To conduct successful drug price reform, the pricing mechanism
should consider the interests of both manufacturers and consumers.
And the sharing and checking of power are fundamental to guarantee
The excessive cost of pharmaceutical drugs has long been an
issue affecting reform of China's medical system. Zhou Wangjun,
vice-director of the Department of Price under the National
Development and Reform Commission, gave direction on the next stage
of price reform at a recent industry meeting. Different from
before, this reform will involve various aspects of the medical
system including production, circulation and hospitals. Further
adjustment of drug prices will be conducted every two years and
will involve government intervention where drugs are priced by the
It is noteworthy that Zhou suggested China will draw on the
experience of India in its drug price management system.
World Health Organization (WHO) statistics show that in 2002,
public input accounted for 17.9 per cent of the total medical
expenses in India, while the number was 16 per cent for China. Both
are developing countries with huge populations. In India, about 260
million people are living under the poverty line, mostly in rural
areas. But there are many obvious differences too. The WHO ranked
China 188th for fairness of government contributions to healthcare
costs, while India was 43rd. In a word, the experience of the India
model is to give limited government money where it is needed most.
That is also the target and direction of China's reform.
According to India's model, an overall commercial operation will
harm the fairness of the public health system and bring hidden
problems to social stability. Meanwhile, the public healthcare
system should support and supervise domestic pharmaceutical
companies and urge them to provide inexpensive drugs to domestic
consumers. This will also be the way for China to succeed in the
China's government contributions to healthcare costs will not
catch up with that of developed countries at an average 40 per cent
in a short time. So it is practical to learn from the success of
other developing countries. At the same time, the input is not the
absolute standard to measure a public healthcare system. Social
fairness and balance among different interest groups are also
The key point of the current drug price reform lies in the
construction of a raw material cost monitoring system, as well as a
manufacturing cost accounting system. Only by clarifying the
production costs of pharmaceutical drugs can the final price be set
through limiting the profit margin; or can the illegal rebate
channel be cut between hospitals and drug sellers; or can the price
increase in circulation links be effectively controlled.
Luckily the differences in manufacturing costs of various
domestic pharmaceutical firms are not big and there is no
difficulty calculating the costs of raw materials. And technical
factors will not affect the reform much.
The institutional design will be the major factor that affects
the progress of reform. The core of the reform is to strengthen
government control on the pharmaceutical industry. The efficiency
of public departments has long been a key issue affecting reform
costs. To build a rational system is important to guarantee the
efficiency of the supervision departments.
According to Zhou Wangjun, pharmaceutical manufacturers that
increase drug prices should be put on record in the commission. The
government will also conduct accounting on the raw materials costs
of certain drugs and set up a corresponding pricing system. The
interests of both drug manufacturers and consumers should be
considered when setting the price adjustment margin and base.
The sharing and checking of power are basics to guarantee the
efficiency of supervision. There should be a law enforcement team
and a corresponding supervision team. The supervisors should
provide related cost accounting data, but not intervene in the
making of punishment rules. Enforcers should concentrate in
defending fairness and order, but not step into the investigation
The author is a PhD candidate with the Department of World
Economics at Fudan University.
(China Daily May 22, 2006)