News / Asia

Why China Pays Over the Odds for Medicines

Chinese flag is hoisted in front of the GlaxoSmithKline building in Shanghai, July 24, 2013.
Chinese flag is hoisted in front of the GlaxoSmithKline building in Shanghai, July 24, 2013.
Reuters
China has a drug problem. While most Western countries spend 10-12 percent of their health care 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 (GSK) 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.
 
"Four executives were arrested, the company itself will probably be fined top to bottom, and they are having to cut prices," said one veteran industry executive in China, who declined to be identified.
 
"That'll send a signal to other players in the industry, and prices should come down."
 
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.
 
GSK has said some Chinese executives appeared to have broken the law, but Chief Executive Andrew Witty said on Wednesday that head office had no knowledge of the alleged wrongdoing.
 
None of GSK's competitors in China has publicly said they would cut prices, and major pharmaceutical companies reached by Reuters have so far declined to comment.
 
But a precedent was set earlier this month when Nestle led other foreign milk powder makers in cutting prices in China after Beijing launched an investigation into possible price-fixing and anti-competitive behavior in that sector.
 
Around the same time, the powerful National Development and Reform Commission said it was examining pricing by 60 local and international pharmaceutical companies.
 
"The Chinese government never does anything without a reason. China could be using these investigations partly to clean house and to also drive prices down," said Philip Urofsky at law firm Shearman & Sterling, who previously worked at the U.S. Department of Justice on cases involving the Foreign Corrupt Practices Act.
 
Big premium for foreign medicine
 
Data from the World Health Organization (WHO) and other groups shows how China's drugs market has been thrown out of kilter by 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.
 
"In China, a very high proportion of health expenditure is spent on medicines, which reflects both over-consumption and high prices," said Hans Hogerzeil, a professor of global health at the University of Groningen and a former WHO director of medicines policy.
 
As in many emerging markets, there is strong demand in China for Western drugs, whose brands offer quality assurance in an environment where patients often worry over sub-standard or counterfeit treatments. As such, they can command hefty price premiums, even though they are no longer protected by patents.
 
Just how big a premium is revealed in data collected by Dutch-based Health Action International (HAI), a non-profit group focused on access to medicines.
 
HAI found that in China's Shaanxi province last year, prices charged for drugs made by the original Western drug company in both the public and private sectors were about 11 times the international reference price as calculated by the U.S.-based independent group Management Sciences for Health.
 
Exact comparisons with other markets are difficult, but a separate survey of prices in New Delhi, India, found the prices patients paid in the private sector for originator brands were much less at under five times the reference level.
 
China's government has also faced criticism that some drug prices are higher than in South Korea and 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 HAI.
 
GSK finds cheaper products sell more

GSK has a record of cutting prices in emerging markets.
 
In Indonesia, for example, GSK has halved the price of its top-selling inhaled lung drug Seretide, also known as Advair, and its antibiotic Augmentin was slashed by 50 percent in Brazil in 2010.
 
Newer drugs have seen price reductions, too, with Avodart for prostate enlargement cut by a third in Russia and a similar discount seen for cancer treatment Tykerb in India.
 
All these price cuts were made in the expectation that cheaper products would sell better — a strategy that GSK says has paid off in these cases.
 
Witty said on Wednesday that tiered pricing "may well be important" in China.
 
Jason Mann, managing director of emerging market healthcare and global biotechnology at Konus Capital in Hong Kong, said GSK might cut prices by 5-10 percent on average.
 
But he questioned if other big drugmakers would immediately follow because they all sold different medicines in China and might not be directly competing with any that GSK reprices.
 
Many international health experts would welcome tiered pricing as a way to counter pressures in the Chinese healthcare system, where 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.

You May Like

HRW: Egypt's Trial of Morsi ‘Badly Flawed’

Human Rights Watch says former Egypt leader's detention without charge for more than three weeks after his removal from office violated Egyptian law; government rejects criticism More

Photogallery Lancet Report Calls for Major Investment in Surgery

In its report published by The Lancet, panel of experts says people are dying from conditions easily treated in the operating room such as hernia, appendicitis, obstructed labor, and serious fractures More

Music Industry Under Sway of Digital Revolution

Millions of people in every corner of the Earth now can enjoy a vast variety and quantity of music in a way that has never before been possible More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Study: Insecticide Damaging Wild Bee Populationsi
X
April 24, 2015 10:13 PM
A popular but controversial type of insecticide is damaging important wild bee populations, according to a new study. VOA’s Steve Baragona has more.
Video

Video Study: Insecticide Damaging Wild Bee Populations

A popular but controversial type of insecticide is damaging important wild bee populations, according to a new study. VOA’s Steve Baragona has more.
Video

Video Data Servers Could Heat Private Homes

As every computer owner knows, when their machines run a complex program they get pretty hot. In fact, cooling the processors can be expensive, especially when you're dealing with huge banks of computer servers. But what if that energy could heat private homes? VOA’s George Putic reports that a Dutch energy firm aims to do just that.
Video

Video Cinema That Crosses Borders Showcased at Tribeca Film Festival

Among the nearly 100 feature length films being shown at this year’s Tribeca Film Festival in New York City are more than 20 documentaries and features with international appeal, from a film about a Congolese businessman in China, to documentaries shot in Pakistan and diaspora communities in the U.S., to a poetic look at disaffected South African youth. VOA’s Carolyn Weaver has more.
Video

Video UN Confronts Threat of Young Radicals

The radicalization and recruitment of young people into Islamist extremist groups has become a growing challenge for governments worldwide. On Thursday, the U.N. Security Council heard from experts on the issue, which has become a potent threat to international peace and security. VOA’s Margaret Besheer reports.
Video

Video Growing Numbers of Turks Discover Armenian Ancestry

In a climate of improved tolerance, growing numbers of people in Turkey are discovering their grandmothers were Armenian. Hundreds of thousands of Armenians escaped the mass deportations and slaughter of the early 1900's by forced conversion to Islam. Or, Armenian children were taken in by Turkish families and assimilated. Now their stories are increasingly being heard. Dorian Jones reports from Istanbul that the revelations are viewed as an important step.
Video

Video Migrants Trek Through Western Balkans to Reach EU

Migrants from Africa and other places are finding different routes into the European Union in search of a better life. The Associated Press followed one clandestine group to document their trek through the western Balkans to Hungary. Zlatica Hoke reports that the migrants started using that route about four years ago. Since then, it has become the second-most popular path into Western Europe, after the option of sailing from North Africa to Italy.
Video

Video TIME Magazine Honors Activists, Pioneers Seen as Influential

TIME Magazine has released its list of celebrities, leaders and activists, whom it deems the world’s “most influential” in 2015. VOA's Ramon Taylor reports from New York.
Video

Video US Businesses See Cuba as New Frontier

The Obama administration's opening toward Cuba is giving U.S. companies hope they'll be able to do business in Cuba despite the continuation of the U.S. economic embargo against the communist nation. Some American companies have been able to export some products to Cuba, but the recent lifting of Cuba's terrorism designation could relax other restrictions. As VOA's Daniela Schrier reports, corporate heavy hitters are lining up to head across the Florida Straits - though experts urge caution.
Video

Video Kenya Launches Police Recruitment Drive After Terror Attacks

Kenya launched a major police recruitment drive this week as part of a large-scale effort to boost security following a recent spate of terror attacks. VOA’s Gabe Joselow reports that allegations of corruption in the process are raising old concerns about the integrity of Kenya’s security forces.
Video

Video Japan, China in Race for Asia High-Speed Rail Projects

A lucrative competition is underway in Asia for billions of dollars in high-speed rail projects. Cambodia, India, Indonesia, Malaysia Thailand and Vietnam are among the countries planning to move onto the fast track. They are negotiating with Japan and the upstart Chinese who are locked in a duel to revolutionize transportation across Asia. VOA Correspondent Steve Herman in Bangkok has details.
Video

Video Scientists: Mosquitoes Attracted By Our Genes

Some people always seem to get bitten by mosquitoes more than others. Now, scientists have proved that is really the case - and they say it’s all because of genes. It’s hoped the research might lead to new preventative treatments for diseases like malaria, as Henry Ridgwell reports from London.
Video

Video Bible Museum Coming to Washington DC

Washington is the center of American political power and also home to some of the nation’s most visited museums. A new one that will showcase the Bible has skeptics questioning the motives of its conservative Christian funders. VOA religion correspondent Jerome Socolovsky reports.
Video

Video Armenia and Politics of Word 'Genocide'

A century ago this April, hundreds of thousands of Armenians of the Turkish Ottoman empire were deported and massacred, and their culture erased from their traditional lands. While broadly accepted by the U.N. and at least 20 countries as “genocide”, the United States and Turkey have resisted using that word to describe the atrocities that stretched from 1915 to 1923. But Armenians have never forgotten.
Video

Video Afghan First Lady Pledges No Roll Back on Women's Rights

Afghan First Lady Rula Ghani, named one of Time's 100 Most Influential, says women should take part in talks with Taliban. VOA's Rokhsar Azamee has more from Kabul.
Video

Video New Brain Mapping Techniques Could Ease Chronic Pain

From Boulder, Colorado, Shelley Schlender reports that new methods for mapping pain in the brain are providing validation for chronic pain and might someday guide better treatment.

VOA Blogs