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

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    City could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters

    Turkey Aims New Crackdown at Journalists, Academics, Airline Workers

    Ankara continues targeting people allegedly linked to exiled cleric, who it says led the failed military coup

    Pakistan Ready to Inaugurate Rebuilt Afghan Border Crossing

    Construction of Torkham Gate triggered deadly clashes between Pakistani and Afghan military forces

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    London’s Financial Crown at Risk as Rivals Eye Brexit Opportunitiesi
    X
    VOA News
    July 25, 2016 5:09 PM
    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Calm the Waters: US Doubles Down Diplomatic Efforts in ASEAN Meetings

    The United States is redoubling diplomatic efforts and looking to upcoming regional meetings to calm the waters after an international tribunal invalidated the legal basis of Beijing's extensive claims in the South China Sea. VOA State Department correspondent Nike Ching has the story.
    Video

    Video Four Brother Goats Arrive in Brooklyn on a Mission

    While it's unusual to see farm animals in cities, it's become familiar for residents of Brooklyn, New York, to see a little herd of goats. Unlike gas-powered mowing equipment, goats remove invasive weeds quietly and without adding more pollution to the air. As Faiza Elmasry tells us, this is a pilot program and if it proves to be successful, the goat gardener program will be extended to other areas of New York. Faith Lapidus narrates.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.

    Special Report

    Adrift The Invisible African Diaspora