Leveraging China's Healthcare Reform

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Leveraging China’s Healthcare Reform
An audio interview with Mandy Chui, Practice Leader, PMA
AUDIO INTERVIEW!
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Leveraging China’s Healthcare Reform
IMS Expert: Mandy Chui
Length: ~14:30
Mandy Chui
To download an MP3 of this interview, click here.
To download the PDF transcript, click here.
Questions? Comments? Fill out the form at the end of this presentation.

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Mandy, this is a challenge of incredible proportions. Could
you help me put it into perspective by giving me some
background on Chinese healthcare leading up to reform?
Mandy Chui (MC): Yeah sure, during the last 20 years of the
economic development in China, in fact the healthcare system
has not been able to develop as fast as the growth in the
economy, so a lot of the hospitals there are overcrowded and
the government has reduced its funding into the whole system,
so that many hospitals have to become more profit-driven, and
many of the facilities are also inaccessible to the general public.

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So the reforms have really been designed to fix problems
created by the pre-existing system?
MC: In one way this is true. China has been growing, really fast
and also the population has been aging, a lot of the disease
patterns are changing as well. And there is also rapid
urbanization because a lot of people are moving from the rural
areas and working in the cities. And with the lifestyle changes, a
lot of the chronic diseases have also become more prominent
such as diabetes or hypertension. So the government also
needs to have the ability to treat patient populations affected by
these diseases, which are becoming more prominent, so they
have to set up an infrastructure that will be fitting to the
changes to the demographics and epidemiology of China.
Know more on IMS Health, click here

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Now I understand that $125 billion will be invested in this
over a period of 3 years. How exactly is this money going
to be spent?
MC: I would say close to 50% will be spent on providing the
medical insurance coverage for the general public because the
aim is to have everyone covered under different schemes by
2020 and with about 90% covered by 2011.

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MC: The second part is regarding the healthcare delivery
provision, so around maybe close to 47% of the money will be
spent to build up the infrastructure, especially around the
primary healthcare facilities such as the urban community
health centers, the village clinics, the township centers, and also
the county hospitals.
And the last bit is really to try to strengthen the public health
care services, such as prevention measures and reporting of
infectious disease and education of people and vaccination, etc.

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Now I understand there’s another very important element
in the form of an Essential Drug List, or EDL. Could you
tell us a little bit more about that?
MC: There are certain drugs, about 200 western medicines, the
government is going to have more compulsory usage or at least
encourage those primary care institutions to use these drugs for
their daily prescriptions. So these drugs are also going to be
more frequently prescribed.

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Will the EDL contain both traditional Chinese medicines
and Western medicines?
MC: Yes they do in the EDL altogether there are about 300 or so
drugs and 200 something of them are Western medicine and
about 102 are traditional Chinese medicines, so basically one
third, two thirds in terms of the Chinese medicine versus the
Western medicine.

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And who are the key players in terms of Western
medicines?
MC: The key players are, in fact, mostly the generic local
companies but the multinational companies, they do have a
couple of drugs also included in the essential drugs list. These
companies, for example, are Astra Zeneca, Pfizer, Novartis, and
GSK.

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So the government will be controlling the products
prescribed. Will the government be controlling the cost of
EDL products as well?
MC: Yes, certainly the government is going to set a ceiling price
for these EDL drugs because they want these drugs to be more
affordable to the general public. So in fact they have already
issued the first ceiling price of this essential drug list at the end
of October or November time.

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And how exactly do they go about setting these prices?
MC: They are just, of course, they will benchmark the different
drugs looking at what is available in the market place and then
try to reference like a basket of drugs and set a reference price.
And basically what we have seen is that they are looking at the
different kinds of generics, not necessarily the cheapest, but
generally or certainly lower than, for example, some of the
drugs that are already off-patent and sharing the same
molecule so we have seen different examples.

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What about producers of high-cost drugs? Where does this
leave them?
MC: For high-cost drugs, that typically are a more innovative
treatment option, there is a separate list called a national drug
reimbursement list, so most of the high price or newer
generation of drugs will be included in this national
reimbursement list. But for these innovative drugs, generally it
will not be fully reimbursable. It will be having different degrees
of copayment from the patients and, as you know, for China,
there is a lot of variation by the different provinces depending
on the funding of each province. So the list of drugs also has
some variations by the provinces.

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So the EDL may be quite a double-edged sword for
pharmaceuticals companies. On the one hand,
manufacturers can expand their coverage across the
whole of China. But on the other hand, there’s significant
downward pressure on pricing.
MC: Yeah, this is true. At IMS Health, what we have observed is
that the government is setting a ceiling price for the EDL so
many of the companies if they have a drug that has already
gone off patent, they will have to be benchmarked against
generic drugs and the price will be much lower so that's why
that it will be a lot of pressure to lower price if they want to win
in the tender.

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MC: But of course, on the other hand, there will be significant
benefit in terms of volume increase to cover this large
population. So the companies, they do need to weigh the
benefits and the risks of playing in this EDL sector.
Are all companies facing the same sorts of risks and
benefits? I mean, will individual companies need to
implement very different strategies, or will they all be
more or less the same, except in terms of scale?

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MC: At IMS Health, we frequently find in mature and emerging
markets that companies need help to develop their individual
strategies. It’s not just a matter of scale. It also depends on
the company’s strategic intent and product portfolio and
especially their near-term pipeline. If they want to grow the top
line aggressively and want to become a top 5 player in the
marketplace they definitely have to consider playing in both the
premium segment and the mass segment. But for certain
companies they want to become more like a niche innovation
player or a focused therapeutic leader. Then they could choose
to just play in just one sector of the market. They want to
become like a specialized drug provider so they want to play
more in the acute conditions or more specialized conditions, and
the other way, they could just choose to play in the OTC sector.

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And how do you see the reforms impacting OTC sales?
MC: The reforms are certainly having impact on the OTC
products because a lot of the products now are becoming
available as EDL drugs and the government is going to pay for it
and so it is fully reimbursable. The price is also lower because
the government promises to have zero mark-up for these drugs.
So a lot of the patients will be more incentivized to get these
drugs from the healthcare facilities rather than from a retail
pharmacy to get the drugs so we foresee there will be a lot of
shift for these kind of drugs from the retail pharmacy back to
the hospital setting so that's a minus point for the OTC area.
But in the longer run as the consumers are getting richer and
they also demand for more convenience and we will see OTC
drugs being a very bright spot in the longer run.

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With so many changes in the market place, how do
companies prepare themselves to succeed?
MC: At IMS Health, we have observed that there are many
different companies that are at a different stage of their
planning. You know some companies are already looking at
what are the best strategies to cope with these changes. There
are companies that still wait and see, to fully understand what
the government healthcare reforms will mean to them. They are
in the process of also doing their planning and changing their
way of addressing the market because they are still very used
to this premium segment of just increasing the sales force, but
their cost structure and their capabilities are not very fit to this
mass segment and to compete with the local companies.

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But entering the Chinese market would actually entail a
huge increase in the sales force, wouldn’t it?
MC: Well, of course sales reps are always a very important and
critical part of the pharmaceutical business in China. But now
with the opening up of this new segment there are different
stakeholders and the way of purchasing is going to be different.
There will be more of an essential purchasing system and you
need to develop some kind of engagement platform with each
province in order to influence them or the whole decision-
making process. So it will be extremely important to have a key
account management team to undertake this kind of work.

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So what kind of strategic options are there for big pharma?
MC: At IMS Health, we have been helping clients develop
strategies in China and many other emerging markets. Many of
the pharmaceutical companies are looking at different options
and they are also looking at other markets where they could
learn the experience from and we see this for the big pharma,
they have options to form strategic alliances with the local
companies.

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MC: At the moment in time, local companies are getting
stronger and stronger and they are also interested in the
overseas market. They are very interested to look at
cooperation opportunities with multinational companies; they
are gearing up themselves to become GMP-compliant or to get
approval from the FDA, and to be able to supply their finished
products as OEM suppliers to the big pharma, so they’re very
interested to be a very integral part of big pharma’s global
platform.
At the same time, the MNCs, if they work together with the local
companies, they can gain access to the mass population and the
distribution network from the local companies. So that will be a
very great opportunity for them to work together.

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So there are advantages by forging relationships with local
companies. Are there other parties worth talking to?
MC: In China now, with the opening up of the rural areas with
the community health centers, the government is also looking at
different ways to supply the drugs and make them available to
the general public. And if the companies can work together with
some of the NGOs or other organizations to make drugs more
affordable and available to these people, the government will
certainly welcome these different initiatives.

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But to what extent can they welcome new initiatives,
though? I mean, aren’t the mechanisms that dictate the
supply of drugs on the EDL set in stone?
MC: The government, they formed just a guiding principle
essentially around these different drug lists or how these drugs
have to be procured or supplied. But each individual local
government they do say exactly how this has to be
implemented. So companies, in fact, they could influence some
of the different mechanisms or policies of how it is implemented
and it is very important for them to engage with the local
stakeholders to influence the decisions later on.

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Well, I’m afraid we’re almost out of time here, Mandy.
Thank you so much for sharing your insights into China’s
healthcare reform. It’s a very exciting time for the health
industry. And even more exciting for the people of China,
of course.
MC: Thank you very much, Andrew. It’s also a pleasure for me
to talk to you as well. And at IMS Health, we continue to consult
with our clients to improve their commercial and growth
strategies in mature and emerging markets such as China.

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Thank you for listening!
• To download an MP3 of this interview, click here.
• To download the PDF transcript, click here.
• Questions? Comments?
− Fill out the form at the bottom of this slide, or
− Visit www.imshealth.com or email info.sg@sg.imshealth.com.

Leveraging China's Healthcare Reform

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