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Global Health Technology Assessment Road Maps

China Mainland - Pharmaceuticals

 

Map of China

Description of Health Care System

China’s health insurance system has experienced dramatic changes in the past three decades as China transitioned to a market economy. China’s urban populations were mainly covered by the Government Insurance Scheme (GIS) or the Labor Insurance Scheme (LIS) under the planned economic system. The GIS was funded by the Chinese government for government employees and the LIS was funded by state-owned enterprises for their employees.  For several reasons, both GIS and LIS came under great pressure after the reforms of 1978. First, the health care expenditure grew dramatically. The annual rate of growth of health expenditure was 8.2% during 1978 to 1985 and 24.4% during 1985 to 1989 (1).  A comprehensive strategy was needed to contain the growth of health expenditure. Second, there was great inequality in health insurance coverage. GIS and LIS were financed and managed by state-owned enterprises and governments for their employees, as well as retirees. Coverage varied considerably across different workplaces. In addition, the GIS and LIS did not cover the growing numbers of private sector employees in China (2, 3).

To address these issues, the Chinese government established the Basic Health Insurance Scheme (BHIS) for urban residents in 1997, to replace the GIS and LIS. The BHIS is operated by the local municipal governments. It is an employment based system in which employees and employers make contributions to a common fund. All enterprises are required to join BHIS to provide insurance for their employees (4).

BHIS implemented extensive cost-containment measures. Its beneficiaries must receive health care services in designated facilities. Only drugs and services approved by the BHIS can be reimbursed. Step therapy is in place for some drugs; co-payments and personal health saving accounts are used when BHIS reimburses health expenses (4).

The BHIS, however, provides limited coverage. Its most glaring limit is that it does not cover dependents. In addition, although employers are typically required to join the BHIS, enforcement has been spotty. Some employers choose not to join BHIS to avoid making contributions. Commercial health insurance plans are only available in some cities, and premiums are high. As a consequence, many urban residents still do not have health insurance. A survey in 2003 showed that the BHIS and other government insurance plans only covered about 39% of the urban population. Commercial and other community insurance covered 16.2% of the population. About 45% of China’s urban residents did not have any insurance coverage (4).

China’s rural residents also experienced major changes in health insurance over the past three decades. Before 1978, China’s rural population was largely covered by the local Cooperative Medical System (CMS). The CMS was mainly funded by communes and staffed by practitioners with limited medical training (“barefoot doctors”). The rural CMS collapsed quickly after 1978 as China began to privatize its economy (5, 6).  The rural population covered by some form of insurance dropped from 92.6% to 6.1% between 1976 and 1990 (7).

To improve health service coverage for the rural population, China launched the New Cooperative Medical System (NCMS) for the rural population in 2003. The rural community-based health insurance was rolled out at a fast pace. As of 2006, the system has reached about half of the rural counties in China and covered 406 million beneficiaries, about 50% of the rural population. China has set the goal to make the plan to reach all of China’s rural counties in 2008 (8).

The NCMS is operated by the county governments. It is funded jointly by beneficiaries, counties and the central government. The budget is quite small–62.9 RMB per member per year–so the NCMS offers very limited coverage. Many counties do not cover outpatient services at all. The co-payment for inpatient services is around 60% and the deductible is about 500 RMB, a large amount by rural Chinese standards (8).

Overall, China is still in the early stages of building a health safety net for China’s citizens. The health insurance coverage in China for urban and rural population is shallow. The low insurance coverage in China makes patient out-of-pocket expenses the major financing source for health care. Research has showed that out-of-pocket expenses accounted for 58% of the total health expenditures in 2002 (9).

Similar to other developing countries, drug expenditures accounted for a high percentage of total health expenditures in China. In the year 2001, the total drug expenditure was 230.3 billion RMB ($40 billion) and represented 44.4% of the total health expenditures came from expenditures on drugs (10).  Similar to the trends in other developed countries, drug expenditures have been growing at double digit rates. Drug expenditures per capita have been increasing at an annual rate of 15.7% between 1990 and 2001 (10).   Not surprisingly, pharmaceutical prices have become an important topic in China.

The supply side of health care has experienced less change in the past three decades. Most hospitals and clinics are still owned by the government and most health service providers, such as physicians and nurses, are still government employees. The Chinese government continues regulating health service prices tightly. To ensure that basic services are accessible for the general population, the government imposes a ceiling on prices charged for routine services and surgeries. However, hospitals and clinics can earn profits by dispensing drugs and applying new technologies (9).  The integration of drug dispensing and medical services makes China’s hospitals the primary venue to obtain drugs. Research has shown that hospital outpatient and inpatient departments accounted for 54.1% and 30.8%, respectively, of total drug expenditures. Retail pharmacies only accounted for 15.1% of total drug expenditures (10).

Reimbursement and Pricing Approval Process

Reimbursement Process

The BHIS formulary is maintained by the Ministry of Labor and Social Security. The current BHIS formulary, released in 2004, includes more than 2,000 drugs (11).  The philosophy of the BHIS formulary is not to maximize cost-effectiveness, but rather to provide basic drug coverage and to contain costs. As a consequence, the BHIS provides limited coverage for drugs under patent, even when these drugs are effective. For example, many brand name anti-retroviral drugs are not covered by BHIS despite the large number of HBV and HIV patients in China (12).

To establish the formulary, the Ministry of Labor and Social Security listed candidate drugs based on the National Essential Drug List and drugs covered by the LIS, GIS and BHIS. Pharmaceutical companies were not required to submit applications to be included in the list of candidate drugs. The Ministry then assembled a panel of experts by randomly selecting from a pool recommended by the local governments. These experts voted on which drugs should be in the formulary, and, if a drug was on formulary, whether the drug should be in Tier A or Tier B. Drugs in Tier A are considered more basic and require lower co-payments. This formulary was distributed to the local provincial governments, who cannot change drugs in Tier A and have limited authority to add or subtract drugs in Tier B (11, 13).

This drug selection process is supposed to happen every 2-4 years. The BHIS does not have an on-going committee to review formulary as new information becomes available. Revision of the formulary has to await a Ministry of Labor and Social Security decision that it is time for a review.

The BHIS formulary covers drugs by generic names: if a generic drug is covered, all the brand names for the same generic drug will be covered. There is no selective contracting with different pharmaceutical companies.

The drug formulary for NCMS is maintained by local governments. Compared with BHIS formulary, NCMS formulary has a much limited coverage and it usually covers 600 drugs.  

Pricing Approval Process

In China, the National Development and Reform Commission (NDRC) is responsible for setting ceiling retail prices for BHIS formulary drugs. No drugs on BHIS formulary can be dispensed with a price higher than the published retail prices. The NDRC sets ceiling prices for both Tier A and Tier B, with the exception of OTC drugs.  NDRC could also set prices for new drugs or drug under patents that are not on BHIS formulary (14).

NDRC mainly sets ceiling prices based on average production costs multiplying by some markups to account for profits and R&D costs. Higher mark-ups are given to new drugs and drug under patents to encourage innovations. China has not yet begun to use cost-effectiveness concepts such as cost per quality adjusted life year (15).

Pharmaceutical companies could apply for rights to set price higher than NDRC prices if their products have superior quality, effectiveness or other unique advantages. To be eligible for setting prices higher than NDRC prices, pharmaceutical companies need to satisfy some conditions. These conditions include:

  • having at least one peer-reviewed article published in quality academic journals to demonstrate safety and effectiveness
  • maintaining an excellent quality record,
  • establishing a drug surveillance system for adverse drug reaction etc. (16)

To apply for rights to set prices different from NDRC prices, pharmaceutical companies should first submit application to the provincial pricing regulatory authority within 20 days after the relevant retail price ceiling is announced. Provincial pricing regulatory will perform initial review and submit their opinions along with the application to NDRC within 20 days after the application is received. Based on the inputs from local pricing regulatory authority and experts assembled by NDRC, NDRC will decide whether to grant the application. The new price will be published once the application is approved (16).

Local provincial governments also have authority in setting prices. Their pricing authority includes:

  • setting prices for OTC drugs on the BHIS formulary,
  • adjusting prices for Tier B drugs on BHIS formulary up to 5% based on NDRC prices, and
  • determining prices for drugs on BHIS Tier B formulary that are added by local governments (11, 14).

Acronyms

BHIS:   Basic Health Insurance Scheme
BHIS is the health insurance provided by the Chinese government to urban residents. BHIS is jointly funded by the government, employers and employees.

NCMS:  New Cooperative Medical System
NCMS is the health insurance provided by the Chinese government to rural residents.

NDRC: National Development and Reform Commission
China’s National Development and Reform Commission is responsible for setting prices for various drugs.  Pharmaceutical companies can apply for rights to set    prices separately (higher than NDRC prices) if their products have superior quality, effectiveness or other unique  advantages;   "Rights to Set Prices Separately  (dan du ding jia quan)".

Reimbursement Organizations/HTA Organizations

Ministry of Labor and Social Security: The Ministry of Labor and Social Security is in charge of making BHIS formulary.
http://www.gov.cn/english/2005-10/02/content_74185.htm

Provincial Labor and Social Security Authority:   Provincial Labor and Social Security Authority can add or remove Tier B drugs on BHIS formulary. The total changes, including adding or removing, should not exceed 15% of Tier B drugs.

National Development and Reform Commission:  The NDRC is responsible for setting prices for BHIS drugs, new drugs and drug under patents. They are also in charge of approving applications from pharmaceutical companies to set price higher than NDRC prices. http://en.ndrc.gov.cn/

Provincial Pricing Authority:  Provincial Pricing Authority is responsible for initial screening of application to set prices higher than NDRC prices. They are also in charge of setting OTC prices, and Tier B formulary drugs adjusted by provincial Labor and Social Security Authority.

Provincial Department of Health: Provincial Department of Health is in charge of maintaining formulary for NCMS.

Suggested Reading

  1. Xu L, Wang Y, Collins CD and Tang SL, 2007, Urban health insurance reform and coverage in China using data from national health services surveys in 1998 and 2003, BMC Health Service Research, 7:37
  2. Wagstaff A, Lindelow M, Gao J, Xu, L and Qian J, 2007, Extending health insurance to the rural population: an impact evaluation of China’s new cooperative medical scheme. World Bank Policy Research Working Paper 4150
  3. Blumenthal D, Hsiao WC, 2005, Privatization and its discontents—the evolving Chinese Health Care System, New England Journal of Medicine, 353:11
  4. Zhao YX, Wan Q, Gao G, Du L. Health expenditures in China, 2001, Chinese Journal of Health Economics, 22: 1-3 (in Chinese)

References

  1. Liu X. and Hsiao WC., 1995, The cost escalation of social health insurance plans in China: its implication for public policy. Social Science & Medicine, 41:8
  2. Henderson G., Jin SG, Akin J, Li ZM, Wang JM, Ma HJ, He YN, Zhang XP,  Chang Y and Ge KY, 1995, Social Science & Medicine, 41:8
  3. Hu TW, Ong M., Lin ZH and Li E., 1999, The effects of economic reform on health insurance and the financial burden for urban workers in China. Health Economics 8
  4. Xu L, Wang Y, Collins CD and Tang SL, 2007, Urban health insurance reform and coverage in China using data from national health services surveys in 1998 and 2003, BMC Health Service Research, 7:37
  5. Hsiao WC., 1984, Transformation of health care in China, New England Journal of Medicine, 310:932-936
  6. Gu X, Bloom G, Tang S. et al, 1993, Financing health care in rural China: preliminary report of a nationwide study, Social Science & Medicine, 36: 385-391
  7. Feng X, Tang S., Bloom G, Segall M, Gu Y., 1995, Cooperative medical schemes in contemporary rural China, Social Science and Medicine, 41: 1111-1118
  8. Wagstaff A, Lindelow M, Gao J, Xu, L and Qian J, 2007, Extending health insurance to the rural population: an impact evaluation of China’s new cooperative medical scheme. World Bank Policy Research Working Paper 4150
  9. Blumenthal D, Hsiao WC, 2005, Privatization and its discontents—the evolving Chinese Health Care System, New England Journal of Medicine, 353:11
  10. Zhao YX, Wan Q, Gao G, Du L. Health expenditures in China, 2001, Chinese Journal of Health Economics, 22: 1-3
  11. Ministry of Labor and Social Security, 2004, Notice about publishing BHIS Formulary, Ministry of Labor and Social Security 2004 Document No. 23.
  12. BHIS Formulary, http://www.molss.gov.cn/gb/zt/ypml/ypml.htm, accessed January 15, 2008
  13. Ministry of Labor and Social Security, 1999, Policy and Management of China’s Medical Insurance Reform, Ministry of Labor and Social Security Press, Beijing,
  14. National Development and Reform Commission, 2005, Notice about publishing NDRC pricing drug list.
  15. State Planning Commission, 2001, Government pricing method for drugs.
  16. National Development and Reform Commission, 2004, Notice about further improving policy of separate drug pricing.

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