FT article on the perils of China healthcare

With annual sales growth estimated to exceed 20 per cent, many global drug companies regard China as a “must-win” market.

But problems from basic delivery of services across the vast country to rampant corruption, beset the sector. GlaxoSmithKline’s bribery charges brought international attention to the problems. Measured by availability, price and quality, China has a long way to go.

One big challenge for the government is the high cost of so-called generic drugs that have provided an easy way for big multinationals to make profits. In China, the price of branded generic drugs remains high, as hospitals and companies impose a premium for what they claim are higher quality products compared with lower-cost equivalents made by rivals.

“It is a bit of a strange thing to see old drugs priced far higher than you would see anywhere else in the industrialised world,” says Dr Carl Firth, the chief executive officer and founder of ASLAN Pharmaceuticals, an Asia-focused pharmaceutical company.

“The government has been reducing prices on older drugs but the pricing pressure is not as strong as you would see in the west.”

Another issue is a lack of quality healthcare outside the hospital system. Clinics and community physician practices are beset by in­consistent quality and mistrust, so 90 per cent of inpatient and outpatient services are delivered via hospitals, an expensive platform.

For hospitals and healthcare organisations to make money, they must charge higher prices for pharmaceuticals and other, unregulated, services such as X-rays or scans or prescribe unnecessary drugs, diagnostic or surgical procedures.  

According to Public Finance in China, published by the World Bank, China has two-and-a-half times as many MRI scanners per capita than would be predicted by its GDP.

This led to the conclusion that profit incentives and not patient outcomes may be driving this proliferation of technology. Ironically, this incentive increases the perception that those who can afford scans are receiving better care. Ancillary costs in China’s healthcare system can be very high.

Pharmaceutical prices are controlled by The National Formulary list of medicines. But inclusion in the formulary ensures sales volume. But for lower volume products, avoiding the formulary allows them to be priced higher.

The government introduced an Essential Drug List in 2009, which capped the price of as many as 500 items. According to Barclays, the dream of increasing the availability of essential drugs to primary healthcare facilities has turned into a nightmare, as implementation has focused on price reduction instead of volume, which is not to the benefit of hospitals.

The temptation to game the system has proved too much for even supposedly ethical western drug companies to ignore. Nor is corruption limited to pharmaceutical companies, with the broader healthcare market also under suspicion. 

Read full article at: FT