Behind the cut-off of supply by pharmaceutical companies: Is the low price of centralized procurement really affecting profits?

Recently, because North China Pharmaceutical Co.
, Ltd.
(hereinafter referred to as "Huabei Pharmaceutical") was unable to supply ibuprofen sustained-release capsules, a product selected by the national organization for centralized procurement, in Shandong Province ) Include Huabei Pharmaceutical on the "List of Violations" and cancel its qualification to participate in the centralized drug procurement activities organized by the state from August 11, 2021 to May 10, 2022
.

Regarding this incident, the United Procurement Office answered questions raised by reporters
.

1.
What is the overall supply situation of centralized drug procurement organized by the state? Has the problem of failure of the selected product to fulfill the contract occurred before?

1.
What is the overall supply situation of centralized drug procurement organized by the state? Has the problem of failure of the selected product to fulfill the contract occurred before?

Answer: Currently, the state has organized 5 batches of centralized drug procurement, covering 218 drugs.
The first 4 batches of 157 drugs have been implemented, involving 696 products
.

Among them, the first batch and the second batch of centralized procurement have completed the first-year procurement cycle, and the supply of selected drugs has reached more than twice the annual agreed procurement volume, and the actual procurement demand and supply have exceeded expectations

As of the end of July, the third batch of centralized procurement has been implemented for 9 months, and the average supply of selected drugs by the selected companies has reached 1.
5 times the annual agreed purchase volume
.

The fourth batch of centralized procurement has been implemented for 3 months, and the average supply of selected drugs by the selected companies has reached 45% of the annual agreed purchase volume

On the whole, the selected enterprises earnestly implemented the centralized procurement agreement, strictly fulfilled the contract in accordance with the agreed procurement volume, and the demand for medical institutions exceeding the agreed procurement volume was generally able to actively meet the supply
.

Huabei Pharmaceutical’s ibuprofen sustained-release capsules breached the contract within the agreed purchase amount stipulated in the agreement, which was the first time since the state organized the centralized procurement of drugs

Huabei Pharmaceutical’s ibuprofen sustained-release capsules breached the contract within the agreed purchase amount stipulated in the agreement, which was the first time since the state organized the centralized procurement of drugs

2.

(1) Facts of breach of contract
.

Regarding North China Pharmaceutical’s breach of contract, the United Procurement Office has stated in its announcement on August 20 that the company’s ibuprofen sustained-release capsules selected in the third batch of nationally organized drug procurement failed to supply the agreed procurement volume in Shandong Province according to the agreement.

(1) Facts of breach of contract

(2) Basis for processing
.

It is clearly stipulated in the national organization's drug collection bidding document that if a company fails to fulfill its promise of supply and affects its clinical use, it will be included in the "list of violations" and be dealt with according to the severity of the circumstances

(2) Basis for processing

(3) Follow-up impact

3.
Some media speculate that North China Pharmaceuticals defaulted because the low prices of centralized procurement affected profits.
Is this the case?

3.
Some media speculate that North China Pharmaceuticals defaulted because the low prices of centralized procurement affected profits.
Is this the case?

Answer: For a long time, the problem of inflated drug prices in China has been serious.
The prices of commonly used drugs are as high as 2-3 times the average price of major international countries.
At the same time, the sales expenses of mainstream pharmaceutical companies account for nearly 40% of sales revenue, which is significantly higher than other consumer products.
The industry has not only increased the burden on the masses and the medical insurance fund, has encouraged unhealthy trends in the industry, and has also restricted the high-quality development of the medical and health industry
.

The original intention of carrying out the reform of centralized procurement with volume was to squeeze out the falsely high drug prices, to promote the return of drug prices to a reasonable level, to reduce the burden on the masses, and to make the drugs more affordable for patients
.

The state organizes centralized drug procurement to adhere to the decisive role of the market in price formation.
The rules are open and treated equally, so that all market players have equal opportunities to compete.
At the same time, companies are required to quote prices not lower than the cost in the procurement tenders, and the results of the selection will be produced through fair competition
.

Therefore, the selected enterprises and the selected prices are the result of independent quotations and fair competition in the market
.
Under the new procurement model, if an enterprise wants to gain an advantage in the competition, it should obtain the market through appropriate strategic layout and product pipelines, efficient organization and management capabilities and supply chain systems, as well as large-scale and intensive production methods.
Recognized profits, not protected by the government or related agencies, make profits by increasing the burden on the masses
.
This is also the only way for the high-quality development of China's pharmaceutical industry
.

If an enterprise wants to gain an advantage in the competition, it should obtain market-recognized profits through appropriate strategic layout and product pipelines, efficient organization and management capabilities and supply chain systems, as well as large-scale and intensive production methods.
The protection of the government or related institutions makes profits by increasing the burden on the masses
.
This is also the only way for the high-quality development of China's pharmaceutical industry
.

There are 4 selected companies for ibuprofen sustained-release capsules.
Among them, the selected price of North China Pharmaceutical is the highest at 8.
04 yuan per box (30 capsules)
.
Before the centralized procurement, the sales price of North China Pharmaceutical's ibuprofen sustained-release capsules on the centralized pharmaceutical procurement platforms of Tianjin, Shanxi, Qinghai and other provinces and cities was close to the selected price, but due to the lack of volume procurement, sales of the drug in 2020 Only more than 500,000 yuan
.
After the centralized procurement, using the method of "quantity and price linkage", it was agreed that North China Pharmaceuticals would supply 79.
75 million tablets in Shandong and other seven provinces and cities at the selected price.
The annual sales could exceed 20 million yuan.
However, North China Pharmaceuticals failed to fulfill the contract due diligence
.
My office here also reminds that after the reform of centralized procurement, it is the responsibility of the selected companies to fulfill the contract according to the agreed price and the agreed volume, and the wrong practice of reporting low prices without supply before the reform should be discarded
.

4.
How about the implementation of policies and measures related to the protection of the clinical use and quality and safety of the selected products?

4.
How about the implementation of policies and measures related to the protection of the clinical use and quality and safety of the selected products?

In the reform of centralized procurement, we have always adhered to strict quality control to ensure the stable clinical supply of selected products and the safety of substitution
.
In order to ensure that the price is reduced and the quality is not lowered, the state organizes centralized drug procurement to pass the quality and efficacy consistency evaluation of generic drugs as the entry threshold for generic drugs, and in conjunction with relevant departments to strengthen the quality supervision of the selected products throughout the life cycle, so that the masses can use quality and efficacy at ease.
Medicine
.
During the procurement implementation process, the Joint Procurement Office, together with its member units, strengthened the monitoring of the clinical use of the selected drugs, and urged the selected companies to ensure the supply in a timely manner to ensure stable clinical use
.
Overall, the quality and efficacy of the drugs selected in centralized procurement have been generally recognized by doctors and patients
.
A real-world study conducted by 20 large tertiary hospitals over 110,000 cases over a period of two years showed that the clinical efficacy and safety of generic drugs selected in centralized procurement are consistent with the original research drugs
.

In addition, it needs to be pointed out that the room for price reduction of centralized procurement mainly comes from three aspects, including direct supply to hospitals to reduce marketing costs, timely collection of funds to reduce financial costs, and small profits but quick turnover to reduce production costs.
The long-standing unreasonable expenses, not the production cost of the enterprise, do not affect the quality of the medicine
.

5.
What are the considerations for the next reform of centralized procurement? How to ensure the supply of selected products?

5.
What are the considerations for the next reform of centralized procurement? How to ensure the supply of selected products?

Answer: In accordance with the deployment of the Party Central Committee and the State Council, we will unswervingly deepen the reform of centralized procurement of pharmaceuticals, and at the same time further improve the centralized procurement rules and supporting measures to ensure the supply of selected products
.
In the past few batches of centralized procurement, we have gradually increased the number of selected companies through optimizing rules and strengthened supply guarantees.
In the next step, we will further improve the following measures
.

One is to strengthen the monitoring and handling of the supply of selected drugs
.
Further clarify the responsibilities of supply performance of enterprises, implement the "Opinions of the General Office of the State Council on Promoting the Normalized and Institutionalized Development of Centralized and Volumetric Procurement of Drugs" (Guobanfa [2021] No.
2), and require selected enterprises to do a good job in predicting and preventing market risks , Organize production and supply in accordance with the procurement contract to meet the procurement needs of selected drugs
.
The Joint Procurement Office will strengthen the monitoring and early warning of the procurement of the selected products, and deal with the problems found in the procurement process such as the failure of the company to perform the supply agreement
.
At the same time, the provinces will also actively perform their duties and perform their duties.
According to the National Medical Insurance Administration's "Guiding Opinions on Establishing a Credit Evaluation System for Pharmaceutical Prices and Recruitment and Procurement", the main responsibility of the selected enterprises for performance of the contract will be compacted through credit evaluation, and for the enterprises that cannot perform after the election.
Give a rating of untrustworthiness and make corresponding actions
.

One is to strengthen the monitoring and handling of the supply of selected drugs
.

The second is to effectively strengthen the application of violation lists and untrustworthy ratings in the field of centralized drug procurement
.
Strengthen the use of violations and untrustworthy results, and further restrict the violation and untrustworthy enterprises in the future national and provincial centralized procurement declaration conditions
.
When carrying out the continuation of the expiration of the centralized procurement agreement, strengthen the weight of supply and credit in the process of generating the selected enterprises, so that the trustworthy will be more likely to be selected, and the untrustworthy will be restricted
.

The second is to effectively strengthen the application of violation lists and untrustworthy ratings in the field of centralized drug procurement
.

The third is to implement alternative mechanisms to improve market supply stability
.
The relevant documents of the national organization of the centralized drug procurement have been clarified.
When the selected company cannot supply the procurement needs of medical institutions in a timely manner, the province can initiate the selection process of the candidate company to ensure sufficient clinical supply and reasonable prices
.
After North China Pharmaceuticals applied for abandoning the qualification, the Shandong Provincial Medical Insurance Department immediately initiated the candidate enterprise procedure.
According to the established selection procedure, Zhuhai Rundu Pharmaceutical Co.
, Ltd.
has been determined as a substitute enterprise to supply Shandong Province, and according to Zhuhai Rundu Pharmaceutical’s national organization The selected price is 4.
05 yuan per box (20 capsules).
This price is lower than the selected price of North China Pharmaceuticals.
Patients in Shandong Province will purchase drugs that also pass the consistency evaluation at a lower price
.

The third is to implement alternative mechanisms to improve market supply stability
.