A Glimpse of Failing Health Care Reform

By Tang Xiangyang and Rose Scobie
Published: 2010-05-20

China's healthcare reform which began in 2009 has lofty ambitions including its main goal of providing affordable healthcare to its entire population of 1.3 billion people. As part of the reform a National Essential Drug List scheme was created with the intention of granting people access to more affordable generic drugs. Recent events in Hunan province have exposed just how hard it will be for the government to achieve affordable healthcare for all.

Miss Han is a Changsha local who has been suffering from a rare ovarian tumor; she received a chemical treatment in Zhongnan University Xiangya No.2. Hospital, henceforth referred to as No.2 Hospital, in Changsha City. Her doctor then prescribed her a drug called Lusun Pian (a traditional Chinese medicine). The hospital charged her 213 yuan per bottle, but Miss Han later discovered that the market price of the prescribed medicine was only 30 yuan per bottle.

The local media exposed to the public the sky-high profits the hospital was gaining from drug sales and things became increasingly complicated.

Zhou Hong, head of No.2 Hospital's drug purchasing department, said price of Lusun Pian was determined by the government and all of prices of drugs sold by the hospital had been approved by the local price bureau. He said the tender price of Lusun Pian was 185.22 yuan per bottle.

"We only increased it by 15 percent!" he said.

According to guidelines stipulated in China's health care reform, all medicines must undergo a tendering process before being sold to hospitals; hospitals are allowed to raise prices by no more than 15 percent of the tendered price.

Legal Daily reporters have gained a sales list from the drug company who sold Lusun Pian to No. 2 Hospital which indicates that the price was increased from around 30 yuan to 136 yuan when it was sold to hospitals, and the original manufacturer of the medicine only charged the drug company 15.5 yuan per bottle.

The profit from each bottle of Lusun Pian sold is nearly 13 times its original cost.

The public has grown furious as more details have been brought to light.

Guo Zhiqiu, deputy inspector of Hunan's Price Bureau, said the approved price of Lusun Pian was indeed 213 yuan per bottle; a price set by referencing the 2008 tender prices of other provinces.

According to the bureau, the approved tendered price of Lusun Pian is 190.08 yuan per bottle in Jiangmen City in Guangdong Province, 160 yuan in Heilongjiang Province and 133 yuan in Henan Province.

Guo said, all drugs sold in state-owned public hospitals that are not listed in the National Essential Drug List must go through a provincial tendering process. Since Lusun Pian is not listed and did not go through the provincial tendering process , it should have been prohibited from being sold directly to No. 2 Hospital.

According to Guo, that was the hospital's only mistake.

Which begs the question, who is responsible for the sky-high medicine prices?

"We are also victims," employees of No.2 Hospital said to Legal Daily reporters.

Chen Jinsheng, director of the Department of Medical Affairs and also the spokesman of the No.2 Hospital, described the drug tendering process to reporters:

"We have to rely on the Hunan Zhenxing Online Medical Business Company (Zhenxing Company) to hold a tendering process and purchase drugs for us. Hospitals are prohibited from buying drugs directly from the manufacturing companies or else face punishment for breaking the law. We are allowed to increase drug prices by only 15 percent on tendered price."

"Zhenxiang Company, on behalf of the government, purchases medicines for us. We are all unclear about the background of this company," Chen said.

He went on to say, "we hope the media will give full coverage to this issue and expose the contacts [of the drug industry], so we will know who has taken the huge drug profits!"

Though the Hunan Price Bureau claims they try to standardize drug prices, they admitted that they approved an unreasonably high price for Lusun Pian. Guo Zhiqui attributed the mistake to lacking information and having loose supervision.

Lusun Pian is not the only medicine that has been sold at a sky-high prices in China. Because its health care reform plan allows hospitals to increase drug prices by 15 percent, hospitals tend to purchase relatively expensive drugs to earn more, pushing manufacturing companies to produce smaller amounts of low cost drugs or even stop their production.

Another element responsible for the inflated cost of medicine lies in the fact that local price bureaus often refer to the prices of other provinces or to prices provided by drug companies, rather than the real cost of the drug, when pricing medicine. If China wants their health care reform to be a success, the government needs to do more than creating a list.

Links and Sources
Legal Daily: 湖南“暴利药”事件背后浮现“红顶”公司
The Beijing News: 暴利芦笋片违规进入医院
Economic Observer Online: 药品利润 “1300%”其实“很正常”