijing, Shanghai and Guangzhou — are banding together to bulk buy drugs through a tender process.
In what the government calls a pilot exercise, pharmaceutical firms were invited last month to bid for contracts to supply 31 drugs — ranging from allergy and high-blood pressure treatments to cholesterol and cancer medication.
Here’s the thing: There’ll be just one winner for each of the drugs. The victor would then solely supply that medication to the hospitals in all 11 cities.
Why’s China doing this?
The government is overhauling its healthcare system to provide better access to quality drugs and treatment for its population. While it has already begun to import more foreign drugs and make more of them reimbursable through its national insurance plan, it also wants to contain costs. Since its greatest bargaining chip is the sheer volume of demand from its massive population, China has asked cities to combine drug procurement in order to glean the best prices from drug makers.
So this is bad news for pharmaceutical companies?
Yes. Both Chinese and multinational companies oppose the plan, not least because the highly competitive tender process will inevitably slash drug prices and hurt their bottom lines. Another objection: By handing the supply of a drug almost entirely to one company, the government risks quality and supply chain issues, according to Sanofi’s China country chair Jean-Christophe Pointeau.