While most Western countries spend 10-12 percent of their healthcare budget on medicines, in China it is well over 40 percent, a disparity that goes to the heart of Beijing's crackdown on the industry.
A promise this week by GlaxoSmithKline to make its drugs more affordable in China in the wake of a bribery scandal is an important lever Chinese authorities may now use to start redressing the balance.
Britain's biggest drugmaker has given no details on the size of the price cuts it will consider, but an examination of its discounts in other emerging markets suggests there may be scope for reductions for some medicines of a third or more. Other pharmaceutical firms might have to follow suit.
Chinese police have detained four Chinese GSK executives in connection with allegations the drugmaker funneled up to 3 billion yuan ($489 million) to travel agencies to facilitate bribes to doctors and officials to boost sales and raise the price of its drugs.
The powerful National Development and Reform Commission said it was examining pricing by 60 local and international pharmaceutical companies.
Data from the World Health Organization (WHO) and other groups shows how China's drugs market has not worked well with a system that effectively encourages public hospitals to prescribe large amounts of expensive medicine to earn revenue, given cuts in government subsidies over 30 years.
China's government has also faced criticism that some drug prices are higher than in South Koreaand Taiwan, both developed economies.
"You have to question why the Chinese government is buying high-priced originator brands for off-patent medicines. It's clear they could treat many more patients, without any increase in expenditure, if they only procured lower-priced, quality-assured generics," said Margaret Ewen, coordinator for global pricing at Health Act International.
The Chinese healthcare system should be reformed, hospitals get 40 percent of their income from prescribing drugs, giving doctors an incentive to use costly products and creating a fertile seedbed for corruption.
The most recent edition of the WHO's World Medicines Situation report, issued in 2011, said that in China "even in the most basic primary care level institutions, patients are frequently provided with unnecessary and expensive drugs".
As a result, medicines account for nearly half, or 43 percent, of China's total health expenditure, the WHO said.
Source: Reuters
