BEIJING - China's National Development and Reform Commission is mulling proposals to phase out its fluctuating and sometimes opaque price control policies on pharmaceuticals in favor of a more rational and open system, according to an analyst briefed on the issue.

"Currently about 2,000 types of medicines - 20 percent of the total number of drugs marketed in China - are under the National Development and Reform Commission's price crontrol," said Jinsong Du, an equity research analyst at Credit Suisse in Hong Kong.

"In the past, the NDRC has announced periodic price adjustments - usually price cuts - to contain rising medical expenses," said Du.

But the commission's methods of calculating its mandatory price levels have not been made public or are perceived as uniformly consistent.

And under an "individual pricing policy," the government organization has allowed some drugmakers - usually multinationals with innovative products - to raise the price of certain medicines. That, in turn, has triggered accusations of reverse discrimination by some Chinese drug companies that have launched patented pharmaceuticals onto the market.

Now, the commission is searching for new ways to create a more fair and equitable system of capping prices on medicines considered essential to public health while allowing for higher prices on products based on significant research and development costs.

The commission is trying to develop "a more systematic approach that bases drug price setting on R&D and production costs, as well as market acceptance levels," said Du, who recently met with one of the commission leaders in charge of drafting the new pricing policies.

A more transparent method of calculating price ceilings would also help China comply with its obligations under the World Trade Organization, which requires that member states provide equal treatment and a level playing field for foreign-invested and domestic enterprises.

Ad hoc price adjustments on medicines, which are now common, are likely to give way in the future to a more consistent formula for determining price levels and in applying that formula across the board.

All pharmacuetical companies that have launched products on the Chinese mainland, including multinationals and local outfits, are likely to benefit from a predictable pricing system.

"The National Development and Reform Commission is reviewing changes in the way it issues price controls and in the way it makes exemptions for price rises," said Du.

And for some types of drugs that are produced by both multinationals and domestic companies, "the gap in the allowed price levels is expected to become more narrow," he added.

As part of its drive to create fairer pricing policies, the reform commission recently convened a gathering of pricing experts and economists from across the country and the industry.

Although China has been phasing out wide swaths of its state controls on the economy in favor of market forces over the past three decades, it is unlikely to completely abandon price caps on certain products.

In a new anti-monopoly law that became effective Aug. 1, China's top legislators state the government will continue to supervise prices "in industries vital to the national economy and national security" (Also see "Global Pharma Giants Concered About China’s New Anti-Monopoly Law" - Scrip, 28 July, 2008.).

That law also states that an enterprise "with a dominant market position is prohibited from engaging in … selling products at unfairly high prices," but does not define what types of price levels are unfairly high.

- Kevin Holden (pharmasia@elsevier.com)

China’s Government Might Phase Out Ad Hoc Price Controls On Drugs

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