According to the announcement, the bureau recently sought public consultation on the drafting of a bill which will fix price markups throughout the distribution chain and the retail prices of drugs. In addition, drug distributors in the province will be obligated to record ex-factory prices, or price at port of entry for imported drugs, and send invoices to the agency within one month of the consignment being sold.
It is widely believed that a number of factors, including the numerous tiers in China's drug distribution system, the involvement of unregistered independent sales agents, and the subsequent price markups throughout the chain, contribute to higher retail drug prices.
The draft stipulates markup rates for drugs in various price brackets: Total markup throughout the distribution process will not exceed 33 percent for products priced at less than RMB 10 ($1.46); 19 percent for those priced between RMB 10 ($1.46) and RMB 30 ($4.39); 13 percent for those between RMB 30 ($4.39) and RMB 100 ($14.64); eight percent for those between RMB 100 ($14.64) and RMB 500 ($73.21); and a maximum of RMB 165 ($24.16) for drugs priced over RMB 500 ($73.21).
In addition, for direct sales to drug stores, there will be a maximum markup of 25 percent for products priced less than RMB 10 ($1.46); 8 percent for those priced between RMB 100 ($14.64) and RMB 500 ($73.21); and RMB 75 ($10.98) for products priced over RMB 500($73.21).
The policy is attracting widespread interest from China's pharmaceutical industry. A pharmaceutical insider told Interfax that the policy might be extended nationwide."If the policy is adopted nationwide, it will have a great impact on the marketing and distribution of pharmaceuticals in the country," said Yang Changshun, marketing director at Shanghai Haihong Group Chaohu C-Dragon Pharmaceutical Co. Ltd."Such a policy will help increase tax revenue from pharmaceutical companies and standardize the complicated drug distribution process."
Until now, unregistered independent sales agents have played an important role in the drug distribution chain. Agents use industry connections to procure pharmaceutical products at low prices from manufacturers and obtain invoices citing a higher price for the inventory from drug wholesale companies. Under this system, hospitals end up purchasing drugs at inflated prices and the authorities are unable to collect tax from unregistered sales agents.
It is hoped that the policy will make drug prices more transparent and limit the ability of unregistered agents to manipulate drug prices, according to Yang. Under the Guangdong system, which makes it more difficult for agents to manipulate prices, such agents will turn to drug manufacturers to pay their commission. Manufacturers will be able to increase the degree of control exercised over agents, reduce kickbacks, and increase their marketing efforts by promoting product education in hospitals, Yang said.
In addition, agents have been known to pay wholesale companies to issue fraudulent invoices. Some wholesale companies receive the majority of their total revenue from such irregular activity.
"It is hoped that as a result of the new regulations, wholesale companies that engage in such dubious practices will be driven out of the market," he said.
Some insiders pointed out that the rules may be difficult to implement. Since government agencies do not have the manpower to review all drub sale invoices, some manufacturers might continue to issue fraudulent invoices for certain products while issuing legitimate invoices for products under official scrutinized. Yang said this scenario is not beyond the realm of possibility, but noted that if this type of irregular activity is detected, officials may respond by lowering prices even further. Pharmaceutical companies are unlikely to take such risks if the policy is strictly enforced," Yang said.
According to Yang, pharmaceutical companies might instead react to the new policy by concentrating on smaller volume, lower priced shipments which proportionally command higher markups than larger shipments.
A document issued by the National Development and Reform Commission (NDRC), the Ministry of Health (MoH) and the Ministry of Human Resources and Social Securities (MoHRS) in November 2009 made reference to plans to the fix price markups for drugs and medical equipment on a national level.
At present, the maximum markup allowed on drugs sold to hospitals in China is 15 percent.
（实习编辑：陈文欣）
