Protection of essential drugs: drug price control does not help, or the more pipe mess!

basic drug coverage: drug price control does not help, or the more pipe mess !

Health system reform proposals on (i) - Drug price reform ;

hope that through the strengthening of relevant governmENT departments to curb drug price control rising drug prices, control medication costs.However, in recent years as many as twenty times NDRC drug price cuts, and not achieved to reverse the trend of rapid increases in Drugs expenditure policy intentions, the results actually show that the inhibition of drugs help control drug prices rise.Especially in the proposed Health care reform on the one hand, to strengthen drug price controls, while in primary Health care organizations to"Drug zero difference" in the hospital,"the abolition of drug price plus" and other so-called Waste Management policy.In fact, the government's drug price control mechanism of price competition has led to total failure, leading pharmaceutical businesses in China can not achieve survival of the fittest, high efficiency, good quality, low cost business can not be bigger and stronger through fair competition, and those inefficient quality and reliable companies are able to depend on the current market environment distorted survive.Below, we explain two ways the Government of drugs (even the relatively limited variety of basic drugs) for price controls can not achieve the declared policy intention.

First, the governmENT can not do the right pricing

administrative pricing and the right hand to guide the optimal allocation and efficiENT use of resources, a practice already being falsifiable proposition.The reason is actually very simple: the price depends on the effectiveness of management controls are able to control the market timely and accurate grasp of the subject hundreds of thousands of micro-cost, efficiency, product (service) structure, demand and other information, as ubiquitous and incomplete information can not be eliminated and asymmetric information, government simply can not accomplish this task, government officials and no incentive to complete this task [1].So far the price of human intervention in the practice of little success stories.Almost all human intervention on the price level and control the implementation of the policy have led to a different degree of market distortions and social consequences outweigh the benefits.

fifty years of the founding of price control practice has fully demonstrated this point.Not to mENTion the variety, quality is difficult to observe and verify the drug, even such as food and cotton, easy to observe and judge the quality of a single product [2], when neither by the government-set prices reflect the costs do not reflect supply and demand, not only does not play a stabilizing role in the supply and demand for grain and cotton, but aggravated the grain and cotton supply and demand fluctuations, price controls established to maintain the monopoly of state-owned grain and cotton distribution enterprises heavy losses, resulting in financial overwhelmed, but also makes people complaining.Had to liberalize prices, open grain and cotton markets, pricing and distribution to move toward full grain and cotton market.Cotton to the market pricing, people are not so no clothes, no blanket; food to the market price, people do not therefore did not eat.I do not know why the relevant government departments did not seriously sum up experiences and lessons which are still firmly grabbed hold pricing of Drugs?

the face of hundreds of pharmaceutical Drugs produced by the pattern of nearly five thousand, not to mENTion the market supply and demand, only the cost of government pricing information needed to relevant government departments can not be collected timely and accurate manner.Can not accurately understand the costs can not be accurate understanding of market supply and demand, how to determine not only reflects the cost and the price reflects the market supply and demand? Can not have to do it by force, and thus lead to price distortions brought medical institutions and pharmaceutical businesses will inevitably distort the behavior.In fact, the domestic drug prices control practice has proven this point repeatedly.As said in previous sections, the Government's drug price control on the one hand makes some reliable efficacy of drugs that pharmaceutical companies are undervalued by the Government to abandon unprofitable production, on the other hand lead to some drugs (such as separate pricing for new drugs ) due to high prices and profits high at allowing companies to fraud, public relations and bribery.In fact, abnormally low price is extremely high the inevitable result of government pricing, there is no competition in the market can not find the right price.

Second, the drug price control on basic drug cost control has no effect

The fundamENTal purpose of

control drug prices is to control drug costs, but the practice of developed countries shows that the key to lower drug costs not control drug prices, but how to induce doctors rational drug use.Many European countries have drug price controls implemENTed to reduce medication expenditures, these drug price control measures including the freezing of prices, the cost price, profits and foreign drug prices pricing reference pricing.However, drug price controls on these empirical studies have shown effects: control can not effectively control drug prices and drug costs, doctors and patients how to induce rational use of Drugs is the key to control drug costs (Mrazek, 2002).France, Japan and Canada's experience in this area offer a large number of examples.Because of the strict control of drug prices, the average drug prices in France is the lowest in Europe, but high consumption of drugs leads to medical costs accounted for the proportion of drug costs up to 17%, 10% higher than the level of the UK (Bloor et al, 1996 ), and free pricing of drugs over 12.4% of the U.S.level.Control drug prices in Japan have confirmed this practice, implemented in Japan between 1980-1993 caused by prescription drug prices increased control measures, and new drugs drug prices rise, so the overall cost of drugs increased 59% (BCG, 1999).Similarly, drug prices in Canada have also adopted strict control policy, but no effective measures to induce doctors rational use of drugs, leading to rapid growth of pharmaceutical costs (Morgan & Bare, 2003).

In fact, the decomposition of the various factors affect the cost of Drugs can understand why the national drug price control policy and can not effectively control the growth of drug costs.Drug costs equal to the sum of the number multiplied by the price of drugs, so the growth in drug costs can be divided into three: (1) drug prices; (2) increase the number of drug use; (3) drugs are combined change in the medication growth.Changes in the so-called combination drug products is the use of expensive drugs (usually drug) instead of cheap drugs (often traditional generic drugs.) A large number of sources of drug cost growth in the research literature show that: causes drug cost growth is mainly due to the increased use of drugs and drug varieties of change, rather than drug prices rise.For example, Berndt (2002) analysis of U.S.prescription drugs, they found the 1994 to 2000, the U.S.drug costs by 12.9% average annual growth rate, which factors in drug prices rose only 2.7% and the remaining 10.2% is the amount of drug use from and drug use increase the variety of changes.Addis and Magrini (2002) analyzed the sources of growth in Italy, found that drug costs: in 2001, Italy's drug costs in 2000 increased by 13.5%, of which the amount of drug use from the 9.5% growth rate from changes in drug products 4.8%, while drug prices fell by 1% during this period.Britain from 1992 to 2000 the average annual growth rate of drug costs between 8.7% and the price of drugs during this period the average annual decline of 1.8%, drug 4.9% annual growth rate of use, combined to change drug products accounted for 5.4%.Similarly, Canada's annual report for 2002, 2001, 2002, compared with costs of patENTed drugs in Canada grew 13.9%, while the patented drug prices in 2002 actually fell by 1.2%; the use of patented drugs increased by 15.5 %.

more information, control of drug prices is not an effective measure to control drug costs, medication expenses growth was mainly from the increased use of Drugs and drug combinations of changes in species, it is clear that China's practice of drug price controls again confirmed this conclusion: the State DevelopmENT and Reform Commission as many as twenty times over the past decade thousands of covered drugs and drug price cuts did not play a policy intended to control drug costs, has led to effective and reliable low-cost generic drugs out of the negative effects of the drug market, but also spawned a large number of false artificially high prices of innovative drugs.

Overall, more drug price control measures taken by countries (such as France, Spain and Japan), the drug cost is not lower than the growth rate of drug price control measures taken by those few countries (such as Switzerland, United Kingdom and the United States) (BCG, 1999).Moreover, the drug price control policy not only failed to serve the purpose of controlling drug costs, often also distort the allocation of resources of the pharmaceutical industry and pharmaceutical companies in the production and managemENT behavior.China's drug price control practices in fact proved this point [3].

In any case, one can not avoid the fact that the GovernmENT's drug price control is a failure, not only did not serve to control drug costs, guarantees that everyone can afford medical role, but distort resource allocation in medical medicine, which distorts the medical institutions and pharmaceutical companies conduct business, adding,"your doctor" situation.

Since the practice of repeatedly shown

price control does not work, as give up control, so medicines to market pricing. is true also in developed countries only the United States to allow free pricing of Drugs [4].However, U.S.practice has proved that the pricing environmENT in the free market competition can make the drugs to achieve a reasonable price.Caves et al.(1991) studies conducted using U.S.data shows that: when the original patent expires drug research, the first generic to market, its pricing is usually drug prices in the original study, 40% to 70%.When more generics market, these price levels generic drugs will be further reduced, the amount of price cut as rivals may be: If the 10 opponents, dropping 71%, if the 20 opponents, dropping by up to 83% , indicating that the competition would be sufficient to reduce drug prices to a reasonable level.In fact most of the domestic market is the generic drugs, but also with the kinds of drugs and more than 20 manufacturers, competition is fierce, the competition is sufficient to keep drug prices down to a reasonable level.Fact that is the case, as the result of fierce competition among domestic pharmaceutical companies the actual drug prices (not the one with medical discounts, rebates, the nominal wholesale price) in fact close to the cost, from the domestic pharmaceutical companies low level of profits that can be clearly seen: the average profit margin of domestic pharmaceutical companies in less than 8%, ranked second in last twelve major industries.This shows that the competition would be sufficient to reduce drug prices to a reasonable level.Retail prices of drugs artificially high simply because the monopoly of public sector drug retail's sake, as long as the elimination of public sector monopoly on the drug retail chain, to the full retail competition in the pharmaceutical, retail prices of drugs will be reduced to a reasonable level.

As for the so-called essENTial Drugs, most of which varieties are many manufacturers, in a serious state of oversupply, there is no need for government pricing, competition in the market can completely guarantee the prices remain at reasonable levels.The key is that doctors can give priority to essential drugs, as long as doctors generally use the basic drugs, essential drugs supply and prices will not be a problem.The question is about the medical institutions and doctors incentives arrangement is really consistent with the scientific concept of development.