Medical insurance and drug price reform: it will slow down the growth of the pharmaceutical industry

According to UBS research, the reform of medical insurance and drug price system is the main theme of 2016-2017, which will lead to the slowdown of the growth rate of the pharmaceutical industry and the long-term reduction of gross profit margin.

Due to the intensive release of medical reform policies by the government, 2016-2017 is called the new year of medical administration. The industry concluded that the medical reform policy mainly focuses on the medical insurance and pricing system, which will have a far-reaching impact on the pharmaceutical industry.

On March 13, UBS held a special study for this purpose. The conclusion is that the control of medical insurance fees will lead to the slowdown of the growth of the pharmaceutical industry; Drug price reform will lead to a long-term decline in the gross profit margin of the industry.

However, this far-reaching impact has not yet emerged. In 2016, the income of China's pharmaceutical industry was 2.8 trillion yuan, an increase of 9.7% year-on-year; The profit was 300.2 billion yuan, a year-on-year increase of 13.9%.

"The starting point of this reform is structural adjustment, not the previous substantial increase in investment, but some people benefit, some people are neutral, and others may suffer." Zhao Bing, an analyst at UBS Securities in the pharmaceutical industry, said: "the pharmaceutical industry will not grow by 20% or 30% every year as it did at the beginning of the medical reform, and is now on a downward stage."

The control of fees has slowed down the growth of the industry

The symptom of medical insurance fee control began after 2010. Since 2011, some regions such as Shanghai medical insurance have changed from open source to throttling. In 2013, the income growth rate of the medical insurance fund was lower than the expenditure growth rate, and the balance was narrowed, which was "beyond the income". In 2015, the growth rate of income and expenditure of medical insurance fund decreased to 15.55% and 14.48% respectively. At the same time, bidding price reduction and medical insurance fee control have become the norm of the industry.

"Medical insurance fee control will slow down the income growth of the pharmaceutical industry." Zhao Bing explained that since 2009, the main achievements of the medical reform are that the government has increased expenditure, driven the growth of the pharmaceutical industry, and established comprehensive coverage and affordable medical expenses.

The new contradiction is that after the decline of GDP growth, the pressure on the pharmaceutical industry continues to increase. Zhao Bing believes that "in the situation that the growth rate of medical insurance expenditure is higher than the growth rate of financing, in order to maintain the balance of payments of the medical insurance fund, cost control will become the core of the medical insurance reform in the long term. At present, the pharmaceutical industry and medical insurance reform are essentially to control the growth of medical expenses through demand side structural adjustment."

"From 2011 to 2015, the revenue of the pharmaceutical industry achieved a compound annual growth of 15%. However, we predict that the revenue growth of the pharmaceutical industry will slow down by 10% in the next three years." Zhao Bing added.

In addition, the dividend brought by the increase in the number of drugs in the new medical insurance catalogue is not as large as expected. On February 23, the Ministry of human resources and social security issued the catalogue of drugs for national basic medical insurance, work-related injury insurance and maternity insurance (2017 Edition). A total of 2535 drugs were included in western medicine and Chinese patent medicine, an increase of 339 compared with the 2009 catalogue, an increase of about 15%.

"However, under the restriction of medical insurance payment price, most varieties will not see a surge in volume after the implementation of the 2009 catalogue." Liu Qian, the founder of Unicorn studio, told the 21st Century Business Herald reporter, "the expansion of the new catalogue implies that structural adjustment and cost control measures will continue to be implemented. The major beneficiaries of the medical insurance catalogue are patients rather than pharmaceutical companies."

Drug price reform leads to long-term decline in gross profit

On January 6, Li Bin, director of the national health and Family Planning Commission, said at the "national health and family planning work conference" that the drug mark up would be completely abolished in 2017. He Sheng, director of the medical reform office of the State Council, reiterated this policy at a press conference on March 11.

He Sheng said, "this means that China's public medical institutions will bid farewell to the era of 'supplementing medicine with drugs'. Before the reform, public hospitals used three subsidy channels: service charges, drug markup income and government subsidies. After the reform, we cancelled the drug markup and turned it into two channels: service charges and government subsidies."

The above reforms will directly affect drug prices. In addition, the reform of bidding and medical insurance payment system will also have a huge impact on drug prices.

UBS research report analysis, hospitals and medical insurance departments will be more involved in the drug price setting process; The medical insurance payment price will replace the bidding price; There will be more adjustments to the bidding price before hospital procurement.

The consequence of the decline in drug prices is to reduce the gross profit margin of the pharmaceutical industry. Zhao Bing said, "the purpose of drug price reform is to form a pricing system that ensures that drug prices are affordable and takes into account the enthusiasm of drug enterprises. At present, drug pricing is increasingly showing a dual pricing system, that is, the price is jointly determined by bidding and medical insurance payment."

According to the above report, previously, lower prices of drugs generally appeared in 2015 and 2016, which means that the bidding prices in recent rounds have shown a significant downward trend. The gross profit margin of China's pharmaceutical industry in the first three five years was 35% (1999-2003), 31% (2004-2009) and 29% (2010-2015) respectively. The gross profit margin showed a downward trend as a whole, mainly due to the rise of labor and production costs, which was affected by the further decline of drug prices. UBS expected that the downward trend of gross profit margin would continue in the next five years.

Recently, public opinion has heated discussions that the medical insurance payment and settlement price limit introduced in Fujian and other places will have a great impact on the original drug manufacturers. "This is not necessarily a bad thing. Many original drugs used in China are expired, and only expired original drugs will have such concerns and concerns," Zhao Bing told the 21st Century Business Herald reporter, "High prices take up a large proportion of medical insurance funds, usually in the fields of major diseases such as diabetes and hypertension. But in fact, there are good generic drugs on the market in China. Why do we need to set a higher price for expired original research drugs?"