8 July, 2015
In a widely expected announcement, China's National Development and Reform Commission (NDRC) has stated that from 01 June 2015 the government- imposed price caps on the vast majority of medicines will be removed except for narcotic anaesthetic products and class-1 psychoactive drugs. The NDRC's announcement follows the recent 7th amendment to the Drug Administration Law and the removal of Article 55, which stated that pharmaceutical companies, distributors and medical institutions were required to adhere to the government's pricing mechanism.
Historically, the Chinese authorities have set prices based on the manufacturer-reported costs of producing drugs. Pharmaceutical pricing liberalisation began last year when China began to remove price caps on a limited number of medicines in April 2014, following concerns that price capping was contributing to a shortage of supply of certain products.
This latest market-oriented pricing amendment is expected to improve the purchasing mechanism for medicines. In particular, hospitals and manufacturers will be able to enter into direct price negotiations at the provincial level without direct government intervention. The NDRC has stated that manufacturers must find a balance between operational costs and pricing and that monopolistic pricing policies will not be tolerated. Prices must be set according to the principles of fairness, rationality, honesty, and good faith. A price monitoring system will be implemented and should prices be set too high special investigations will be conducted if excessive pricing and profiteering is suspected. This significant amendment to the Drug Administration Law demonstrates the move to a more market-oriented system and underscores the Chinese government's intent to further reform its healthcare sector.
For further information, please contact:
Alison Wong, Partner, Bird & Bird
alison.wong@twobirds.com
