New Medical Reform Introduces Controversial Essential Drugs System Against Market Law
Since the release of the new medical reform draft, discussions on healthcare reform have intensified. Among the many issues under scrutiny is the implementation of the "four separations" — separating government from business, management from administration, medicine from profit, and non-profit from profit. However, the most controversial aspect remains the basic pharmaceutical system, which could significantly impact drug production and distribution across the industry.
One major point of contention is the "fixed-point production," "direct distribution," and "zero margin" policies for essential medicines. Industry experts have criticized these measures as overly interventionist, arguing that they violate market principles and risk creating inefficiencies in the pharmaceutical supply chain. Some have even labeled the proposed model as a return to the outdated "collective procurement and sales" system.
Wang Jinxia, vice president of the China Pharmaceutical Business Association, raised concerns about who would be responsible for deciding, producing, and distributing these drugs. If the government takes the lead, she warned, it could open the door to rent-seeking behavior and corruption.
Under the new reform plan, essential medicines will be procured through bidding or centralized purchasing, with prices set by the government based on reasonable profit margins. These drugs will also be included in the national health insurance reimbursement list at higher rates than non-essential medicines. While the goal is to ensure stable supply and affordability, critics argue that such strict controls may stifle competition and innovation.
Li Lei, director of the Beijing Kangpaite Medical Economic and Technical Research Center, pointed out that requiring certain companies to produce essential drugs while banning others contradicts market principles. Instead, he suggested that the government should focus on selecting the right drugs for the national list and use competitive bidding to ensure production and supply.
The issue of essential drugs is not new. The list has existed since 1996 but remained largely invisible until recently. In 2007, the government identified 10 fixed-point manufacturers for 18 essential drugs, but the initiative failed to take off due to lack of hospital participation. Hospitals, which profit from drug markups, were reluctant to purchase cheaper options, leading to low production and supply.
Yu Mingde, vice chairman of the Chinese Pharmaceutical Enterprise Management Association, noted that China has the capability to produce essential medicines, but the problem lies in pricing and the healthcare service system. Dai Hang, director of the Shanghai Circulation Economy Institute’s Medicinal Circulation Research Center, explained that the basic drug system aims to shift the pharmaceutical supply chain toward public welfare. However, balancing this with the commercial nature of the market remains a challenge.
Li Lei emphasized that without breaking the link between hospitals and drug sales, true reform cannot be achieved. Currently, 80% of drug sales occur within public hospitals, and this monopoly must be addressed to create a fairer market. Yet, the new reform lacks clear strategies for implementing key measures like "separation of management and administration" and "medical separation."
Industry insiders believe that once the essential drug production and supply system is fully implemented, it will reshape the entire pharmaceutical sector. A Jiangsu-based pharmaceutical executive noted that while the concept is positive, being listed as an essential drug means losing marketing power and facing limited usage. He argued that essential drug production should be driven by market competition rather than government control.
Dai Hang added that the government's push to lower drug prices and reduce intermediaries is becoming more evident. As more essential drugs enter the insurance catalog, high-cost, heavily marketed drugs will see reduced demand. Whether a company can secure a spot on the essential drug list will determine its future survival. Traditional pharmaceutical distribution models, which rely on sales representatives and heavy marketing, are expected to undergo significant changes.
In the coming years, the pharmaceutical industry may face even greater challenges as the government continues to shape the market. The path ahead remains uncertain, but one thing is clear: the era of unregulated growth is ending, and a new order is taking shape.
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