China gears up to change the rules of the game on drug sales

If China has its way, within another year or two, a repeat of the GlaxoSmithKline ($GSK) and similar scandals will be far less likely, but drugmakers can expect to face a harder sell as a result. The government just completed a comprehensive healthcare reform plan centered on the nation's public hospital system, but with a reach throughout the medical process.

The overall mix could provide the pharmaceutical industry with the prospect of getting some good while having to accept some bad. Healthcare subsidies are to be increased for the urban and rural poor, offering more sales targets, but drug prices are to remain heavily scrutinized along with the entire system of producing and distributing them.

The changes also reflect facts on the ground with GlaxoSmithKline totally revamping its global sales model in the wake of a bribery charge in China that led to $489 million in fines.

The State Council and the National Health and Family Planning Commission established several targets to gain control of the nation's healthcare system, forecasted by McKinsey to reach $1 trillion by 2020, while expanding coverage for a population of more than 1 billion people. The government aim is to have most or all this done in two years.

The NHFPC announced it would increase healthcare subsidies this year by 19%, meaning to just over $60 per person, while other parts of the broad reform plan attempt to bring prices under control, including "high-value medical supplies" of drugs and devices.

The aim is to get better control of costs by establishing transparent procurement systems and shifting government procurement from the national level and public hospitals to provincial and county regulators.

The plan also would improve the government's inspection and tracking of the drug production and distribution process and standardize the setting of prices as well as the security of the drug-supply system. The reports of the government work, including a lengthy set of "opinions" of the State Council, offered no details of that aspect of reforms.

The change would increase the pay of county public hospital employees and spur better quality of service by establishing a merit system, including for physicians, to make sure they stop the practice of proffering a procurement form with one hand and holding the other one palm up to get some remuneration from a sales representative.

In fact, doctors would be part of the procurement process only as part of a team required to operate openly and subject to public reports.

Another corruption barrier involves a requirement that hospitals sell their drugs to patients at cost and encourage them to fill their prescriptions in hon-hospital pharmacies.

At the same time, the hospital's costs would be met by the government and other provisions to remove their reliance on prescription sales to cover hospital expenses and line the pockets of underpaid staff.

To help make hospitals more efficient, the government put in place plans to reduce the size of the public ones and encourage the building of more hospitals, both public and private, to provide greater competition and encourage efficient operations.

The popular county hospital system also is to be restructured, based on a pilot study involving several hospitals over the past year.

The State Council said the requirement of hospitals selling medicines at cost means "they won't be able to overcharge patients, and doctors will be much less likely to prescribe excessive medicines."

On the other hand, it said, changes would be put in place so employees will be paid for their work instead of relying on medicine sales to boost their income. It added that merit pay decisions are not to rely on the number of drugs prescribed or examinations given.

With better wages and incentives to do better-quality of work, the government hopes to attract more doctors to practice and end a shortage that is in direct conflict with an expansion of healthcare to all populations throughout the country.

- here's the government release, and note from the state council
- and the State Council action release, content (in Chinese)
- more from Reuters and Xinhua