China’s current Premier, Li Keqiang, has called for price reductions of cancer drugs multiple times since he took office. The most obvious measures to reduce red tape were targeted tax cuts. Since May 2018, the Chinese government has eliminated tariffs on cancer drugs and is reducing the value added tax (VAT) on cancer drugs from 17 percent to 3 percent. In the next step to reduce prices, pharmaceutical companies are urged to transfer this economic benefit to patients as soon as possible.
Changes to the procurement processes
To realize this benefit for patients, the Chinese government has opted to ramp up pressure on reimbursement negotiations and procurement processes. The National Medical Security Bureau (NMSB) instructed the provinces, autonomous regions and municipalities to carry out centralized procurement in a number of cases. Due to the sheer volume of China’s super-sized market, such measures are likely to put price pressure on cancer drugs, as the following examples show:
- On July 31, 2018, the new NMSB adjusted the cost of 14 cancer drugs which had already been included on the national reimbursement drug list (NRDL) in 2017. With the aforementioned tariff elimination and VAT reduction for pharmaceutical companies, the NMSB had the negotiating power to encourage companies to lower the price of their drugs by between 3 and 7.8 percent. By end of September, the price of these 14 cancer drugs had then been adjusted in most provinces accordingly.
- In a separate reimbursement decision on October 10, 2018, first-time listings of additional 17 cancer drugs in the NDRL were announced and they were accompanied by price cuts to the original retail price of 56.7 percent, on average. At first glance, this appears higher than last year’s reimbursement decisions, which recorded price cuts of 44 percent. However, a holistic analysis should take into account that this higher number could also reflect the red tape deductions in VAT tax and tariff policy.
- Additional ideas included the enforcement of centralized bidding on a provincial level in cases where three or more pharmaceutical companies produce drugs which have been included on the country’s reimbursement list. This particularly hits generics and established products who will end up vying for the lowest price.
It is yet to be seen how hard such policies will hit established products and companies. Its impact will need to be evaluated to measure if the prospect of a bigger market share through public reimbursement and volume when winning the tender could compensate for a reduction in price.
Ensuring lower prices without compromising on quality
In parallel, the Chinese government works hard to improve the quality of generic drugs – this is especially important so as not to compromise on quality when lowering prices. Initiatives that were introduced to strengthen monitoring of the production of generics will help in this regard: this includes the “Generic Drugs Quality Consistency Evaluation” (GQCE), inspections for Good Clinical Practice (GCP), overseas inspections for Good Manufacturing Practices (GMP) and the verification of pharmaceutical manufacturing processes. The quality measures are broadly welcomed by industry. They ensure patient safety and fairer competition.
Chinese government promotes innovation
Promoting generics, however, does not automatically eliminate the promotion of innovation. On the contrary, the Chinese government values and promotes innovative companies. Besides promoting a homegrown innovative pharmaceutical industry to boost the Chinese economy under its “Made in China 2025” strategy, the government acknowledges that only innovation can bring about pioneering treatments to patients and strengthen its healthcare system.
In support of this, the Chinese government has invested a significant amount into science and research. In 2008, the Ministry of Science and Technology (MOST) in China launched a number of national science and technology projects for the development of new drugs. So far, 703 projects related to cancer prevention and cancer treatment have been set up, with a total investment value of 2.6 billion RMB. This accounts for almost 40 percent of the total investment into all drug development projects, which includes cardiovascular drug development, among others.
Secondly, the government promotes an innovation-friendly ecosystem by driving legislative reforms. In October 2017, top Chinese government authorities jointly released the “Opinion on Deepening the Reform of the Review and Approval System and Encouraging the Innovation of Drugs and Medical Devices”, thereby announcing a host of measures supporting intellectual property (IP) protection, accelerating regulatory approval and achieving better medical insurance coverage.
This article was co-written by Verena Kantel and Qing Lv. Verena Kantel, Head Pharma Health Policy International at Bayer, is also China-Speaker of the German Healthcare Partnership (GHP). She is a trained lawyer and before joining Bayer, she worked on foreign trade law and politics for the BDI, the Federation of German Industries. Qing Lv is a healthcare policy researcher at Bayer Liaison Office, Greater China. She previously worked for the Chinese Academy of Science for anti-cancer drug development in Beijing.