On May 4, 2015, the National Development and Reform Commission (“NDRC”) and seven agencies including the National Health and Family Planning Commission and the Ministry of Human Resources and Social Security jointly published Opinions on Promoting Drug Price Reform (the “Opinions”).  The NDRC also issued a Notice on Strengthening Monitoring of Drug Prices (“Notice”) and a press release on the same day.

NDRC Opinions

The Opinions focus on removing the government drug prices for most drugs; improving the system for drug purchase; strengthening the effect of cost reduction provided by medical insurance; reinforcing the regulation of healthcare activities and pricing behavior; and ultimately establishing a price determination scheme that is predominantly market-based. The new drug pricing scheme shall be as follows:

1. Drugs paid by healthcare funds: The healthcare authorities shall coordinate with other relevant authorities to explore a new scheme to determine proper prices of the drugs which are paid by healthcare

2. Patent drugs and exclusive drugs: The prices of such drugs shall be determined by multiple parties through open and transparent

3. Blood products outside healthcare list, immunological and preventive drugs within unified state purchase, and free state anti-HIV drugs and contraceptive drugs: The prices of such drugs shall be determined through bidding and

4. Narcotic and first grade psychoactive drugs: The prices of such drugs are still subject to maximum ex-factory prices and maximum retail

5. Other drugs: The producers are entitled to independently decide the prices of such drags based on production cost and market

Even though producers can independently determine the prices of most drugs, the Opinions also emphasized that monopolistic behavior of selling drugs at high prices is strictly prohibited.

NDRC Notice

The Notice, a companion document for the Opinions, provides more details on the drug price monitoring measures. The Notice include the following contents:

1.  The NDRC requires relevant price authorities to start a six-month long drug price inspection program (no specific date mentioned), which is focused on the following typical unfair price activities:

A.  Distributing false information on price increases to force price increases and disrupt market order.

B.  Colluding to manipulate market prices.

C.  Abuse of market dominant position by selling drugs at unfairly high prices.

D.  Price frauds including providing false original costs and false prices, increasing prices before offering discounts, misleading price labels, and hiding additional conditions of prices, etc.

E.  Purchasing large amounts of drugs and increasing prices or covertly increasing prices without authorization.

F.  Failure of local medical institutions and public hospitals, as part of the pilot reform, to enforce the requirement of no price difference when implementing essential drug systems.

G.  Failure of public medical institutions to comply with public policies related to the rate of price increases.

H.  Drug producers and medical institutions violate price administration policies of low-cost drugs and breach the restriction related to daily costs of low-cost drugs.

I.  Selling drugs at prices higher than the maximum retail price for drugs whose prices are set by the government.

J.  Failing to explicitly show prices and publicize prices as required.

Specifically, the price authorities will pay close attention to the prices of drugs without sufficient competition and special drugs for special patients (the Notice fails to provide details on the scope of special drugs or special patients).

2.  The NDRC requires relevant price authorities to strengthen enforcement against drug irregularities.

The NDRC will reveal typical cases or investigations to the news media and keep negative credit records of the drug producers who have illegal drug pricing activities. The NDRC would suggest to relevant government authorities that they reject purchasing applications from any producers who have severe negative credit records for two years. The producers with severe negative credit records, who are authorized by relevant authorities as qualified suppliers, may be disqualified on the basis of the NDRC’s suggestion.

3.  The NDRC requires relevant price authorities to strengthen the supervision on drug price and promote the transparency of price information of drug market.

The NDRC may conduct investigations due to the following circumstances:

A.  frequent or significant drug price fluctuations; and

B.  significant price differences with drugs in other countries, or other drugs of the same type, or drugs in other regions in China.

NDRC Press Release

On May 5, 2015, the NDRC republished a news release on its website, in which the NDRC restated that the price administration authorities will strictly investigate and punish any unfair price activities and anticompetitive price behaviors pursuant to laws and regulations including the Price Law and the Anti-Monopoly Law afterthedrugpricereform.

The NDRC will shift its focus of drug price administration to monitor drug price violations and strengthen its enforcement accordingly. The NDRC further explains the proposed comprehensive supervision measures include: complete drug procurement system to facilitate competition among market entities; strengthen the functions of healthcare funds to guide the medical institutions and retail drugstores with regard to determining proper drug prices; strengthen the supervision of medical treatment to avoid excessive treatment; and strengthen supervision of drug prices to  punish illegal price activities.

Conclusion

Even though drug producers are entitled to independently determine the price of most drugs, companies cannot ignore the NDRC’s increased focus on monitoring drug pricing irregularities. Multinational drug producers should follow developments related to drug price reform in China. In addition, companies should review their own policies and activities to avoid or detect possible violations.