China Solidifies Drug-Buying Program That Saved $41 Billion

(Bloomberg) -- China will make permanent a program that buys drugs and devices in high volume and at low cost, a move designed to drive down medical expenses that also crimps profit margins for the health care industry in the world’s most populous country.

The government will carry out centralized bulk-buying of drugs and high-value medical supplies “on a regular and institutionalized basis” to further cut drug prices and benefit patients, the State Council, China’s cabinet, said in a statement Monday evening.

At a cabinet meeting, Premier Li Keqiang lauded the program launched in 2018, saying it helped save 260 billion yuan ($40.8 billion) in medical insurance costs and patient expenditures through the end of last year. China started the effort in select cities and subsequently carried out multiple rounds of bulk-purchasing, slashing average drug prices and medical expenses in the country of 1.4 billion people. 

“In recent years, the reform of centralized procurement of drugs and high-value medical consumables has been continuously promoted, and the market-oriented mechanism has effectively squeezed the falsely high medical prices,” Li said in the statement. 

Read: Drugmakers Cut Prices as Much as 96% in China’s Latest Bulk Buy

The CSI Healthcare Index slid as much as 0.8%, and has weakened 4.8% this year. Jiangsu Hengrui Medicine Co. fell as much as 2.2%, while Topchoice Medical Corp. edged down 1.7%.

Cutting Costs

The unrelenting campaign to drive down health-care costs saw the prices of nearly 160 medicines cut by half on average in the latest round of procurement contract bidding in February last year. The program put further pressure on pharmaceutical companies’ margins, requiring them to rely instead on higher volumes for profit growth.

Domestic drugmakers undercut foreign giants in the fourth round of the program, leading to 12.4 billion yuan in annual savings on sales of commonly used drugs to China’s public hospitals, state news agency Xinhua has said. Blockbuster therapies originally developed by Bayer AG and Pfizer Inc. have been largely replaced by generic copies in the world’s second-largest pharmaceutical market.

China will expand the bulk-buying program to include more drugs for chronic diseases and common illnesses, as well as more high-value medical products such as orthopedic devices and dental implants, Li said.

Meanwhile, the government will ensure a stable supply of high-quality health care goods, Li said. 

While the pharmaceutical industry has said price controls hamper innovation by limiting the return on investment and cash flows needed to invest in high-risk projects, Li said the pilot program pushed pharmaceutical companies to focus more on research and development.

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With assistance from Bloomberg