China’s Drug Problem

When you think of China’s medical drug system, you think of potions, herbs and alternative medicine. One would think that they are behind when it comes to western medicine (prescription drugs). Well China is facing the same dilemma as the US and Europe as they aim to cut treatment costs as they expand the healthcare system.  One way to accomplish this is by stepping up scrutiny of the prices of medicines from western pharmaceutical groups. They believe and have discovered growing evidence that consumers in China are often charged substantially more than in richer countries. Welcome to the ways of western medicine.

Pharmaceutical Price Gouging

The chinese claim that one analysis conducted last year showed that 31 imported drugs were offered for sale in China at an average of twice the UK price. Several other similar studies were prepared in advance of regulators’ recent probes into multinational drug companies about pricing and corruption. GlaxoSmithKline. AstraZeneca, Lundbeck and most recently Sanofi have received inquiries from the authorities in regard to marketing practices. GlaxoSmithKline recentle was fined ($500 million) by the chinese government on corruption and bribery charges. It just wasn’t enough to help heal patients, you have to rob them also.

Three more western pharmaceutical companies have been drawn into widening Chinese probes into pricing and marketing practices in the drug industry, with Lundbeck and Novo Nordisk reporting recent inquiries from the authorities, and Sanofi investigating allegations made by a whistleblower.  Probes into alleged bribery at several other companies have been launched in recent weeks, alongside inquiries from several antitrust agencies into drug pricing by multinational producers. Other companies including UCB and AstraZeneca have also been probed, although it is unclear whether the inquiries are related.

How Pricing Works

Medicine comparisons are highly complex, with prices varying over time, by volume and depending on whether they are sold to the public sector or paid for directly by patients (common practice in China). There are also discounts and mark-ups by distributors and government bodies and hospitals. As healthcare costs increase, prescription drug prices are scrutinized. Sounds alot like the US healthcare system.

Innovative patented medicines typically command an important premium to older generic drugs, a high proportion of western pharmaceutical sales in China and other emerging markets are higher-priced “branded” drugs no longer under patent protection. They require out of pocket purchases funded by patients themselves. These patients prefer older generic drugs rather than new and more expensive patented ones. That has created the temptation for pharmaceutical companies to charge high prices for medicines sold in relatively low volumes to the wealthy and to impose a premium for what they claim are higher quality products. Keep in mind the patents have expired and lower cost equivalents (generics) made by rivals are on sale.

The question comes: At what cost is it worth for pharmaceutical companies to abuse consumers?