Plunging Chinese drug prices orchestrated by the state are squeezing the world’s largest pharmaceutical companies trying to cope with slowing sales in the country.
One of the biggest problems is China’s government-run health insurance funds, which are struggling to keep up with an aging population and surging incidence of diseases like cancer or diabetes, Bloomberg reports.
Many of these funds are capping reimbursements to patients and pushing local authorities to negotiate with companies to lower drug prices as they grapple with tighter budgets amid a faltering economy.
More than US$115 billion of drugs were sold in China last year, according to researcher IMS Institute for Healthcare Informatics, making it the world’s second largest market after the US.
China’s pharmaceutical market shrank by 1 percent in dollar terms from October to November, according to Barclays Plc., a sharp contrast with the 17 percent expansion in the second half of 2013.
As a result, companies from the UK’s GlaxoSmithKline Plc. to AstraZeneca Plc and New York’s Pfizer Inc. saw China sales growth weaken last year.
In the latest sign of price pressures for the industry, Li Bin, director of the National Health and Family Planning Commission said at a press conference at the National People’s Congress on Tuesday that China has won price cuts of more than 50 percent in national-level bargaining with drug companies on about five kinds of costly imported drugs for illnesses including cancer.
The official didn’t name names.
Chinese citizens pay premiums to the country’s public health insurance funds from their salaries but those amounts are rising more slowly as the economy has expanded at the slowest pace in 25 years.
Ｍeanwhile, the insurance funds face rising costs because the country’s citizenry is ageing so rapidly, said Joseph Cho of RDPAC, an industry group representing foreign drug companies in China.
“Increase in premium income cannot keep up with payment growth, so there are various kinds of measures to curb costs, and starting with medicines is the easiest way,” Cho said.
The pressure on the public health system had a particularly visible effect in the fourth quarter when Glaxo experienced a 25 percent decline in China drug sales.
Merck’s fourth-quarter drug revenue growth slowed to 2 percent from 13 percent in the same period a year earlier and AstraZeneca’s fell by about two-thirds to 6 percent, according to Bloomberg Intelligence.
Government insurance funds decide on the reimbursement levels at public hospitals, which treat about 90 percent of China’s patients and sell 70 percent of the country’s drugs.
By the end of last year, many hospitals had hit their reimbursement caps and had to curb prescriptions of more expensive drugs from multinationals while also postponing costly surgeries and inpatient stays, Cho said.
About 185 of China’s 380 locally managed public health insurance funds appear to be making losses, he said, citing research from a local academic.
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