(Reuters) – China plans to scrap retail price caps on all drugs as early as the start of next year, an official newspaper reported on Wednesday, giving the market a larger role in an industry where price controls have contributed to supply shortages.
The National Development and Reform Commission, China’s planning agency, has prepared a draft law for review by the industry and could lift the caps as early as Jan. 1, the official Securities Times reported on its website.
Officials at the NDRC had no immediate comment on the report.
China has been slowly stepping back from caps on consumer prices for drugs but faces a difficult task balancing the need to ensure steady supplies of vital medicines with its desire to keep prices low.
China removed price caps on a limited number of drugs in April after criticism that its controls had caused shortages of a number of critical drugs used by millions of patients to treat hyperthyroidism and other ailments.
The full removal of caps should ease price pressures on both domestic and international pharmaceutical firms hoping to tap a healthcare market that McKinsey & Co estimates will grow to $1 trillion by 2020, nearly triple its size in 2011.
A recent crackdown on high prices pushed some Chinese firms out of business and forced global drugmakers – which have long banked on being able to charge steep premiums in emerging markets – to rethink their China strategy.
The caps, however, play only a limited role in the government’s price control regime, analysts said, with around two-thirds of drugs still sold in China’s vast hospital network where prices are kept low through a tendering system.
“We continue to expect very limited impact, since most drugs are sold in hospitals and the pricing is determined by tender process,” Deutsche Bank healthcare analyst Jack Hu said in a note on Wednesday.
President Xi Jinping has made a priority of providing affordable, accessible healthcare in a country struggling with rising healthcare costs, long waits for care and lapses in medicine safety.
The draft rules, which were sent to eight industry bodies on Tuesday seeking feedback, propose to “cancel government-set prices on drugs, and through insurance price controls and the tendering process, allow the actual transaction price of drugs to be set by market competition,” the newspaper said.
Prices would be set by a combination of health insurance departments, existing tendering processes and multi-stakeholder negotiations, it said. (Reporting by Adam Jourdan; Additional reporting by Shanghai Newsroom; Editing by Edmund Klamann)