More on Pharmaceutical Market Access Issues in China

In a recent CNBC column, I offered a glimpse into the promise and peril within China’s pharmaceutical space.  Without question, the market opportunity in China is enormous; however, the challenge of paying for drugs is more acute within the country than perhaps any other emerging economy (with the possible exception of India) purely because of the magnitude of the need.  As we have previously discussed on the blog, the trifecta of China’s compulsory licensing regime changing, the Anhui Model, and the elimination of differential pricing on a group of legacy drugs, all have combined to make the next 18 months uniquely challenging for pharma companies in China.

Several weeks ago, I had the pleasure of speaking with , the Senior Director of Market Access and Pricing for Emerging Markets at Pfizer.  Sandeep has a unique point of view in large part because he oversees the strategies for a number of emerging economies at Pfizer and can look at how their approach to the question of how to best pay for pharmaceuticals are similar or different than one another.  I was particularly curious to hear his thoughts on where he sees China’s approach as being different than other emerging economies.  One immediate theme that presented itself was the idea best expressed in the old Chinese axiom “heaven is high and the emperor is far away.”  To say this differently, as Sandeep shared “There is a big difference between what is passed as a regulatory mandate  and what is implemented … that is the biggest difference compared to other emerging economies.”

An example of this is how China evaluates those drugs on the National Reimbursement Drug List (NRDL) .  As he pointed out, “the NRDL  evaluation is supposed to be every two years, but it actually happens every four.”  In addition, access to certain basic health care information in China is always challenging  , although improving in some areas.  Overall, the fact that China’s healthcare system remains in such a flux continues to pose challenges building a market access strategy.  As Sandeep said, “If I look at a country like Turkey, we know their system.  We can pretty much develop our strategy knowing that if something passes tomorrow, this is the current system [in Turkey], and this is what we can do within that system.”  The shifting sands that constitute China’s healthcare market has already challenged many pharmaceutical and medical device companies; however, Sandeep believes understanding the pressures Chinese officials are under and adopting their point of view is essential to building a market access strategy.  This all reinforces the idea of needing to work locally and with the  relevant stakeholders a two-pronged approach that not everyone has embraced.

The previously mentioned Anhui Model may be the best case in point.  I was curious to get Sandeep’s thoughts on what explains the rise of the Anhui Model.  His answer is worth quoting at length:  “First of all, [pharmaceuticals] are an easy target.  No matter how much we try to convince a government that pharmaceuticals are only 7-9% of the total healthcare cost, price reduction [of pharmaceuticals] is an immediate benefit.  The Anhui Model picked up because of the decentralization across China that allows a province to determine what they want to procure based on their own economy [and budget].  What they do not realize is that by focusing on price they are giving up on quality.  The economic disparity between the provinces is so diverse that anyone who is not on the coastal region, or not in Beijing or Shanghai, has no other option but to use this sort of strategy to manage their budgets.”

While many in the pharmaceutical space are hopeful China will begin to use more sophisticated procurement strategies such as those HTA methodologies would propose, in the short term the economic realities in less well off provinces may be determinative of how the Anhui Model is used.  Sandeep shared, “If you look at the demographic shift in China, more people in the urban areas, the financially weaker provinces have no other option.  In other better off areas, the municipalities or equivalent local bodies are coming to companies like Pfizer and saying ‘we want to get into a discussion about taking care of a particular disease and we want to talk about a creative access strategy.”

Ultimately, the pressure to expand coverage without busting the budget remains the fundamental challenge China’s government must address.  For all its brute force, the Anhui Model was an attempt to do this.  Already, as Sandeep reinforced, problems with this blind bid and tender process have presented themselves.  As a consequence of this, many drugs are coming off the EDL.  Several key drugs that have remained on under the 0% mark-up condition have had high profile quality problems.  Cumulatively, success for pharma companies lies in actively engaging both China’s Central Government and the local leaders to make sure that the portfolio of pharmaceuticals being offered and the pricing strategy taken complies with how the local leadership believes it can best bridge the gap between policy mandates from Beijing and the local economic realities they must manage.