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

    Russia Sees Brexit Impact Widespread but Temporary

    Officials, citizens react to Britain’s vote to exit European Union with mix of pleasure, understanding and concern

    Obama Encourages Entrepreneurs to Seek Global Interconnection

    President tells entrepreneurs at global summit at Stanford University to find mentors, push ahead with new ideas on day after Britain voters decide to exit EU

    Video Some US Gun Owners Support Gun Control

    Defying the stereotype, Dave Makings says he'd give up his assault rifle for a comprehensive program to reduce gun violence

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Brexit Vote Plunges Global Markets Into Unchartered Territoryi
    X
    June 24, 2016 9:38 PM
    British voters plunged global markets into unknown territory after they voted Thursday to leave the European Union. The results of the Brexit vote, the term coined to describe the referendum, caught many off guard. Analysts say the resulting volatility could last for weeks, perhaps longer. Mil Arcega reports.
    Video

    Video Brexit Vote Plunges Global Markets Into Unchartered Territory

    British voters plunged global markets into unknown territory after they voted Thursday to leave the European Union. The results of the Brexit vote, the term coined to describe the referendum, caught many off guard. Analysts say the resulting volatility could last for weeks, perhaps longer. Mil Arcega reports.
    Video

    Video Orlando Shooting Changes Debate on Gun Control

    It’s been nearly two weeks since the largest mass shooting ever in the United States. Despite public calls for tighter gun control laws, Congress is at an impasse. Democratic lawmakers resorted to a 1960s civil rights tactic to portray their frustration. VOA’s Carolyn Presutti explains how the Orlando, Florida shooting is changing the debate.
    Video

    Video Tunisian Fishing Town Searches for Jobs, Local Development Solutions

    As the European Union tries to come to grips with its migrant crisis, some newcomers are leaving voluntarily. But those returning to their home countries face an uncertain future.  Five years after Tunisia's revolution, the tiny North African country is struggling with unrest, soaring unemployment and plummeting growth. From the southern Tunisian fishing town of Zarzis, Lisa Bryant takes a look for VOA at a search for local solutions.
    Video

    Video 'American Troops' in Russia Despite Tensions

    Historic battle re-enactment is a niche hobby with a fair number of adherents in Russia where past military victories are played-up by the Kremlin as a show of national strength. But, one group of World War II re-enactors in Moscow has the rare distinction of choosing to play western ally troops. VOA's Daniel Schearf explains.
    Video

    Video Experts: Very Few Killed in US Gun Violence Are Victims of Mass Shootings

    The deadly shooting at a Florida nightclub has reignited the debate in the U.S. over gun control. Although Congress doesn't provide government health agencies funds to study gun violence, public health experts say private research has helped them learn some things about the issue. VOA's Carol Pearson reports.
    Video

    Video Trump Unleashes Broadside Against Clinton to Try to Ease GOP Doubts

    Recent public opinion polls show Republican Donald Trump slipping behind Democrat Hillary Clinton in the presidential election matchup for November. Trump trails her both in fundraising and campaign organization, but he's intensifying his attacks on the former secretary of state. VOA National Correspondent Jim Malone reports.
    Video

    Video Muslim American Mayor Calls for Tolerance

    Syrian-born Mohamed Khairullah describes himself as "an American mayor who happens to be Muslim." As the three-term mayor of Prospect Park, New Jersey, he believes his town of 6,000 is an example of how ethnicity and religious beliefs should not determine a community's leadership. Ramon Taylor has this report from Prospect Park.
    Video

    Video Internal Rifts Over Syria Policy Could Be Headache for Next US President

    With the Obama administration showing little outward enthusiasm for adopting a more robust Syria policy, there is a strong likelihood that the internal discontent expressed by State Department employees will roll over to the next administration. VOA State Department correspondent Pam Dockins reports.
    Video

    Video Senegal to Park Colorful ‘Cars Rapide’ Permanently

    Brightly painted cars rapide are a hallmark of Dakar, offering residents a cheap way to get around the capital city since 1976. But the privately owned minibuses are scheduled to be parked for good in late 2018, as Ricci Shryock reports for VOA.
    Video

    Video Florida Gets $1 Million in Emergency Government Funding for Orlando

    The U.S. government has granted $1 million in emergency funding to the state of Florida to cover the costs linked to the June 12 massacre in Orlando. U.S. Attorney General Loretta Lynch announced the grant Tuesday in Orlando, where she met with survivors of the shooting attack that killed 49 people. Zlatica Hoke reports.
    Video

    Video How to Print Impossible Shapes with Metal

    3-D printing with metals is rapidly becoming more advanced. As printers become more affordable, the industry is partnering with universities to refine processes for manufacturing previously impossible things. A new 3-D printing lab aims to bring the new technology closer to everyday use. VOA's George Putic reports.
    Video

    Video Big Somali Community in Minnesota Observes Muslim Religious Feast

    Ramadan is widely observed in the north central US state of Minnesota, which a large Muslim community calls home. VOA Somali service reporter Mohmud Masadde files this report from Minneapolis, the state's biggest city.

    Special Report

    Adrift The Invisible African Diaspora