02 September 2013

China’s Investigation into Drug Pricing: What You Need to Know

On July 2, the National Development and Reform Commission ("NDRC") announced an investigation into the prices charged by 60 foreign and domestic drug makers.Pharmaceutical manufacturers should be aware that the investigation process imposes certain rights and obligations on manufacturers and investigating authorities.

The Chinese pharmaceutical pricing regime is primarily governed by the Price Law of the People's Republic of China, the Pharmaceutical Administration Law of the People's Republic of China, the Regulations for the Implementation of the Drug Administration Law of the People's Republic of China, and the Code of Conduct for Pharmaceutical Pricing.

Authorities have the right to fix prices for (1) drugs listed in the directory of drugs for national basic medical insurance and (2) drugs not listed in the directory but monopolistically manufactured and distributed. There are about 2,700 kinds of drugs within these categories, which represent 23 percent of the drugs on the market. The prices of all other drugs are set by the market.If drug manufacturers refuse to follow government pricing mandates, authorities have the right to order a price correction, to confiscate a manufacturer's proceeds, and to impose a fine of an amount no more than five times the illegal proceeds. In serious cases, authorities have the right to shut down a manufacturer's business.

When considering the price of drugs, authorities have certain obligations. They must consider social costs, market supply and demand, and the legitimate interests of patients. Additionally, authorities are required to organize experts from pharmaceutical, medical, economic, and other fields to conduct an assessment. If necessary, the authorities may solicit comments from drug manufacturers, drug distributors, medical institutions, citizens, and other relevant persons.When conducting a pricing investigation, authorities must comply with certain guidelines. If authority personnel are required to enter an enterprise as part of an investigation, there must be at least two authority personnel. Investigation findings must be signed by all investigators, and must truthfully reflect the different views of members of the investigation team. Enterprises must not be charged a fee for the investigation. Authority personnel are prohibited from dining at the investigated enterprises. If dining at the enterprise is necessary, the investigators must pay for their food and are to be served food of the same standard as that served to the enterprise's employees. When establishing a drug price, authorities must publish the drug's price and the date on which the price comes into effect in designated publications.

Under the drug pricing regime, drug manufacturers are required to fix drug prices that are subject to market regulation and to establish prices for new products which are subject to government-set or guided prices, except for special products for trial sales. Manufacturers also have the right to report or claim against actions that infringe their rights of independent pricing. If a manufacturer is not satisfied with a decision made by the authorities, the manufacturer has the right to apply for administrative review of the decision. If the manufacturer is not satisfied after the administrative review, it may file suit in a people's court.

A manufacturer's obligations under the drug pricing regime include setting prices according to the government's requirements and cooperating with the government during investigations.Manufacturers also have an obligation to keep abreast of all relevant laws and regulations, including government guided-prices, government-set prices, legal price intervention measures, and any emergency measures adopted by the government; to provide documents or other materials necessary to an investigation; to provide the pricing authority with information related to raw material costs and drug pricing; to fix and mark the retail prices of pharmaceuticals; and to avoid sudden excessive profits and deceptive pricing harmful to the interests of patients.

Within the context of these rights and obligations, drug manufacturers need to cooperate fully with authorities during a pricing investigation. However, if investigators overstep their authority, manufacturers have recourse to administrative review of investigators' actions. If unsatisfied with the result, manufacturers may file suit and air their grievances in court.

(This article was originally written in Chinese, and the English version is a translation.)

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