Review of New Policies of Chinese Medical Reform

The State Council, Ministry of Finance, and National Health Commission of the People’s Republic of China, etc. have recently taken frequent actions on pharmaceuticals: zero tariff, reduction of value-added tax (VAT), government centralized procurement, and medical insurance negotiation. All those actions show that the new round of medical reform has quietly begun in China! Next, let’s interpret the relevant policies.

 I. Tax reduction: not only "zero tariff", but also VAT reduced from 17% to 3%

The May Day just past marks the implementation of those two drug tax reforms! Firstly, tariff of drugs has been reduced to zero: from May 1, 2018, the import tariff of all common pharmaceutical products including anti-cancer drugs, alkaloid pharmaceutical products with anti-cancer effect, and Chinese patent medicines actually imported has been reduced to zero in the manner of provisional tax rate.

Secondly, the Ministry of Finance of China has recently (on April 27) announced the reduction of VAT of imported anti-cancer drugs from 17% to 3%. According to the announcement of the Ministry of Finance of China (Fig. 1): from May 1, 2018, VAT general taxpayers may calculate and pay VAT according to the simple approach during production, sales, wholesale, or retail of anti-cancer pharmaceutical products (including anti-cancer medicaments and APIs) (the specific pharmaceutical product list can be downloaded from the website of the Ministry of Finance of China: http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201804/t20180427_2880407.html). The reduction of the VAT is greater compared to the tariff reduction from 2%-6% to zero. With the reduction of the two, we can estimate that the prices of cancer drugs could be reduced by over 20% in the future.

 II. Government centralized procurement of cancer drugs

According to Zeng Yixin, Deputy Head of the National Health Commission of the People’s Republic of China in the press conference of the State Council Information Office, P.R.C. on April 28, centering on reducing drug expense burden of cancer patients, China will implement government centralized price negotiation and procurement for anti-cancer drugs that are included in the medical insurance; for a pharmaceutical product produced by more than 3 enterprises, the special centralized tender is planned to be conducted; for a pharmaceutical product produced by less than 3 enterprises, it is encouraged to form a unified procurement price in China through negotiation and matching, etc.

Seen from manner of centralized procurement, centralized procurement can not only guarantee the stable supply of drugs, but can also reduce the market circulation links; the negotiation and matching by the government will greatly guarantee the rationality of drug prices, and be crucial to cancer patients who have major economic burdens.

III. Medical insurance negotiation system

China started the medical insurance negotiation system early at the beginning of 2017, and successfully included 36 drugs including liraglutide, etc. into the 2017-edition medical insurance catalog in July last year; the average price reduction of those 36 varieties reached 40%, and the price reduction of the Trastuzumab for Injection under Roche even reached 65%, ranking top among the 36 pharmaceutical products. The drug price negotiation effectively made prices of those drugs tend to be reasonable under the actual national conditions of China. It’s reported recently that China will implement the medical insurance access negotiation for anti-cancer drugs that are not included in the medical insurance, which will be another piece of good news for the numerous cancer patients.

Summary:

Seen from the analysis, prices of drugs, especially prices of cancer drugs, are not an issue affected by single factor, and links including production and circulation, etc. will cause various issues that are intertwining and complicated. Recently, China has adopted combination punch through taxation, centralized procurement, and medical insurance negotiation, etc., and the drug price regulation has achieved initial success and is worth expecting in the future. For a complex issue with multiple factors like "drug prices", China has taken great pains, and it’s not hard to see the government’s determination in reforming and regulating the drug prices from its recent combination punch.

About the author: Muzi, Master of Pharmacy, Biopharmaceuticals major, long engaged in new drug R&D and long focused on analysis of market dynamics of Chinese and overseas drugs, good at R&D of biological drugs and small molecule drugs

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