Chinese healthcare reforms can't succeed if hospitals keep pushing up drug prices, the country's health minister said over the weekend. Quoting Xinhua, Reuters reports that hospitals derive a big chunk of their income from drug sales--and for that reason, they often inflate prices to bring in even more.
Health Minister Chen Zhu told Xinhua this practice has to stop. "If there is no reform, no amount of money invested would fill the black hole for healthcare funding," Chen told Xinhua.
Last month, Chen said the list of state-paid drugs would grow to 800 from 307. Prices for those drugs would be government-controlled to keep a lid on spending. Hospitals would be allowed to raise fees to improve their quality of care, but those increases would have to be offset by lower spending on drugs, the minister said.
Meanwhile, Chinese drug companies say the broader price controls will cut into their purses. Five issued profit warnings recently because of anticipated pricing pressures. With price cuts coming on hospital-provided drugs--which tend to be more expensive overall--the institutions' incomes won't be the only ones to suffer.
"This is particularly challenging for manufacturers, given that drugs sold through hospitals provide higher margins and profit contribution," Barclays analyst Jason Mann told Reuters last week. But larger drugmakers are expected to suffer less than smaller ones, and may benefit from resulting consolidation in the industry.