Thursday’s NextLevel Pharma conference spent a good portion of the day focused on China, both from a regulatory and market access point of view. Given all that has been happening with healthcare reform in China, Thursday’s event was particularly helpful for those in the pharmaceutical and medical device industries who are attempting to “ride the dragon” and sell into China’s burgeoning healthcare market. With this in mind, the highlight of the day for me was the presentation by , Vice President – Government Affairs & Public Policy in Asia Pacific – for Baxter International.
One of the observations from my own research in the pharmaceutical industry in China is that, much like most regulatory and market access issues where the government plays a dominant role, success navigating the domestic Chinese market requires being able to successfully work at two levels. One is undoubtedly at the national, or Central Government level. But the other, and more easily overlooked, is at the provincial level. Both represent critical stakeholders as China’s healthcare reform process proceeds, and overlooking the provincial level dialogue has already proven to be an expensive oversight as the Anhui model has advanced absent the direct involvement of the Central Government.
To reinforce this point, Marie outlined the five “Key Healthcare Decision Makers in China” as the Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission (NDRC), the State Food and Drug Administration (SFDA), the Ministry of Health (MOH), and the Ministry of Human Resources and Social Security (MOHRSS). In addition, as Marie shared, “other important stakeholders in the system include the Ministry of Finance (MOF) who handles funding, and the China Insurance Regulatory Committee (CIRC) who is in charge of commercial insurance.”
All told, Marie identified 16 government agencies that play a role in setting policies relevant to healthcare. Given the level of complexity and the number of agencies with overlapping mandates and authority to dictate policy, it can be easy to see why multi-nationals expend so much energy in Beijing trying to shepherd along a reform process that addresses both China’s needs to expand coverage cost-effectively, with industry’s aspirations to sell into China’s enormous market. What I find interesting is that in this market segment, like in so many other aspects of China’s business setting, what has proven most impactful to multi-nationals in the pharma space over the last two years has been the pervasive influence and relative success of the Anhui model (at least as measured by China), an attempt by a poor province to solve a problem, regardless of how it aligned with the Central Government’s multiple agencies. As Marie added, “27 provinces accomplished bids for national essential drug purchases and in these areas, drug prices have dropped by 25-50 percent on average.” Some of what the provinces are pursuing can be explained by simple need, and some can probably be understood as regional government officials working to find a way to achieve objectives set forward by the 12th Five Year Plan (expanding affordable healthcare coverage specifically).
Marie pointed out that China’s 2009 Healthcare Reform Plan has “5 key tasks for the reform”, one of which is to “preliminarily establish [a] national essential drug system.” What could very well happen, and what would bode well for multinationals selling into China, is that the 2009 Reform Plan and the policy mandates that are flowing from it today, could well push back or provide alternative means by which companies can access the Chinese market without being subject to the implications of the Anhui model. An example of this already exists today in how certain HIV/AIDS drugs have been made accessible to, and paid for by, the Chinese people. Multinationals will likely continue to stress innovative drug offerings at the national level, and will likely push for expanded use of Health Technology Assessment (HTA) protocols as a means of gauging the long term total costs for divergent drug regimens.
Along these lines, Marie shared that as the State Council seeks to further deepen the healthcare reform process, they will do so in three areas. According to Marie, “First, they will accelerate setting up universal healthcare reimbursement coverage; second, they will improve the essential drug system and primary healthcare system; third, the will push forward public hospital reform.” I found her last point one of the most interesting, simply because it draws out how the Anhui model runs at cross-purposes with the needs of other portions of how healthcare will need to be paid for and delivered in China. Specifically, because Chinese hospitals realize up to 60% of their revenue from prescribing and dispensing drugs (I have actually been told anecdotally of some hospitals where this can reach upwards of 90%), something like the Anhui model is deeply damaging to their revenue stream. It has already impacted doctors severely, as their compensation was in many (if not most) cases directly tied to this as well. The provincial government may not care about this, simply because the hospital may be perceived to have the financial backing of the Ministry of Health; consequently, what the Anhui model successfully accomplishes for the provincial government may place an extra burden on the Central Government to fund and otherwise incentivize the doctors and hospitals. These are all necessary efficiency gains for the system, but they point to my earlier thought about how what happens between the Central Government and the local officials may be wildly disconnected and may even work at cross purposes with one another. It also illustrates the enormous need for companies in this space to be actively working with both.
Marie ended with a comment that I have heard from two well-placed people in China’s healthcare space over the last month: “to be successful in China, be sure to adopt the Chinese point of view.” What do they mean by this? Simply put, start out by listening to what the government and its ministries needs to accomplish. Get them to tell you what they are most concerned with, and how they think they can best achieve their objectives. Then find a way to tailor your solutions to their needs. It is such a simple perspective, but it offers much in the way of insight in terms of how large companies need to approach the Chinese market with a measure of humility as opposed to teaching the Chinese how they stand to benefit by adopting western products, standards and practices.
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Interesting article. I was always of the opinion that foreign firms were finding it difficult to sell pharma into China mainly because the West will not sanction of use of TCM (traditional Chinese medicine) in Western markets as the active ingredient has not been identified. What with all the other stuff that goes into these treatments, obtaining a consistant reaction that can be understood asnd monitored from individual to individual remains a serious concern, and is both erratic and potentially dangerous. As a result of that, the Chinese are unwilling to allow market access in return for Western drugs. Any comment on that? Thanks – Chris
Actually its Devonshire-Ellis, not Devomshire. Thanks
TCM did come up in this week’s conversations, but not in that sense. Primarily TCMs going from China out to more developed economies. The comment was made that a survey of 240 such manufacturers in the region as a whole found about 40% did little or no efficacy or quality control testing. Consequently the opportunity for TCM was primarily domestic (both as consumers and producers).
[...] and with the more local needs of the provincial leaders. More on how this process has worked at today’s Asia Healthcare Blog post. Category: China, Emerging Economies, Healthcare, India, Indonesia, Thailand Tag: Anhui [...]