Background
Globally, medicine shortage is a big challenge for achieving Universal Health Coverage (UHC) [
1‐
4]. China is also facing the problem of medicines shortage. A study conducted in Shandong province found that only 69% of the essential medicines were available in hospital pharmacies in 2006 [
5]. A survey in Shaanxi Province illustrated that mean availability of surveyed medicines was low in both the public and private sectors; availability of lowest-priced generics declined from 27·4% to 22·3% during 2010–2012, particularly in primary hospitals [
6]. A qualitative study in China reported that 95 medicines (of which, 51 were essential medicines) were out of supply in 2015, owing to the problems of manufacturing, distribution and supply. All these medicines had quite low unit prices [
7]. This problem is typical for generic medicines [
8,
9] because long-term unchanged maximum retail price caps might make some generic medicines’ prices set at an unprofitable level and pharmaceutical companies earned no benefit to producing them in China before 2015 [
7,
10‐
15].
In response to generic medicine shortage problem, China’s National Development and Reform Commission (NDRC) and National Health Commission (NHC) issued a new pricing policy to raise the price cap of some low-cost medicines (LCMs) in 2015 [
16]. The NDRC selected 533 medicine by chemical names of medicines and stipulated that the prices of those medicines cannot be higher than the maximum daily cost (RMB 3 for chemical drugs and RMB 5 for Chinese traditional medicines) according to the average daily dosage on drug labels national wide [
17]. In the Low-cost medicines list, about one-third of those medicines are essential medicines. Meanwhile, each province would add medicines to the LCMs list according to their demands. For example, Shandong province’s supplementary low-cost medicines list has 210 medicines by chemical names and there are 743 LCMs by chemical names in Shandong [
18]. Therefore, the final LCMs lists for each province varies in China. The policy [
16] aim was to promote the supply of LCMs and to satisfy the demand for generic medicines.
The transformation of the price cap of LCMs has been implemented for some time in China and studies about this policy are mainly focused on price analysis. Zhang (2016) [
19] Song (2018) [
20] and Guan (2018) [
21] all found that the price of LCMs increased after the policy implementation. Furthermore, from the patients’ perspective, Wang (2017) [
22] found that the patients’ awareness of LCMs is quite low and patients’ satisfaction with the policy needs to be further improved. Additionally, Duan (2019) [
23] evaluated the effects of LCM policy on purchasing of chemical medicines only and found that the policy increased the purchasing volume. However, little empirical evidence was available to provide a rounded and comprehensive analysis of the effects of the ceiling prices changes on the price as well as the supply of all LCMs. This study aims to fill this gap. The study objective was to analyze the effects of LCM policy on medicine prices, availability and supply in Shandong province in China.
Discussion
The LCM policy had a positive impact on LCM supply and improved access to LCM for public hospitals. After the implementation of the LCM policy in October 2015, both the number of products and the volumes of LCMs increased significantly, which means the policy might promote the supply and the demand of LCMs. It also concludes that the LCM policy is beneficial to improve access to medicines. Besides the increasing trend is more obvious for traditional Chinese medicines and the reason might be that the traditional Chinese medicines have other incentives like policy support in industrial.
Nevertheless, the supply capacity of medicines needs to be strengthened [
35] as the delivery time of LCM was 9 days, which was longer than 3 days – the time expected by policymakers of medicines procurement. Before the LCM policy, the government implemented policies like centralized procurement of medicines [
36] to improve the distribution efficiency of medicines and the medicines delivery time was reduced. However, after the LCM policy, along with the increasing demands for LCMs, delivery time again increased. There are two possible explanations. One might be that the distribution capacity of pharmaceutical distribution firms has reached their limit and even though there is no LCM policy, the delivery time keeps sable at 9 days [
37,
38]. Another explanation might be the LCM policy had a negative influence on distribution companies and the policy hindered the further decline of delivery time. However, this explanation needs further studies and evidence.
In our perception, LCMs are chiefly used in primary health institutes. However, it is worth noting that the LCM policy did not include primary health institutes at first stage in Shandong [
18]. This is because China has special policies for primary healthcare institutions. In China, primary health institutions are required to mainly use essential medicines whose prices are set by provincial centralized bidding [
36,
37], which means that the prices are fixed from a provincial level and are much cheaper. We think primary health institutes are not included because this policy somehow increases the price of LCMs and the government needs to maintain the lowest prices at the grassroots level. Even though there is medicine shortage problem caused by unreasonable prices in primary health institutes, government tend to use other measures like national essential medicine policy [
39] instead of pricing policy to guarantee the supply and utilization [
36].
We argue that an appropriate price increase is necessary as this could alleviate the shortage due to long-term unadjusted price ceiling. Our results show that the supply of LCMs had a rise along with the prices, which is in line with the studies done by Zhang (2016) [
19], Song (2018) [
20] and Guan (2018) [
21]. Besides, they found that the increase in the prices of LCMs did not significantly increase the burden of health and medicines expenditures.
However, as the policy set the price cap of those LCMs by maximum daily cost, some LCMs with a small daily dose, such as cream, may have an unreasonable price increase and further increase can have an impact on patients’ healthcare expenditures. With the increasing supply of LCMs, the close monitoring of LCM prices should be implemented in the future.
Additionally, although the LCM policy had promoted the supply of some generic medicines, it also had problems. It was noteworthy that China’s National Development and Reform Commission, who is responsible for the price setting, selected the medicines [
17,
18], while the selection criteria were not specific and clear, especially the standard of calculating daily costs of traditional Chinese medicines. Besides, a simple daily-cost price cap could not solve the shortage of problems of all LCMs since every medicine has a different daily dose. The rational of list selection should be improved.
The findings of this study may help policy-making of improving medicine access as medicine shortages are a common problem shared by healthcare institutions in most countries around the world [
40]. If the price cap leads to medicines shortage, a reasonable pricing policy could solve the problem effectively. This kind of strategy could be used in low- and middle-income countries to meet the demands of generic medicines when pharmaceutical companies have no incentives for the production of lower-priced medicines.
Even so, using a price policy for medicines to improve the medicines supply should be cautious because when government influences medicine prices, the market will change and will contribute towards a long-run impact on supply and in turn, the price [
21]. It is crucial to figure out what reasons contributed to the shortage of medicines before initiating those policies as interventions.
The reasons of medicine shortages are complex. The origin of a drug shortage problem can be located at the supply and demand side. At the supply side, manufacturing problems such as manufacturing difficulties, unavailability of raw materials, quality issues, non-compliance with applicable regulatory and natural disasters are reported [
41‐
43]. Besides, distribution and supply problems are other influencing factors, such as just-in-time inventories and inappropriate levels of stock, parallel distribution [
44], quotas, rationing, and transportation issues [
40,
41]. The supply side can be influenced by policy measures such as allocation and quality requirements [
45]. Furthermore, as we have shown in our study, pricing policies could also result in product discontinuation, especially concerning those long-standing and lower-priced medicines [
41]. Studies showed that apart from price capping, internal or external reference pricing, and tendering may affect patients’ access to medicines [
44,
46‐
48].
Our study is methodologically strong. We use the drug price index and Interrupted time series analysis to provide the evidence for policy evaluation. We also use several different indicators to illustrate this study. The study involved a relatively large amount of observations (35 months) from a reliable database.
Limitations
The study also has limitations. It was conducted in only one province in China, and the findings may not be generalized in the other parts of China. On the other hand, by focusing on a single province, we were able to gather good data. Besides, we did not include primary healthcare institutes because, at the early stage of the implementation, primary healthcare institutes did not include into the CBP system for LCMs. Further analysis of LCMs in primary health institutes level will be essential and important.
Although using the interrupted time series analysis method could evaluate the effect of policy intervention by building counterfactual, a comparison group will make the study design a standard quasi-experimental design and avoid bias caused by other policies like zero-profit margin policy for medicines. Further studies with suitable comparison groups will provide a higher level of evidence.
Publisher’s Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.