Exploration and Thoughts on the Price Formation Mechanism of Innovative Drugs

China's pharmaceutical market is undergoing major changes that have not been seen in a century: domestically produced innovative drugs have accelerated their listings, and imported innovative drugs have flooded in

At the 2021 CP Conference·China Medical Innovation Ecology Conference (CPIE), Professor Wang Guohua, assistant director and researcher of the International Research Center for Pharmaceutical Management of Peking University, shared his exploration and thinking on the price formation mechanism of innovative drugs

Drug price management mechanism

Price management and price reform actually include two connotations: a price management system and a price formation mechanism, which complement each other and jointly regulate the macro price level and the micro price distribution

The State Administration for Market Regulation exercises the power of supervision and management of drug prices mainly through the Anti-Monopoly Bureau, Price Supervision and Inspection and Anti-Unfair Competition Bureau under its jurisdiction

Innovative drug price formation mechanism

The price formation mechanism is understood in a general sense as the internal procedures and regularity of prices formed under the different management systems of the government and the market during the price formation process, and the interaction and mutual relationship between the government and the market to form prices.

If the drug price formation mechanism is absolutely divided, it includes two parts: one part is the price formation mechanism led by the government, and the other part is the price formation mechanism led by the market

The first section of the drug price formation mechanism is government pricing or government-guided prices

In addition to government pricing, that is, the transaction prices of drugs other than anesthetics and a class of psychotropic drugs are formed by market competition.

Innovation of Price Formation Mechanism-State Talking Mechanism

The state talks (national medical insurance negotiation) mechanism in the price formation mechanism is an innovation.

The process of the state talks roughly includes formulating a negotiation plan, calculating the negotiation base price, strengthening communication with enterprises, conducting on-site negotiations, and signing formal agreements

National talks have been carried out many times.

The state talks mechanism has been continuously developed and improved during the implementation process, including the gradual improvement of the conditions for drug entry, the gradual expansion of the field of drug treatment, the formation of annual normalized negotiations, the continuous innovation of negotiation forms, and the "dual channel" to ensure the landing of negotiated drugs

Factors Influencing Drug Prices and Pricing Strategies

Price is macroscopic, and to a certain extent, it is a comprehensive performance of the overall operating conditions of the national economy and social development; price is microscopic.

Generally speaking, there are three directions in the strategy of price setting.

Thoughts on the price formation mechanism of innovative drugs

Thinking about innovative drugs can be summarized into five aspects

(1) The scientific nature of the price formation mechanism

(2) The legality of price behavior
.
Enterprises have certain market advantages by relying on innovative drug products, so they must operate in compliance with laws and regulations to prevent unfair competition
.

(3) The reasonableness of the price level
.
Reasonable prices can go long-term.
Therefore, when setting prices, we must take cost as the basis, value as the orientation, and meet the clinical needs as the goal, with balanced consideration of various factors
.

(4) Innovative product fairness
.
The same is all about innovation.
Some have entered the door and some have not.
It needs a good policy environment, especially an environment for centralized procurement and negotiation
.

(5) Sustainability of innovation activities
.
In the process of falling prices all the way, the economic advantages of subsequent marketed innovative drugs will be threatened, which requires the industry to think deeply
.