Drug Firms Challenge Chongqing Price Reform

(Chongqing) - Health officials, patients and pharmaceutical companies in the Chongqing region have found themselves scurrying like unwilling lab rats in a test of China's new, centralized drug pricing system.

The system, designed to control costs as part of sweeping medical reforms implemented last year, has been blamed for raising drug prices by about 70 percent.

In June, three drug companies owned by a regional drug giant sued the Chongqing Municipal Health Bureau (CMHB) over its new drug purchase bidding system, citing unfair practices. Since then, other local drug companies have filed multiple lawsuits.

Zhu Hengpeng, an economist at the China Academy of Social Sciences, said second- and third-tier hospitals had preferred high-cost drugs after the first round of national reforms in 2003 because they could earn more money on resales. The hospitals were allowed to buy drugs wholesale and sell them with a 15 percent markup, which means a 10 yuan pill would earn them more than a 3 yuan tablet.

In response to the latest reforms, the Chongqing government May 17 posted an online notice listing prices for basic drugs sold across the municipality. The list revealed wide gaps in pricing.

Average prices in the municipality's Qianjing District, for example, were found to have climbed 77 percent in one year.

Patients have borne the brunt of the price pressure, but drug companies worried about market share and earnings have been whipped into a furor.

A Chongqing company, Chongqing Tiansheng Pharmaceutical Group, in May asked for more information from CMHB on why dozens of their low-priced medicines had been rejected during a provincial bidding process. CMHB refused to respond, prompting the group to sue CMHB on grounds the bureau's direct involvement in the bidding process was illegal. The case is pending.

Other lawsuits have targeted several district health bureaus in poor areas. Complaints were filed with CMHB last spring by companies that said most drug prices rose over last year's levels following the latest changes to province-level, centralized purchases from county-level purchasing.

And drug prices for hospitals are now higher than prices for most pharmacies in the municipality.

The recent reform process dates to 2003, when the State Council began a rural cooperative medical system across the country. At the same time, the central government strengthened laws barring excessive healthcare prices by introducing a centralized drug bidding system, which spread nationwide.

Yet the government decided more was needed and tried again last year with a new rule tightening controls on centralized drug purchases by medical institutions. Officials hoped to balance drug quality and pricing.
 
By the end of 2009, the revised drug bidding system had become a target of numerous lawsuits. Health bureaus were sued directly, accused of influencing transactions between hospitals and pharmaceutical companies, abusing drug pricing rights through the bidding system, and handing some companies monopoly control over the local pharmaceutical businesses.

Many district health bureaus that have yet to fully implement the pricing reforms now face new dilemmas. The reforms could sweep away a county-level system riddled with kickbacks. But enacting the changes could increase drug prices by an average 70 to 80 percent for medical institutions and clinics.

Health bureaus in Chongqing's Dianjiang, Fengdu and other districts in the Three Gorges Dam or ethnic minority areas have submitted reports to CMHB questioning the centralized purchase prices. They say, if forced to implement centralized bidding, the districts could face "a decline in quality health care that damages the basic medical insurance system and raises medical costs for ordinary people."

Gu Xin, a specialist at the School of Government at Peking University, said at the root of the drug pricing problem lies the fact that bid selections come from public hospitals.

High prices are supported by the process whereby the government shields hospital bidders, Gu said. And he thinks there's a better way.

"The solution is simple," Gu said. "The government needs to set a price ceiling for basic drugs. Beyond that, let the market figure it out."

1 yuan = 14 U.S. cents