Written by: David
Anybody who's seen Starwars knows that the death star is a juggernut that chugs along and devoures every rebel star along the way. The chinese version of that is the NDRC.
Well to explain we need to go a litlle into the backgound of this government deparment. The National Development and Reform Commission’s (NDRC) or previously know as the state development and planning commission is an organ of the chinese government which serves to oversee macroeconomic policies. For the Chinese pharma industry, NDRC sets drug pricing. Actually, the government does not have the capacity to estimate production costs of any retail drugs on the market. In short, it requires the pharmaceutical industry to self-report (read NDRC sanctioned) ex-factory manufacturing prices of their retail drugs. It also requires all public hospitals to report all services rendered.
This activity is a high-stakes game for both public hospitals and
pharmaceutical companies since the prices at which government hospitals purchase drugs from drug manufacturers are used by the NDRC to set retail prices. The hospital markup rate is limited at 15% above the ex-factory manufacturing price for most drugs. Essential drugs deemed absotely crucial have a zero markup tolerance.
As a
consequence,this NDRC directed ex-factory prices restricts the size of
hospitals’ officially-sanctioned maximum profit margins, as well as the annual sales forecast of any individual
pharmaceutical company. What any wall street analyst wouldn't kill to get his hand on this kind of accurate forcast.
All of this seem to be benefitting patients but the story doesn't end here. Further consequences of NDRC price manipulation is far reaching and all of it has to do with breaking basic economic principles and replacing market economy with quazy command economy model.
The self-reporting process is plagued
with false reporting. Some of it has to do with rising production costs but also because NDRC officials need to be perceived by the public as a champion of their rights by bring down ex-factory prices of drugs. In china, rising drug cost is publicly viewed as the greatest threat to the chinese healthcare systme.
A low ex-factory prices also
directly impacts success in the the essential druglist bidding process. Making on to the essential druglist means a hundred fold difference in sales volume given that public health insurance covers the cost of eseential drugs. Here's the catch for pharma, a factory may choose to under report in order to successfully be listed on the essential druglist but doing so means your profit margin may become so thin that it is unprofitable to produce said drug. The end result is that many common drugs have crossed the uneconomical bridge and pharma have chosen to freeze production of said drugs. All in all drug prices have come down but the non-availability of cheap essential drugs on the market offsets any potential gain for patients.
Hospitals are also handicapped by NDRC control over services offered. Essentially, all for fee services provided by the hospital needs to be sanctioned by the NDRC. Many sevices that may arise from actual patient need will not be performed by Hospitals if it is not listed. Services such as burning a copy of a previous CT scan so that physician at another site can have access to previous diagnostic imaging is ignored by hospitals since they can not charge for it. Patients end up getting multiple CT scans at different facilities and receiving unnecessary radiation dose.
