3 WINTER 2024 NO.89 / THOUGHT LEADERSHIP BRIEF While the volume-based procurement system has been successful in managing generic drugs, the Chinese government has implemented national drug price negotiations to manage patented drugs. Characterized by clinical need but high costs due to a small volume of purchases, foreign patented drugs often become a cause of medical impoverishment for underprivileged patients, particularly those suffering from rare diseases. The NHSA and pharmaceutical companies negotiate under the condition that these drugs are included in the social health insurance catalogue. This inclusion is strategically important because it guarantees a relatively large volume of clinical use in public hospitals. The NHSA can therefore use de facto market access control as leverage for bargain prices. A typical negotiation exercise begins with an expert review to shortlist eligible patented drugs, followed by a one-on-one negotiation between the NHSA and the company. The NHSA sets the highest price that social health insurance funds can bear as a confidential threshold. Companies are given two opportunities to quote their prices and final negotiation will only proceed when the quotation falls within 115% of the threshold. Results from several rounds of negotiation exercises indicate a significant reduction of drug prices, averaging at 60% (Figure 3). In the meantime, there has been a notable increase in the total quantity of drugs procured and the actual volume of drug use. This significant increase in procurement spending can be attributed to the expanded accessibility of patented drugs. 2016 2017 2018 2019 2020 2021 2022 2023 180 160 140 120 100 80 60 40 20 0 70% 60% 50% 40% 30% 20% 10% 0% Quantity of drugs negotiated Number of deals Average price reduction (%) 5 3 44 59% 44% 57% 61% 51% 62% 60.10% 61.70% 36 1817 150 97 162 119 117 94 147 91 168 121 Table 1. Details of the National Volume-Based Pharmaceutical Procurement System Figure 2. Number of Drug Varieties and Average Price Decrease in Various Rounds of Volume-Based Procurement Exercises Figure 3. Details of the Various Rounds of Drug Price Negotiation Exercises No. of drug type No. of bid-winning drugs No. of bid-winning companies Bid-winning ratio Type of bid-winning companies Average price reduction No. of original drugs Round #1 (2019) 25 25 45 / 7 foreign 38 domestic 59% 6 Round #2 (2020) 32 100 77 63% 4 foreign 73 domestic 53% 5 Round #3 (2020) 55 191 125 / 3 foreign 122 domestic 53% 3 Round #4 (2021) 45 158 118 77.6% 5 foreign 113 domestic 52% 2 Round #5 (2021) 61 251 148 73.6% 10 foreign 138 domestic 56% 10 Round #6 (2021) 16 42 11 / 4 foreign 7 domestic 48% 17 Round #7 (2022) 60 327 217 73% 6 foreign 211 domestic 48% 4 Round #8 (2023) 39 252 174 70% 5 foreign 169 domestic 56% 2 Round #9 (2023) 41 266 205 78% 5 foreign 200 domestic 58% 1 Source: NHSA, compiled by the authors Source: NHSA, compiled by the authors Source: NHSA, compiled by the authors Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Round 7 Round 8 Round 9 70 60 50 40 30 20 10 0 70% 60% 50% 40% 30% 20% 10% 0% Number of drug varieties Average price decrease
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