Pharmaceuticals

Mon, 07/12/2010 - 12:27

Shanghai. July 9. INTERFAX-CHINA - Following successful tests of new drug procurement regulations in Shanghai's Minhang district, and recent government appraisals of the model, some business insiders believe that the system might be extended to other cities.

Minhang District Health Bureau introduced the model in August 2005, with the primary aim of reducing commercial bribery. The regulations have also been found to increase profits for hospitals in the course of testing.

Under the system, the supply of each different drug to public hospitals is restricted to one designated manufacturer and one distributor. This has reduced the number of different drugs sold in hospitals from over 3,000 before the reform to 1,906 by the end of 2005, and the number of distributors supplying public hospitals from 43 to 10.

The reform has also improved the efficiency of drug procurement by hospitals, which can now entrust designated distributors with the management of their drug supply, thus reducing the need for them to stockpile drugs while increasing their profits. Local government figures show that the amount spent by hospitals in Minhang on stockpiling drugs declined from 8.2 percent of the total value of purchases before the reform, to 4 percent in 2008.

Under the system, hospitals do not pay suppliers directly for drugs. Instead, revenue generated by drug sales in medical institutions is passed on to the Minhang District financial and health bureaus, which then pay drug suppliers.

The reform has resulted in measurable improvements in health care services in the district. Local government figures show that from August 2005 to December 2008, the average medical expenses for outpatients and emergency cases in Minhang's public hospitals were RMB 68.65 ($10.13), down 15.85 percent since the reform started. Average medical expenses for patients in the district were 62.17 percent of the overall average for Shanghai, and 83.20 percent of the national average. The average cost of drugs for inpatients was RMB 2103.57 ($310.26), a decrease of RMB 181.31 ($26.74) compared with pre-reform figures.

The Minhang model started to attract interest from government decision makers and business insiders during the first half of this year. A source familiar with the matter told Interfax that the State Council is conducting appraisals of the system, and considering the possibility of implementing it in other cities.

"Government agencies believe that the Minhang model is an effective way to reduce commercial bribery and medical expenses. It is inevitable that it will be implemented elsewhere in China," Li Xianfa, the deputy director of Renmin University's Pharmaceutical Logistic Research Center who devised the Minhang model told Interfax.

Li countered the criticism that the model creates monopolies for suppliers. "Minhang's hospitals supply drugs from over 700 drug companies under the model," he said.

However, the model must be further improved and industry players given time to adapt before it can be adopted nationwide, Li stated. "Before introducing the model, trials must be conducted elsewhere, and drug procurement and payment policies strengthened. The main obstacle to implementation of the model is not a funding or management issue, but whether local governments and public hospitals are willing to give drug companies more autonomy," he explained.

This opinion was echoed by Guo Fanli, a pharmaceutical analyst from Shenzhen Zhongzhe Investment Consulting Co. Ltd. "The Minhang model will work in some cities, like Shenzhen," Guo told Interfax. "However, the model is not appropriate for whole provinces. Allowing only a single distributor for each drug is not enough for an area of that size, and would increase the cost of distribution."

"Drug companies will receive payments for drugs more promptly under the Minhang model, and logistical arrangements in hospitals will be improved as a result of drug suppliers directly managing hospital pharmacies," according to Guo.