(Bloomberg) -- China will reform the pricing of medical services provided by public hospitals as part of its campaign to make healthcare more affordable, the latest salvo in President Xi Jinping's call for “common prosperity” for the country's 1.4 billion people.
The reform plan will create a “mechanism” with clear rules governing how prices are calculated and capped at public hospitals, where costs are split between patients and the state medical insurance fund. The details, released late Tuesday by a group of governmental agencies that oversee hospitals, drugs, medical insurance and pricing, sent health care stocks down on Wednesday.
Unlike recent crackdowns on sectors like property and education technology, the effort isn't intended to cut prices across the board. It's part of a broader adjustment in healthcare that has already tackled excessive profits for drugs and medical supplies, and now looks to ensure the costs of hospital services don't rise too quickly, the agencies said.
“The pricing reform will be gradual and won't see service charges be adjusted in one go,” said Wang Ruizhe, a Shanghai-based healthcare analyst at Capital Securities Corp. “The new plan reaffirms the long stated goals of healthcare reform that seek to address pricing distortions to reflect the true value of drugs, medical devices and medical services.”
The effort could also led to higher prices for services that have been undervalued.
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In an accompanying explainer of the reform plan, authorities said services like pediatric care, nursing, sophisticated surgeries and Traditional Chinese Medicine were “under-valued.” It said those areas needed policy incentives, signaling that their prices could rise. The increases could be justified with corresponding social benefits, according to the document.
Most healthcare stocks dropped on Wednesday, with medical equipment and hospital companies leading the retreat. Companies tied to elderly care like Yihua Healthcare Co. and Dahu Aquaculture Co. rose, while some drugmakers also climbed.
China has been slashing health-care costs, with a focus on drugs, since well before the current crackdown that's delivered blows across the e-commerce, property and financing industries. Starting in 2018, it launched a centralized drug procurement program for public hospitals, forcing generic drugmakers to bid for contracts at fiercely competitive prices, bringing down medicine costs by over 90% in some instances.
“We have seen volume-based procurement squeezing out the excessive and unreasonable profits of drugs and medical supplies,” Wang said. “Now the new plan will tackle the imbalances in medical services.”
Now in its 5th round, the program has cut healthcare costs by billions: after the 3rd round, 53.9 billion yuan ($8.3 billion) was saved on an annual basis, officials said.
China has also asked global pharmaceutical companies to cut the prices of their innovative drugs by over 50% in order to be included in its reimbursement list of medicines that will be paid for by the state medical insurance. The program covers 95% of Chinese people.
Authorities will pick five cities to run pilots for the new pricing reform program, with the goal of nationwide expansion by 2025, according to the document.
©2021 Bloomberg L.P.
With assistance from Bloomberg
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