China Lifts Price Caps on Most Drugs

Starting June 1, 2015, China will remove price controls on most pharmaceutical drugs — and let the market set drug prices. The Chinese government hopes that this move will help keep medical costs in check. Price controls will still be in effect for narcotics and some psychiatric medications.

This move is tied to China’s newly amended Drug Administration Law, passed on April 24, 2015. The revision nullifies the requirement to obtain a drug license before obtaining a business license as well as the direct fixing of pharmaceutical prices. However, drug prices must still conform to principles such as drug quality, fairness, and honesty.

This change is unlikely to have a significant effect because it applies only to the 25% of drugs in China that are sold through retail channels. The other 75% of drugs are marketed through hospitals, which involves a separate drug tender process.

In addition, pharmaceutical manufacturers are now facing increasing pressure from Chinese provincial governments to cut their prices in order to follow the price competition with domestic Chinese companies. This has resulted in significantly lower sales for foreign off-patent products in certain provinces. Many large multinational drug companies such as GlaxoSmithKline and Pfizer have reportedly pulled out of the pricing bids for several of their products in these regions.

The Chinese pharmaceutical market could be worth $200 billion by 2022.