Market Trends and Updates: New Pharmaceutical Policies Have Dramatically Changed the Landscape in China
HTA QUARTERLY | FALL 2020
New Pharmaceutical Policies Have Dramatically Changed the Landscape in China
China has a population of 1.4 billion, the world’s second largest economy, and one of the fastest growing pharmaceutical markets valued at $137 billion (USD), second only to the United States, based on sales. Fueling this growth has been a series of watershed healthcare reforms backed by immense state investment, including the current national long-term action plan, “Healthy China 2030.” This plan has a clear focus on patient-centered care, further implementing value and evidence-based decision making, improving quality and availability of healthcare, and seeks to achieve health equity by embracing the United Nation’s sustainable development goal of universal health coverage. Many regulatory and policy achievements have been made towards these goals, such as: 1) the massive expansion of health insurance and the creation of the National Healthcare Security Administration (NHSA) to supervise all public health insurance; 2) forging clear and efficient pathways for national price negotiations to gain access for innovative pharmaceuticals; and 3) the creation of the Generic Quality Consistency Evaluation (GQCE) program and the use of this system in the “4+7” pilot access program. This article discusses these developments in China’s market and provides key insights for the pharmaceutical industry to help their planning and successful engagement during this exciting time of reform.
Massive Expansion of Health Insurance and Creation of the NHSA
At the beginning of the 21st century, China faced many healthcare challenges, such as an inadequately structured system to address increases in non-communicable diseases like diabetes and hypertension, an aging population, and prevalent risky health behaviors such as smoking and sedentary lifestyles. Further, there was immense disparity in health outcomes and benefits coverage between low- and high-income provinces. In 2003, 45% of the urban population and 79% of the rural population were not covered by social health insurance plans, and out-of-pocket payments accounted for more than 50% of health expenditure, factors which limited access to healthcare and increased the financial burden on patients.
Since then, the coverage of public health insurance programs has improved greatly. By 2017, China’s health insurance schemes covered more than 95% of the population and out-of-pocket expenses had dropped to 29% of total health expenditure. The expanded public health package is now more comprehensive in covering non-communicable diseases and the role of primary care facilities have expanded to further improve access for citizens. Furthermore, management of all public health insurance schemes has been consolidated under the NHSA, which has worked to lower disparity in healthcare delivery with much success. Other responsibilities of the NHSA include purchasing power for health services, price setting for pharmaceuticals and medical services, procurement, and provider payments. This makes it the biggest buyer of healthcare goods and services in China.
Implications for the pharmaceutical industry
The consolidation of all public health insurance schemes under the NHSA has made it a powerful purchaser of healthcare goods and services in the Chinese market. This consolidation also allows the pharmaceutical industry to streamline market access operations to focus on one government agency rather than several, which had historically been the case. In addition, the NHSA has led several reforms (mentioned in the rest of this article) aimed at reducing waste and improving efficiency of the insurance fund. This has created new opportunities and challenges for manufacturers to gain access in the massive Chinese market.
National Price Negotiation and Innovative Pharmaceuticals
For manufacturers of innovative drugs to access China’s large market, the priority goal is to be listed for coverage under the National Reimbursement Drug List (NRDL). Patients across the country have access to drugs included on the NRDL with low out-of-pocket expense. In recent years, there have been significant enhancements to this listing process: pricing negotiations have been more structured and occur regularly, and health technology assessment (HTA) is utilized.
In 2015, the State Council of China issued the Guidelines of Improving the Centralized Procurement of Drugs for Public Hospital which proposed establishing an open and transparent price negotiation mechanism for patented drugs, allowing entry to the NRDL and improving access while controlling costs. China pledged to update the list yearly, eventually phasing out the provinces’ flexibility over using the NRDL, and assigned one national office, the NHSA, to manage the NRDL. In 2017, the first overhaul of the NRDL occurred since 2009, which increased the number of medicines included on the NRDL to 2,535 from 2,196. In 2019’s update, the NRDL grew to 2,709 drugs, which included 70 new medications across 11 disease categories and 27 re-negotiated medicines—most of these drugs were recently launched. 2019 was the largest increase of successfully negotiated drugs on record, and the largest average price reduction since the beginning of the price negotiation mechanism (Figure 1).
Figure 1. Status of Medicines Negotiated in China NRDL From 2016 to 20195
Adjustment of the NRDL can be divided into conventional admission and negotiated admission. Conventional admission does not require negotiation and is much faster; this option is available for drugs that have passed inspection by the National Medical Products Administration (NMPA), are determined to meet clinical need, and are priced at or lower than the level of similar products on the NRDL. Drugs that don’t meet these criteria must go through the price negotiation process which has been formalized as the following steps: preparation, evaluation, negotiation, and announcement (Figure 2). First, the NHSA confers with related departments, academic associations, experts, and industry associations to determine the list of drugs to be negotiated. Second, NHSA determines the floor price based on many factors including a formal HTA with pharmacoeconomic evaluations, and discussions with the pharmaceutical company. A formal HTA agency, the National Center for Evaluation of Medicines and Health Technologies, under the auspices of the National Health Commission, conducts the HTA analyses. Several academic centers for HTA research were also established. Third, begin actual negotiations with the manufacturer; and, if successful, the last step is to announce the agreement upon release of the new NRDL.
Figure 2. Drug Pricing Negotiation Process of China NRDL
HTA in China still has several areas of improvement:
- Existing HTA centers in China are relatively less experienced in the establishment of process systems, as well as in conducting expert evaluations.
- Research quality and quantity in the evaluation of health economics in China is relatively low, particularly hospital-focused HTA. Further investment in HTA infrastructure and training is warranted in China.
- Quality of life research is an urgent need; localized utility measurement tools and threshold setting based on different populations in China needs to be established.
- Presently, it is difficult to obtain and share real-world data between public hospitals in China. These data are needed to build China-specific models or local adaptation of global health economic models.
Implications for the pharmaceutical industry
The improved NRDL access process is more frequent and predictable than in the past. Most of the successfully negotiated drugs are newly launched, which signals clear support for innovation. At the same time, a centralized and formal process means the NHSA has considerable bargaining power and drastic price reductions may be needed to gain access to the NRDL. Manufacturers may also consider offering low prices at the onset, to obtain NRDL access through the conventional method.
Health economics will now play a bigger part in negotiations, offering an opportunity for manufacturers to demonstrate value proactively, and to increase pricing potential. Manufacturers can employ a variety of tools to generate evidence, including quality of life studies, burden of disease analyses, health economic models, real-world evidence, epidemiological studies, and cost evaluations. Finally, pharmaceutical companies should engage with local HTA agencies and key opinion leaders (KOLs) to exchange information and glean “on-the-ground” insights for more effective price negotiations.
Generic Quality Consistency Evaluation (GQCE) and the “4+7” pilot access program
Starting in 2016, the NMPA has carried out GQCEs, which involve a mandatory bioequivalence test. Previously, large multinational manufacturers could win local hospital tenders for their off-patent drugs with a higher price due to perceived higher quality. The GQCE promotes the quality of China’s domestic generic drugs and, as a result, the concerns on domestic manufacturers’ quality can abate and prices can fall.
In 2018, led by the NHSA, the “4+7” pilot program kicked off to procure 31 generics for 4 municipalities and 7 cities across China. This procurement, which is essentially a price-volume agreement, came with unprecedentedly high quality and supply quantity requirements for participating pharmaceutical manufacturers, as well as high political and payment commitments from a unified state payer. All drugs selected must pass the GQCE program, which guarantees quality and efficacy. The bid is open to all manufacturers registered in the mainland. Those who can guarantee supply at a low price are favored in the bidding process. The minimum that guarantee can be is 60% of the total sales of that drug in the pilot cities from the previous year; thus, that means the purchase volume is at least 20% of the national total for that product for a full year. Government institutions also created more policies to increase the use of generics amongst providers and hospitals.
After the kickoff of the “4+7” program, 25 products completed the process, with a 52% average price drop, with the highest price cut at 96%. Based on NHSA research, nearly $850M (USD) were already saved with this pilot program, and the potential savings would be enormous after scaling up to the rest of China. Chinese companies with larger capacities outbid the multinationals in most cases—most of these Chinese companies were also the producers of the active pharmaceutical ingredients of the drug. Small, domestic companies were shut out, especially if their products could not pass GQCE.
China has seen success with this pilot program, but there are several challenges anticipated when considering scaling up to the rest of the country. This reform will drive small Chinese enterprises with irregular performance, or inferior production capacity, out of the market. There may also be consolidation and thus China may need to establish a pre-warning system for monopolies and other anti-competitive behaviors. Another tactic to help alleviate this issue is to allow more winning manufacturers instead of one for each drug; in the 2019 procurement cycle, China allowed up to three winners. There are additional concerns that the bidding process and final negotiated prices are not evidence based. For example, drug selection for the program should be systematic, transparent, and based on unmet needs and other clinical and economic evidence. Furthermore, the deep price cuts offered by some companies were surprising and created doubt that these companies bid rationally and can deliver on agreements. Some scholars recommend that China’s formal HTA body step in to infuse more evidence-based practices in the selection of eligible drugs, setting reasonable price guidances, and other major elements of the generic procurement scheme in the future.
Implications for the pharmaceutical industry
Due to reforms promoting the quality and centralized procurement of generics, multinational companies with off-patent products face strong competition from domestic companies offering high-quality generics at lower prices. The highly competitive mechanism of the “4+7” pilot program exerts intense pricing pressure on off-patent products and accelerates industry consolidation by pushing out smaller or lower-quality domestic manufacturers. Multinational manufacturers may need to evaluate their return on investment before bidding and identify opportunities to improve operational efficiency. For example, one option for multinationals is to partner with local companies in outsourcing agreements to combine their respective strengths in technical know-how and outreach. If China moves towards evidence-based pricing considerations for their generic procurements, pharmaceutical companies may be able to differentiate themselves with market-shaping efforts like healthcare professional education.
China’s massive pharmaceutical market has undergone major reforms which bring forth new challenges and opportunities for pharmaceutical manufacturers. China has managed to cover almost all its population under unified public health insurance and plans to expand benefits. This makes China a more attractive market due to the now more organized and reliable payer HTA and procurement process. However, to ensure that these public insurance programs stay efficient and solvent, China has ramped up negotiations and price-volume agreements to keep costs low, in particular, with generic medications. To achieve optimum market access and reimbursements in China, pharmaceutical companies must build a strong value platform for their products; consider collaborations with local pharmaceutical companies, KOLs, and HTA organizations; adopt customized strategies for different parts (off-patent originators vs innovative products) of their portfolios; and ensure they keep abreast of the shifting policy reforms.
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