Qi Zheng Tibetan Medicine’s Lei Jufang: Cancel Volume-Based Procurement for Traditional Chinese Medicines to Prevent “Bad Money Drives Out Good Money”

　　The development of traditional Chinese medicine and ethnic medicines has received unprecedented policy support from the state. Recently, the State Council issued the "Outline of the Development Strategy for Traditional Chinese Medicine (2016–2030)." However, for enterprises producing traditional Chinese medicine and ethnic medicines, truly strengthening this industry requires, in addition to financial investment, targeted support for companies that produce high-quality, effective products in the marketing and sales stages—thus preventing inferior products from driving out superior ones.

　　Lei Jufang, a member of the National Committee of the Chinese People's Political Consultative Conference and Chairwoman of Qizheng Tibetan Medicine, recently disclosed to the public seven proposals she has submitted, including “A Proposal on Establishing Tibetan Medicine Resource Protection Zones” and “A Proposal on Addressing Clinical Trial Issues Related to Multiple Indications in the Process of Reforming and Upgrading Ethnic Medicines.” Among these proposals, in “A Proposal on Promoting Innovation and Improving the Scientific Research Evaluation System for Traditional Chinese Medicine by Abolishing the Practice of Eliminating Products Through Volume-Based Procurement,” Lei Jufang pointed out that some cities have adopted a simplistic and forceful approach—using volume-based procurement (secondary price negotiations) and assessing whether products meet price-reduction criteria—to drastically eliminate a large number of traditional Chinese medicine products from their catalogs. This practice is extremely detrimental to the development of TCM and could encourage enterprises to focus solely on cost reduction.

　　It is understood that, due to increasing pressure on medical insurance payments, controlling medical costs has become an inevitable trend. The industry generally views traditional Chinese medicine (TCM) as an auxiliary treatment that offers limited help in addressing patients’ clinical issues and consumes a significant portion of hospitals’ medical insurance resources. As a result, there is a pressing need to substantially reduce the number of TCM products included in the reimbursement catalog. Among the 100 pilot cities designated by the state for healthcare reform, most cities have been unable to organize experienced experts to conduct rigorous assessments of the clinical value and cost-effectiveness of TCM products, owing to insufficient expert resources at the prefectural-level city level. Consequently, these cities have resorted to simplistic and forceful measures—such as volume-based procurement (secondary price negotiations) and determining whether products meet pre-set price reduction criteria—to screen out and eliminate less effective TCM products.

　　Looking at the actual sales data from the traditional Chinese medicine industry in 2015, the outlook for proprietary Chinese medicines is not optimistic. According to data from the Southern Institute of Pharmaceutical Economics under the SFDA, in 2015, China’s pharmaceutical industry achieved a sales volume of 1,359.1 billion yuan, with a growth rate of 9.1%. The sales volume of the proprietary Chinese medicine sector was 345.7 billion yuan, with a growth rate of 5.6%.

　　Lei Jufang introduced that recently, Ningbo’s volume-based procurement has been specifically targeted at traditional Chinese medicine (TCM) products, with certain TCM formulations being eliminated. The specific approach involves further reducing prices by 15% on top of the original lowest winning bid price in Zhejiang Province—this initial bid price was already 10% lower than in other provinces nationwide—thus establishing a new entry threshold. Among the 742 exclusively innovative products participating, 153 saw price reductions of more than 15%, resulting in an inclusion rate of 21%. Additionally, 589 newly launched exclusive products opted out of the Ningbo market due to the 15% price cap—including products from Yunnan Baiyao, Buchang Pharmaceutical, Beijing Yiling Pharmaceutical Co., Ltd., Chengdu Kanghong Pharmaceutical Co., Ltd., Shijiazhuang Yiling Pharmaceutical Co., Ltd., and Tasly Pharmaceutical Group Co., Ltd.

　　Lei Jufang pointed out that in some regions, the policy of prioritizing only the lowest price has neglected product brands, quality, and efficacy—conditions that are extremely detrimental to the development of traditional Chinese medicine and run counter to the State Council’s policy of vigorously supporting the development of TCM. Lei Jufang advocates for a return to the principle of “high quality, fair price” in drug bidding.

　　Reporting media: Securities Daily

　　Report link: http://www.ccstock.cn/finance/hangyedongtai/2016-03-07/A1457286062109.html