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Li Keqiang, vice premier of China, recently published an article, admitting the numerous difficulties and challenges the Chinese medical reform is facing as well as the existing problem of “maintaining medical service with drugs”.
The article stressed that the medical reform had already got into the deepwater area and thus would encounter more and more contradictions and difficulties. The reform is like sailing against the current while no progress means regression.
It is generally believed that “maintaining medical services with drugs”is the primary source of the defects in China’s medical system. The CCTV, China’s healthcare television, now focuses on the lofty drug prices and finds that some local public hospitals purchased drugs with the bidding price being ten or twenty times as much as their factory prices. The CCTV blamed the drug wholesale, distribution and other circulation procedures for the high drug prices. A drug dealer from Zhejiang told the journalists of China Business Focus(CBF) that the bubble in drug price is much bigger than the one in house price.
Prof. Ren Baoyong from Shanghai Jiaotong University said that the current drug price is not unreasonably high.“If the drug price is not high, interest groups cannot get benefits. Only such a high price could feed so many people and satisfy different interest groups(reach a balance) to build a harmonious society.”
He told CBF journalists that there was no accurate data about how many drug representatives China has. “What do the drug representatives stand for? Every one knows it.”
However, a report from the Zhejiang Association of Medicine and Pharmacy said that some drugs’ prices were unreasonably low and this phenomenon could cause severe outcomes.
What’s the secret for the lofty drug price in China and why is it accompanied with the said “unreasonably low drug price”?
How does the “drug worm”come out?
In China, the circulation of drugs is usually taken by three parts – the manufacturer, the wholesaler and the hospital. Provincial drug bidding must be conducted before the drugs are sold to the patients via the retailing system of medical and health institutions. The bidding is subdivided into essential drug bidding and public hospital drug bidding.
In August 2009, the Ministry of Health and other 7 departments jointly published a guideline that started the construction of national essential drug system. The list of national essential drugs covers 307 kinds of chemical drugs and Chinese patent drugs. The local governments of provinces and municipalities can add 200 more kinds of drugs into the list based on their own conditions. Each province or municipality could have a list with about 500 kinds of drugs. The essential drugs are sold with zero price gap in communities and clinics in towns, while the drug prices sold in public hospitals can be sold to the consumers with a 15% increase compared with the factory prices.
An anonymous expert told CBF journalists that the circulation of one kind of drug after being produced can be classified into two different situations: one is that manufacturing fac- tories, especially some big enterprises, build their own marketing teams, which are divided into two groups – one group is the commercial representative team communicating with the dealers and the other group is the academic representative team communicating with the hospitals. “For example, a new anti-AIDS drug is developed but no one knows its actual effect and side effect. In that situation, the manufacturing enterprise will form a special team of experts to promote the drug,” said the expert. For pharmaceutical companies, building business and academic teams by themselves is good for controlling the final price. “This pattern could not increase the drug retail price to ten or twenty times as high as its factory price.”
Another situation is that the pharmaceutical companies directly sold their drugs to the general agencies – which are commonly called “big wholesalers”. The big wholesalers are responsible for the construction of marketing system of drugs. “This situation is more dependent on the relationship-based marketing. Big wholesalers will not sincerely and seriously promote the market for drug factories. They may build business or academic teams for drug manufacturers. But more of them subcontract the dealing of drugs to agencies inferior to them. The last of the inferior agencies are called ‘drug worms’, who have close relationship with directors and principals of different hospitals and departments.”
A source having been a drug representative for years said that the manufacturing enterprises will allow some profits for big wholesalers, including the channel construction fees, logistics fees and academic promotion fees. If the drug promotion reaches “drug worms”and all of them have good relationship with hospital or department directors, the commission will play an important role in that situation – who pays higher commission, whose drugs will be bought.
A fellow studying the drug distribution system said that everything has its own reasons to exist. The current system gives birth to a large number of“drug worms”. “This is a method of surviving and its core of existence is that it grabs rare resources.” He said that many drugs chosen through bidding by different provinces are common products. For example, ceftriaxone has different speculations of 1g, 2g, 5g and 10g and each speculation has several designated factories to produce them. But which factory’s products could be chosen by hospitals depends on the promotion and the “closeness”of these “drug worms” with hospitals.
In 2010, the Chinese Academy of Social Sciences made a research in Hu- bei, Hunan, Zhejiang, Fujian and Beijing and found that 60% of the bidding prices of essential drugs are prepared for the commissions for hospitals and doctors.
A doctor in a Jiangsu-based hospital told CBF journalists that he could earn 10% of the drug price as the commissions when he prescribed a certain kind of drug for the patient. He also said that the commission rate could reach 20% in some big hospitals.
Drug price addition: a ridiculous game rule?
It is reported by CCTV that the factory price of the 2ml/0.3g Clindamycin phosphate injection liquid is 0.6 yuan, but the bidding price for the same dosage is 11 yuan in Beijing. In comparison, in Henan, Shandong and Shanxi, where the essential drug bidding system is adopted, the bidding prices are respectively 0.67 yuan, 0.7 yuan and 0.68 yuan.
The report was doubted by many professionals and practitioners. Prof. Gu Xin from Beijing University said to CBF journalists: “Since the Clindamycin phosphate injection liquid belongs to the essential drug list, it should be sold with no price gap in community hospitals, but why the consumer in that report could not buy the injection liquid with 0.7 yuan and instead he went to Beijing and buy the same liquid with 11 yuan? Do not tell me that the drug is not available even in Jinan, the capital of Shandong.”
The aforementioned anonymous source held the same opinion with Prof. Gu Xin. He said that the case like the Clindamycin phosphate injection liquid did exist but could not stand for the whole drug market.
In his opinion, it is not objective to simply compare the factory price with the final bidding price. “Many pharmaceutical companies have no distribution power and have to contract the distribution of their products to the agencies. Therefore they do not need to afford the cost of distribution. The agencies hold the resources of hospitals, forcing the pharmaceutical companies to undersell their products to them with the lowest price. Some products could not bring profits or even fail to offset the cost, but the production of them should not be stopped because the pharmaceutical company needs to amortize the whole operation of its production unit. Therefore, it is not right to compare the factory price and bidding price of a single product.” One reason to explain the current lofty drug price is the policy allowing hospitals to sell the drugs with the prices 15% higher than their bidding prices. The higher the bidding price is, the more profits the hospital could have.“Driven by this profit pattern, the hospitals are more willing to use expensive drugs.”
Another reason comes from the doctors. Firstly, the hospitals allow or even encourage the doctors to prescribe high-price drugs for patients. Secondly, the “drug worms” usually promise additional personal commissions for doctors if they use their drugs, making doctors prescribe a large amount of expensive drugs to earn bigger commissions.
Gu Xin thought that the unreasonably high drug price was resulted from an unessential game rule formed by the government. In his opinion, the stipulation about the 15% increase is ridiculous.“If you open a restaurant, the government required your food price could only be 15% higher than its cost. Will you then provide potato chips since the profits from potato chips are insufficient for a cook’s wage? In hospitals, the cheap drugs are just like potato chips and prescription of cheap drugs could not afford the operation cost of the hospital.”
Centralized purchasing leads to unreasonably low drug price
The current centralized drug bidding in China requires all public hospitals to conduct purchasing bidding for the drugs they use. Before bidding, the provincial government departments will publish the government-guided price for each kind of product. The bidding price is the price at which the hospital buys the drug and should not be higher than the government-guided price.
It was once reported that the Hunan government once set the guided price of a kind of drug at 136 yuan, 9 times as much as its factory price. That shows that the government-guided price has become the umbrella for the unreasonable drug price.
The government-guided price is usually based on the historical figures and the bidding price of neighboring provinces. The factory price of a drug is meaningless in the bidding price because the cost of logistics and circulation should be concluded as well. It is hard to tell how much higher the bidding price should be than the factory price. “For example, the common view about the bidding price of a drug is 10 yuan, but the government-guided price is lower than this. Then no one will attend the bidding.”
The aforementioned source said that the prices of most drugs are lower than their previous prices years ago after dozens of rounds of biddings. Some of them are priced at such an low level that the pharmaceutical companies are not willing to produce them.” CBF journalists have got a report named “Survey and Reflection of the Anhui Pattern” made by the Zhejiang Association of Medicine and Pharmacy, which pointed out that the defects in guidelines and system design lead to the “unreasonably low prices” of many drugs, whose bidding prices could not offset the cost of raw materials and packing. For example, a bag of 20g isatis root electuary is priced at 2.35 yuan, accounting for only one third of the normal cost.
Many essential drugs’ bidding prices are lower than their factories through the public bidding. Many pharmaceutical companies are not willing to produce these drugs or use inferior materials and turn out substandard goods when producing them. This is “a kind of damage for the pharmaceutical industries in China”.
Meanwhile, the current rules stipulate that the provincial centralized bidding price is the purchasing price for hospitals and the hospitals are forbidden to have another negotiation with the suppliers to decrease the purchasing price. But some hospitals violated these rules by secretly talking with suppliers and fixing a new price while the value on the invoice is the bidding price the government requires. The price difference will be given to the hospitals in the name of training fees or equipment fees. “These undercover actions invalidate the prohibition of second price negotiation. The result is worse than having no stipulations because it undermines the government’s credibility.”
For the lofty drug price, the source said that the drug price does not mean the drug cost. The drug price did decrease in recent years. But the abuse of hospitals and doctors in drug prescription increase the drug cost. “I think that the government should focus on the reasonable drug use rather than dealing with the drug price.”
He also said that the key reason to explain China’s failure in solving medical care problem is that different aspects within this field is managed by different departments, creating a complicated structure for this problem.
The article stressed that the medical reform had already got into the deepwater area and thus would encounter more and more contradictions and difficulties. The reform is like sailing against the current while no progress means regression.
It is generally believed that “maintaining medical services with drugs”is the primary source of the defects in China’s medical system. The CCTV, China’s healthcare television, now focuses on the lofty drug prices and finds that some local public hospitals purchased drugs with the bidding price being ten or twenty times as much as their factory prices. The CCTV blamed the drug wholesale, distribution and other circulation procedures for the high drug prices. A drug dealer from Zhejiang told the journalists of China Business Focus(CBF) that the bubble in drug price is much bigger than the one in house price.
Prof. Ren Baoyong from Shanghai Jiaotong University said that the current drug price is not unreasonably high.“If the drug price is not high, interest groups cannot get benefits. Only such a high price could feed so many people and satisfy different interest groups(reach a balance) to build a harmonious society.”
He told CBF journalists that there was no accurate data about how many drug representatives China has. “What do the drug representatives stand for? Every one knows it.”
However, a report from the Zhejiang Association of Medicine and Pharmacy said that some drugs’ prices were unreasonably low and this phenomenon could cause severe outcomes.
What’s the secret for the lofty drug price in China and why is it accompanied with the said “unreasonably low drug price”?
How does the “drug worm”come out?
In China, the circulation of drugs is usually taken by three parts – the manufacturer, the wholesaler and the hospital. Provincial drug bidding must be conducted before the drugs are sold to the patients via the retailing system of medical and health institutions. The bidding is subdivided into essential drug bidding and public hospital drug bidding.
In August 2009, the Ministry of Health and other 7 departments jointly published a guideline that started the construction of national essential drug system. The list of national essential drugs covers 307 kinds of chemical drugs and Chinese patent drugs. The local governments of provinces and municipalities can add 200 more kinds of drugs into the list based on their own conditions. Each province or municipality could have a list with about 500 kinds of drugs. The essential drugs are sold with zero price gap in communities and clinics in towns, while the drug prices sold in public hospitals can be sold to the consumers with a 15% increase compared with the factory prices.
An anonymous expert told CBF journalists that the circulation of one kind of drug after being produced can be classified into two different situations: one is that manufacturing fac- tories, especially some big enterprises, build their own marketing teams, which are divided into two groups – one group is the commercial representative team communicating with the dealers and the other group is the academic representative team communicating with the hospitals. “For example, a new anti-AIDS drug is developed but no one knows its actual effect and side effect. In that situation, the manufacturing enterprise will form a special team of experts to promote the drug,” said the expert. For pharmaceutical companies, building business and academic teams by themselves is good for controlling the final price. “This pattern could not increase the drug retail price to ten or twenty times as high as its factory price.”
Another situation is that the pharmaceutical companies directly sold their drugs to the general agencies – which are commonly called “big wholesalers”. The big wholesalers are responsible for the construction of marketing system of drugs. “This situation is more dependent on the relationship-based marketing. Big wholesalers will not sincerely and seriously promote the market for drug factories. They may build business or academic teams for drug manufacturers. But more of them subcontract the dealing of drugs to agencies inferior to them. The last of the inferior agencies are called ‘drug worms’, who have close relationship with directors and principals of different hospitals and departments.”
A source having been a drug representative for years said that the manufacturing enterprises will allow some profits for big wholesalers, including the channel construction fees, logistics fees and academic promotion fees. If the drug promotion reaches “drug worms”and all of them have good relationship with hospital or department directors, the commission will play an important role in that situation – who pays higher commission, whose drugs will be bought.
A fellow studying the drug distribution system said that everything has its own reasons to exist. The current system gives birth to a large number of“drug worms”. “This is a method of surviving and its core of existence is that it grabs rare resources.” He said that many drugs chosen through bidding by different provinces are common products. For example, ceftriaxone has different speculations of 1g, 2g, 5g and 10g and each speculation has several designated factories to produce them. But which factory’s products could be chosen by hospitals depends on the promotion and the “closeness”of these “drug worms” with hospitals.
In 2010, the Chinese Academy of Social Sciences made a research in Hu- bei, Hunan, Zhejiang, Fujian and Beijing and found that 60% of the bidding prices of essential drugs are prepared for the commissions for hospitals and doctors.
A doctor in a Jiangsu-based hospital told CBF journalists that he could earn 10% of the drug price as the commissions when he prescribed a certain kind of drug for the patient. He also said that the commission rate could reach 20% in some big hospitals.
Drug price addition: a ridiculous game rule?
It is reported by CCTV that the factory price of the 2ml/0.3g Clindamycin phosphate injection liquid is 0.6 yuan, but the bidding price for the same dosage is 11 yuan in Beijing. In comparison, in Henan, Shandong and Shanxi, where the essential drug bidding system is adopted, the bidding prices are respectively 0.67 yuan, 0.7 yuan and 0.68 yuan.
The report was doubted by many professionals and practitioners. Prof. Gu Xin from Beijing University said to CBF journalists: “Since the Clindamycin phosphate injection liquid belongs to the essential drug list, it should be sold with no price gap in community hospitals, but why the consumer in that report could not buy the injection liquid with 0.7 yuan and instead he went to Beijing and buy the same liquid with 11 yuan? Do not tell me that the drug is not available even in Jinan, the capital of Shandong.”
The aforementioned anonymous source held the same opinion with Prof. Gu Xin. He said that the case like the Clindamycin phosphate injection liquid did exist but could not stand for the whole drug market.
In his opinion, it is not objective to simply compare the factory price with the final bidding price. “Many pharmaceutical companies have no distribution power and have to contract the distribution of their products to the agencies. Therefore they do not need to afford the cost of distribution. The agencies hold the resources of hospitals, forcing the pharmaceutical companies to undersell their products to them with the lowest price. Some products could not bring profits or even fail to offset the cost, but the production of them should not be stopped because the pharmaceutical company needs to amortize the whole operation of its production unit. Therefore, it is not right to compare the factory price and bidding price of a single product.” One reason to explain the current lofty drug price is the policy allowing hospitals to sell the drugs with the prices 15% higher than their bidding prices. The higher the bidding price is, the more profits the hospital could have.“Driven by this profit pattern, the hospitals are more willing to use expensive drugs.”
Another reason comes from the doctors. Firstly, the hospitals allow or even encourage the doctors to prescribe high-price drugs for patients. Secondly, the “drug worms” usually promise additional personal commissions for doctors if they use their drugs, making doctors prescribe a large amount of expensive drugs to earn bigger commissions.
Gu Xin thought that the unreasonably high drug price was resulted from an unessential game rule formed by the government. In his opinion, the stipulation about the 15% increase is ridiculous.“If you open a restaurant, the government required your food price could only be 15% higher than its cost. Will you then provide potato chips since the profits from potato chips are insufficient for a cook’s wage? In hospitals, the cheap drugs are just like potato chips and prescription of cheap drugs could not afford the operation cost of the hospital.”
Centralized purchasing leads to unreasonably low drug price
The current centralized drug bidding in China requires all public hospitals to conduct purchasing bidding for the drugs they use. Before bidding, the provincial government departments will publish the government-guided price for each kind of product. The bidding price is the price at which the hospital buys the drug and should not be higher than the government-guided price.
It was once reported that the Hunan government once set the guided price of a kind of drug at 136 yuan, 9 times as much as its factory price. That shows that the government-guided price has become the umbrella for the unreasonable drug price.
The government-guided price is usually based on the historical figures and the bidding price of neighboring provinces. The factory price of a drug is meaningless in the bidding price because the cost of logistics and circulation should be concluded as well. It is hard to tell how much higher the bidding price should be than the factory price. “For example, the common view about the bidding price of a drug is 10 yuan, but the government-guided price is lower than this. Then no one will attend the bidding.”
The aforementioned source said that the prices of most drugs are lower than their previous prices years ago after dozens of rounds of biddings. Some of them are priced at such an low level that the pharmaceutical companies are not willing to produce them.” CBF journalists have got a report named “Survey and Reflection of the Anhui Pattern” made by the Zhejiang Association of Medicine and Pharmacy, which pointed out that the defects in guidelines and system design lead to the “unreasonably low prices” of many drugs, whose bidding prices could not offset the cost of raw materials and packing. For example, a bag of 20g isatis root electuary is priced at 2.35 yuan, accounting for only one third of the normal cost.
Many essential drugs’ bidding prices are lower than their factories through the public bidding. Many pharmaceutical companies are not willing to produce these drugs or use inferior materials and turn out substandard goods when producing them. This is “a kind of damage for the pharmaceutical industries in China”.
Meanwhile, the current rules stipulate that the provincial centralized bidding price is the purchasing price for hospitals and the hospitals are forbidden to have another negotiation with the suppliers to decrease the purchasing price. But some hospitals violated these rules by secretly talking with suppliers and fixing a new price while the value on the invoice is the bidding price the government requires. The price difference will be given to the hospitals in the name of training fees or equipment fees. “These undercover actions invalidate the prohibition of second price negotiation. The result is worse than having no stipulations because it undermines the government’s credibility.”
For the lofty drug price, the source said that the drug price does not mean the drug cost. The drug price did decrease in recent years. But the abuse of hospitals and doctors in drug prescription increase the drug cost. “I think that the government should focus on the reasonable drug use rather than dealing with the drug price.”
He also said that the key reason to explain China’s failure in solving medical care problem is that different aspects within this field is managed by different departments, creating a complicated structure for this problem.