Eric Bouteiller examines the most recent update to China’s National Reimbursement Drug List, the positive impact that a de facto annual review has had on drug approval timelines, and why a more streamlined and data driven review process is positive news for the innovative pharmaceutical industry. However, Bouteiller cautions that the race to the bottom on pricing stands to impact the ability of both international and domestic companies to bring innovations to the Chinese market.
2020 was an extraordinary year in China, as it was across the world, due to the COVID-19 pandemic. However, below the surface, the country’s market access dynamics have continued to move forward. Here I summarise some of my key learnings on China’s medical reimbursement policy and what it means for innovation in the world’s second largest pharmaceutical market.
The time taken to get reimbursement has significantly decreased; it was 4.7 years after launch in 2017 and fell to 1.3 years in 2020
On December 28th, The National Healthcare Security Administration (NHSA), which oversees the National Reimbursement Drug List (NRDL), announced the 4th update to the 2017 version of NRDL. This list includes 2,800 drugs, with 1,426 Western medicines and 1,374 formulated Traditional Chinese Medicine (TCM) products. According to the NHSA, there were a total of 704 applications for this update. 138 exclusive drugs were eligible for negotiation and 96 drugs succeeded in the negotiation and were added to the NRDL (70 percent success rate). The average price reduction of those products was 50.6 percent.
There were several important learnings.
1: Improved Frequency
The update of the NRDL has long been an issue. Previously, the list was decoupled from regulatory approval and there was no mechanism to ensure review. Patients, clinicians, and industry were left in the dark. For many years, industry bodies such as the R&D-based Pharmaceutical Association Committee (RDPAC) required a periodic review.
The NRDL List was finally fully reviewed in 2017 and, in a new fashion, it has been further updated every year since. There is not a “comprehensive system”, but it is qualified as “dynamic”, which means periodicity is not fixed, at least for the time being. In de facto terms we now have an annual review.
The concrete consequence is that the time taken to get reimbursement has significantly decreased; it was 4.7 years after launch in 2017 and fell to 1.3 years in 2020 (IQVIA survey). In the mid-2010s, China was famous for its “drug lag”, the time gap between the launch of products abroad and in China. Drug approval was delayed by an average of 9 years in 2015-16, half due to regulatory delay and half due to reimbursement delay. This higher frequency is a significant improvement.
2: A Simplified Process
An un-noticed improvement in the review process has been the possibility for companies to directly submit their file to the Authority. Previously the process was internal to the Authorities and de facto, most companies tried to influence this internal process, which could lead to misbehaviour. Now, however, there is a clear submission process. This approach has also enabled companies to submit products that may have been forgotten in the past.
Additionally, the internal review has been greatly streamlined. In the past, it was a huge bottom-up process where each province raised and commented its local list. Around 2,000 experts were involved, most of the time selected “at random” from a huge expert database to prevent lobbying. The reality of the process was far from ideal – it was too heavy and too slow (one of the reasons the Authority did not want to do this work periodically) –, resources were wasted, and there were opportunities for misbehaviour.
Review methods have completely changed. “Story telling” is no longer feasible and each manufacturer needs to provide solid data that is cross examined by a team of official experts. The Authority, for the first time, also specifically requests two sets of data: efficacy and health economics. However, as for update frequency, there is not one fixed system. The NHSA is trying various approaches, including reference pricing, quality-adjusted life years (QALY), cost efficacy, and budget impact etc. This time, it was compulsory to provide an impact on reimbursement funds (this was trialled in 2019 but later systematically requested in 2020). International data is not considered sufficient and local data is expected. Overall, it seems that this time, budget impact has played a higher role in decision than cost effectiveness. Experts in Health Economics are logically playing an increasing role. In 2017 there were only two, while they were 40 in 2020.
This being said, it looks like we are still far away from the professional negotiations we see in other major markets. The process is split into two steps. There are two teams of experts. The first one reviews the dossier and discusses internally before producing a recommendation. Then, a second team is selected on the spot to perform the negotiation. They enter the arena after opening an envelope which contains the expected price. They are not involved in the review and do not know the first team. They often do not have time to read the file. Their role is to explain the price cut that is expected in order to be listed. The exchanges are very limited. A first price submission needs to fall within a 15 percent range around the expected price. If outside the range, the discussion is stopped. Then there is a second price submission. The whole process is under video surveillance. Within the local context, it is a method of preventing corruption. It is also a way to speed up the process in three days. Overall, the lack of real interaction and the speed of the process does not qualify for a professional “negotiation”.
3: A Unified List
Another change that has gone almost unnoticed abroad is the fact that the very complex system of national and regional lists has been simplified. China is a continent-sized country and local variations have always been an issue in terms of both clinical practices and financial resources. The equity between provinces within the reimbursement system is not working well and there is no financial solidarity. Rich provinces are not supporting poor provinces. In the past, parts of the imbalance were managed through adjustment of the reimbursement list by giving some room for adjustment to provincial lists against national ones. In theory, up to 15 percent of national products could be changed by the provincial governments. The result was a complex set of lists which were in constant evolution.
Since August 2019, the Authority has announced that only the national list will prevail and that provinces will have to strictly follow it. As often occurs with administrative reforms in China, provinces were given a few years to adjust. But political competition has stimulated the provinces to align faster and cancel their local lists. Now, in advance of the official calendar, China has only one reimbursement list across the country which is increasing the bargaining power of the Authority with its suppliers.
In the last round of negotiation, we also saw the next step in the modernisation of the list. There were talks of de-listing for the first time. Some products have been reimbursed for decades though they have low clinical value. Therefore, for the first time in 2020, 14 products with over CNY one billion worth of consumption have been pointed out. They were kept in the final NRDL list but with a 43 percent price cut on average (IQVIA research). We can anticipate that they may be delisting in the next round of negotiation.
4: Negotiated Prices are Low
On the surface, innovation has made good progress in the last four years. Numerous new products have been authorized since 2017. Among them, the products listed for reimbursement have seen their businesses uplifted (see graph below). But when we look at the last round of negotiation, there are worrying signals.
In a general context of increasing price pressure on hospital purchases (Volume-Base Procurement etc), the NHSA has made it clear that industry is not their problem. They focus on improving access and getting lower prices. If we take the PD-1 category as example, four local companies have been granted reimbursement but none of the global players got the green light. Altogether, there are eight products available in China plus at least 40 additional PD-1 products in the regulatory pipeline. With the current practices, many of them could get reimbursed in next rounds which could even trigger a further price cut if the newcomers bid lower.
In this context, why did the local companies agree to reduce prices to such a low level? The general answer is that they want to occupy the market immediately and are counting on seeing a profit at a later stage. We will see over time if it is a “Pyrrhic victory”. The industry perception is that they lost on price, but also on image, with products potentially being seen as lower quality. One of the manufacturers of a PD-1 therapy that made it onto the list said publicly “It’s not good for building an innovative industry.”
On price there were minor improvements and a slight progression in terms of confidentiality. Around the world, markets are quite different in terms of distribution systems and rebates. Therefore, head-to-head comparison of price has limited value. This time, the NHSA has agreed not to officially publish the price of the newly listed products. A few days later, the market, where everything is de facto transparent, has shared new data, but it has not been published officially.
5. What about Orphan Drugs?
This round of negotiation has not seen much news about orphan drugs. Seven products were denoted for “rare diseases” in this update (although the definition is unclear). There were a lot more expectations. The accessibility of rare disease drugs is not really a matter of financial resources, but of perception. The Beijing Rare Disease Treatment and Protection Association estimates that 0.63 percent of funds are currently devoted to rare disease drugs (significantly lower than the seven to nine percent of expenditures seen in the US and EU, according to a recent report from RDPAC).
Back in 2019, there was some talk from the Authorities about establishing a specific reimbursement policy for Rare Diseases. Some numbers were even shared publicly such as a reimbursement of up to CNY 500,000 per patient per year. The overall cost for the Government would be capped by the rarity of the disease. However, the NHSA does not want to be seen to be opening the door to rare diseases. The rationale is: why serve one rare disease patient when for the same amount of money many more general patients could be reimbursed? Additionally, the fight against COVID-19, as in the rest of the world, is a priority and attracting attention and resources. All products related to COVID-19 have been listed in the NRDL since December 2020.
6. Conclusion: What Reward for Innovation?
The last four years have seen a remarkable modernisation of China’s reimbursement system which is now updated at a higher frequency, more streamlined, and more data driven. This can only be positive for the industry. However, when we look at the core of the Chinese government’s new pricing and reimbursement strategy three major issues stand to impact how innovation can reach the market.
Firstly, price levels are worrying for the whole industry (eg PD-1s are priced at only 10 percent of what they are in the US and are significantly lower than the EU). International companies may find it difficult to access and supply the Chinese market. This is because of the fall in intrinsic profitability in the Chinese market, but also because they are constrained by the prices they have “at home.” There is a limit to the economic conditions they can offer to China.
The second issue is the fact that new indications are not recognised as such and therefore investment on new indications for old molecules will not be rewarded. International companies will not provide their latest innovations to China. A lot of international companies will avoid China or delay registration. In a way, we could go back to the situation of the mid-2010s with a new “drug lag.”
Thirdly, price is also an issue for local companies. If price is lower than their initial business plan, they will have difficulties in fulfilling their commitment to the stock market (2020 has been a record year in terms of IPOs) or other financing resources. Today, most local companies are only focusing on the Chinese market (market growth is higher than most international markets), but when they want to venture abroad, they will not have the financial means to do so. Depressed prices in China and a lack of access to international markets means that no Chinese company will be able to develop a blockbuster, which will in turn reduce the availability of funding.
The trends seen in the last reimbursement negotiation round in 2020 have only impacted a few products concretely but it will set the benchmark for lower prices for future innovation. If not adjusted by the Authorities, it will be a reset for the innovative pharmaceuticals industry in China.
- Vivian Chen, “looking at the negotiation of PD-1 for Medical reimbursement and the future of pharmaceutical innovation in China in the next decade” (translation), http://opinion.caixin.com/2020-12-30/101644787.html.
- Prof Hu Sanlian, “2021 showing the directions of the next decade” (translation), Jiankangbao, 28 December 2020, p. 7.
- National Healthcare Security Administration (NHSA): http://nhsa.gov.cn.
- Oyler John, “What do Novartis deal, PD-1 competition in China”, Fierce Pharma, January 14th 2021.
- “Putting a price on innovation – China 2020 NRDL update,” China Pharmaceutical and Biotechnological Review, December 2020.
- RDPAC, “Research on Negotiation and Evaluation Methods in the Context of Pharmaceutical Innovation” (translation), Beijing, August 2020.
- “What will be the impact of recent negotiations for Medical Insurance on the investment strategy of the Innovative industry?” (translation), Zhejiang Securities, 26 December 2020, 15 p.
- Xiong Xiangjun, “About the adjustment of the health insurance catalogue: the biggest pressure is the risk of integrity”, Caijing, 21 January 2021.
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