Draft measures to limit drug prices over entire distribution chain

The National Development and Reform Commission (NDRC) released its Interim Measures on Drug Products Distribution-Stage Price Management (January 2012, Draft for Comments) earlier this year with a target introduction date of 1 July 2012. The target was not met and a second date has yet to be set. The measures are a response to longstanding public and government perceptions that drug prices and profits in China are too high, and to more recent public outrage over news reports on exorbitant drug mark-ups.

The measures are short – just 15 articles and two brief appendices – but are likely to have a major impact on the Chinese pharmaceutical industry and its sales and marketing practices. Current price control policies focus on retail end-prices, and enterprises may determine prices for drug transactions themselves as long as the maximum retail prices are not exceeded. There is also a 15% maximum permitted mark-up for hospitals over the price they pay their suppliers. Ex-factory prices are typically low, with distribution costs and profits and part of hospitals’ costs all booked as drug distribution mark-up (hence hospitals’ preference for higher priced drugs).

The measures would, for all drugs subject to government price determination, limit permitted price mark-ups over the whole distribution process in China, from factory or importation to sale by non-profit medical institutions to patients, by setting upper limits for drug price mark-ups (in percentages and amounts) in two stages:

• Wholesale: from factories or importation to medical institutions (Appendix 1); and

Appendix 1:

• Medical institution sales: from medical institutions to patients (Appendix 2).

Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com