WHATEVER else you get, don¡¯t get sick. The meaning is self-evident, especially in China, where complaints of exorbitant medical expenses have grown in recent years.

It has been reported the central government will launch a new round of price cuts on some of the most frequently used medicines, but residents appeared less than enthusiastic about the news.

¡°One more price cut? The government has cut medicine prices many times, but medical expenses are still the same,¡± said Qian Guoyin, a middle-aged residents.

This time, the outcome may be different. Analysts say the government move is on the right track, although without reforming the nation¡¯s existing healthcare system, it will still prove inadequate to curb the nation¡¯s soaring medical bills.

Prices to fall

The National Reform and Development Commission(NRDC), China¡¯s top economic planner, was set to slash the retail prices of 22 medicines by 60 per cent, including 16 frequently used antibiotics and six other medicines, revealed the 21st Century Business Herald on June 8.

Details of the price cuts were said to be finalized in June and put into effect this year. It will be the first time China has reduced retail drug prices, although wholesale prices have been slashed in the past.

At present, more than 1,000 medicines, listed on China¡¯s medicine catalogue for Medicare insurance, are subject to NDRC¡¯s price supervision.

The plan, which is still under consideration, has aroused great concern among pharmaceutical and related industries nationwide.

A total of 24 national and provincial industry associations, led by China Pharmaceutical Industry Association (CPIA) and China Association of Pharmaceutical Commerce (CAPC), submitted their position paper to the State Council in May, demanding that the reduction should be no more than 20 per cent.

According to the position paper posted on CPIA¡¯s website, the profit margins of local pharmaceutical companies are already too low to digest a price reduction as deep as 60 per cent.

China has cut wholesale medicine prices 14 times since 1997, most recently in 2004. The average reduction reached 20 per cent, the paper said.

Meanwhile, the profitability of domestic pharmaceutical enterprises has dropped over the years. The profit margins of domestic drug producers were 4.4 per cent higher than the average level of manufacturing industry in 1980. But the figure was 26.24 per cent lower than the average level of China¡¯s manufacturing industry in 2004.

The situation may be exacerbated for domestic drug producers in 2005 as the price of raw materials and energy continue to rise.

During the first three months of the year, the nation¡¯s 23 key State-owned pharmaceutical companies reported slower profit growth as operational costs jumped, the State-owned Assets Supervision and Administration Commission said on April 28.

¡°Actually, factory prices for medicines are much lower than the retail prices, which are mostly closely related to patients,¡± said Yu Mengqing, general manager of the Shanghai-based Kaixinren Pharmacy.

¡°At present, a medicine is sold at least four times before being purchased by consumers, via pharmaceutical companies, regional distributors, city distributors and drugstores or hospitals. The retail prices are pushed higher and higher in the process,¡± Yu said.

A recent story from the 21st Century Business Herald echoed Yu¡¯s viewpoint.

Etimicn Sulfate for Injection, a medicine for respiratory infection, was sold at 14 yuan (US$1.7) by the pharmaceutical company to the distributor, who then billed 48 yuan (US$5.8) to the hospitals, which charged 64.4 yuan (US$7.8) to patients, the story revealed.

Strangely, according to CAPC, the profit margin of the pharmaceutical distribution industry was only 0.74 per cent, while marketing costs are as high as 8.75 per cent.

¡°Commissions for doctors who have the right to prescribe medicines and bribes used to win orders from hospitals are all included in the marketing costs,¡± an unnamed source said.

Though stipulating retail prices seems to be an effective measure to curb prices, industry insiders say everyone involved in the chain will suffer, and consumers are probably the biggest losers in the game.

¡°If a medicine is unprofitable or even less profitable, pharmaceutical companies will simply choose to not produce it, a situation already being seen in recent years,¡± said Wilson Wang, an analyst with Shanghai-based Dakao Management Consulting Co Ltd.

NRDC has decided to delay the new round of price cuts and the scale may be limited, said Wang Jinxia, vice president of CAPC, in a interview with the Oriental Morning Post on June 20.

Weaned from profit

Just a few days before the revelation of NRDC¡¯s proposal, Han Qide, vice chairman of the standing committee of the National People¡¯s Congress, revealed that the Ministry of Health was drafting a policy to wean hospitals from the profits they make from medicine sales, according to CCTV.

At present, more than 85 per cent of medicines are sold from hospitals, which are allowed to charge a 15 per cent mark-up on their purchase price.

The 15 per-cent profit margin policy was adopted because State-owned hospitals were unable to make ends meet based on limited government subsidies.

Statistics from the Ministry of Health shows income from medicine sales accounts for over 45 per cent of the total income of public hospitals, on average.

Though profits from medicine sales proved effective in sustaining hospitals, they haves been criticized as one of the reasons for high medical expenses, as doctors are encouraged to prescribe high-priced medicines under such circumstances.

¡°The Health Ministry¡¯s new policy does deal with soaring drug prices. I suspect it will be put into effect very soon,¡± said Hu Shanlian, professor with the Public Health School of Fudan University.

¡°So far, no reports indicate that the Ministry of Finance has joined in drafting the new proposal, but additional subsidies for hospitals would be needed after the Health Ministry adopts the new policy,¡± Hu added.