With 1.3 billion citizens, China accounts for 19 percent of the world’s population and 18 percent of the global pharmaceutical market. Annual drug expenditures are increasing rapidly. Although these numbers and opportunities are eye-catching, international manufacturers face significant challenges to gain favourable pricing, reimbursement and market uptake in the country.
China is well on its way to a systematic, payment-based health system, which has been driven primarily by public health concerns and the Chinese government’s goal to cover all citizens, including those in rural areas.
Despite the government’s ambitions, manufacturers must contest with price controls, narrow margins on branded products, and unclear pricing and reimbursement processes. To add to the uncertainty, drug formularies in China are typically updated only once each five years – and nobody knows when exactly the next update may come!
Manufacturers must decide how they want to operate in China. Do you want to compete in the generics space, or maybe enter a joint venture with a local partner? Or, do you seek a niche, upper-class market for your expensive drug, collecting private pay and real-world outcomes for the five years prior to drug listing?
China’s Payer Stakeholders
In China, three key agencies play a role in the pharmaceutical registration, pricing and reimbursement process:
China Food and Drug Administration
The China Food and Drug Administration 0versees the registration of all new medicines introduced in China. Within the CFDA, the Department of Drug and Cosmetics Registration supervises marketing authorisation procedures via subdivisions including Traditional Chinese Medicine, Pharmaceuticals and Biological Products, among others.
Pharmaceutical Pricing Division
The Pharmaceutical Pricing Division, part of the National Development and Reform Commission, is responsible for setting the price of a new medicine. Price-setting occurs in a five-step process and approval takes four to five months.
Medical Insurance Division of the Ministry of Human Resources and Social Security
The Medical Insurance Division of the Ministry of Human Resources and Social Security maintains the drug reimbursement formulary, known as the National Reimbursement Drug List. Drugs that make it on this list are covered by national health insurance, available to nearly all Chinese citizens today. The Urban Employee Basic Medical Insurance Program, the Urban Resident Basic Medical Insurance Program and the New Cooperative Rural Medical Scheme are the major health insurance programs for universal health coverage.
Important Points to Keep in Mind
The Chinese government strictly controls the price of new medicines, and the price-setting process in China takes place separately from reimbursement. Pricing proceeds as follows:
- Manufacturer proposes a price to regulators based on product’s R&D and materials cost
- A new expert group evaluates the proposed price
- A public hearing is held to invite public comments regarding the price
- Group negotiations take place
- Group examinations conclude and the final price is determined
Subsequent to this decision you must enter into negotiations with the reimbursement boards of the national and provincial insurance programs.
Reimbursement: Is Your Molecule a “List A” or “List B” Personality?
The National Reimbursement Drug List determines how drugs are covered under both national and provincial health insurance programs in China. Formulated by representatives of five government agencies, the NRDL consists of two parts: List A and B. The NRDL is updated about every five years, though more than five years have passed since the publication of the last NRDL in 2009. Provincial Reimbursement Drug Lists – variants of the NRDL – include a slightly expanded portfolio of drugs beyond the NRDL that are deemed important by the provinces for their indigenous populations.
List A consists of widely used, mostly inexpensive drugs, which are considered indispensable. These are fully reimbursed by both national and regional hospital systems. One key subset of List A is the Essential Drugs List, which outlines medicines that receive relatively high levels of reimbursement by the government.
While the EDL contains more than 300 Western products, including newly added chemotherapy and cholesterol drugs, this list is dominated by local brands and generics. Inclusion in this list opens the door to the full spectrum of China’s pharmaceutical market, but tends to be a volume-driven model for growth at generics-level pricing.
List B is administered by the provinces, which reserve the right to tailor their drug lists based on local realities. On average, products on List B are reimbursed at about 90 percent, with provincial governments given leeway to add or remove about 15 percent of products on their regional lists to account for local disease trends or provincial hospital demand. Province-to-province stakeholder engagement becomes critical.
Implications for Industry
Local Partnerships are Critical
For pharma companies, especially multinationals, navigating China’s complex reimbursement system is the key to capturing – or forfeiting – widespread market access. Exposure to this complex, multi-tiered system creates significant price pressures and the need to forge strategic partnerships or alliances with local manufacturers and/or distributors, to leverage their market knowledge, geographic access and R&D capabilities to strengthen market entry opportunities.
In China, the most salient feature of its pricing and reimbursement process is that there is no formal application process for listing on the NRDL. Every four to five years, the group of government stakeholders responsible for maintaining the NRDL creates a list of candidates for inclusion; an expert advisory board then reviews the list and posts final decisions and corresponding prices.
The lack of a clear, standardised process for obtaining reimbursement in China underscores the need for a strong local partner with deep stakeholder knowledge and relationships in-market. Further, you must possess the tools to communicate with stakeholders, patients, members of the media and beyond.
GLOBALHealthPR can help you map out and implement your strategy for engaging and communicating to these key players at all levels in China.
for a complimentary 30-minute consultation
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