China: 3 healthcare reforms and the opportunities for pharma

Frank Guo
Healthcare reforms in China Hero 1920x960

China’s healthcare system is undergoing a major reform, one of the most complex and far-reaching efforts ever undertaken by a public health system. The aim is to establish a basic health system which will provide over 1.3 billion people with better access to effective, low-cost health services.

While China’s healthcare ecosystem is undoubtedly complicated, it’s also full of potential. Medical reform will reshuffle the elements in the healthcare chains, creating new systems which are appropriate for a modern society.

Here are three examples of key reforms and their implications for pharma multinational companies (MNCs):


Traditionally hospitals in China have added a 15% mark-up on all pharma products, leading to a culture of over-prescribing due to hospitals profiting. In 2017, this mark-up was cancelled nationwide.

As a further step to control the excessive use of pharmaceuticals, a ‘drug ratio control’ was introduced which set up a ceiling for drug revenue ratio (within total hospital revenue). In many cases the stipulated drug ratio is around 30% and payers won’t exceed this limit.

As result of these policies, hospitals can no longer profit from pharmaceuticals and the prescription rate has dropped. Sales of high-price medicines in particular are affected and hospital listing has become even more challenging.


There’s a big difference in tender prices between originator and generic pharmaceutics. Typically, originator products still command a higher price after patent expiration, as many people (prescribers and patients) claim that they are of better quality.

As part of China’s drug approval reform, all generic products must now pass a compulsory consistency test. They will then be considered on a par with originator products, helping drive down the originator price. As China is one of the largest generic drug markets in the world, the GCE is likely to have significant, long-lasting impacts on the market landscape, drug pricing and generic competition.


Due to bureaucratic processes, it’s traditionally taken a very long time to bring new drugs to market in China. However, in recent years there’s been a noticeable earlier-than-expected approval timeline for innovative drugs or products that treat serious diseases, such as cancer.

Regarding medical insurance, it used to be the case that the medical reimbursement list was updated only once every five to ten years, so the opportunity for new products to be included soon after launch was very limited. However, the government has recently been very active in engaging in negotiations with manufacturers for medical insurance listing and it now seems this will become an annual event. At HCR Healthcare, many of our MNC pharma clients have expressed their surprise at being called to negotiations thanks to the new streamlined approval and medical insurance list processes.

While China’s healthcare ecosystem is undoubtedly complicated, it’s also full of potential

How should MNC pharma players respond to these reforms? One way is by bringing more innovative products to the Chinese market: given all the cost-control policies mentioned above, current portfolios are unlikely to provide sufficient growth. New products will hit the market a lot quicker than ever before; however, MNCs must take the dynamics of the Chinese market into account and be prepared to go into medical insurance negotiation with a realistic pricing strategy.

Or, an alternative strategy, MNCs could focus on streamlining their current ‘in-line’ products - the ones that have been on the market for a long time with increasing pressure for price cuts. For example, at HCR Healthcare we’re increasingly seeing MNC players license out their old products to local companies, thereby reducing costs and freeing up resources for higher-growth products.

In this period of healthcare transformation, forecasting the trend and catching the opportunities can only help MNCs gain the upper hand.