Cost and price entanglement

What kind of interest issues are involved in the price changes? Behind the gradual decline of cheap drugs is the game between the government and the market, and vested interests are the protection of the old order. To change the fate of cheap drugs and their production companies, the rules of the game need to be reformulated.

Li Zhenjiang was forced to give up the Shuanghuanglian Injection that had brought the company an annual output of 80 million yuan.

"A bit of tears." Li Zhenjiang, chairman of Shenwei Pharmaceutical, was frustrated with the shutdown: "The maximum retail price for each 20ml of Shuanghuanglian injection is only 1.8 yuan, and our cost is almost twice the price."

Because of the loss, the Chinese medicine company with the largest market value on the Hong Kong Stock Exchange had to make this difficult decision to close its Shuanghuanglian Injection Factory in Chengdu. During this period, Li Zhenjiang also reduced the production of Banlangen granules that had been used in the SARS period, and stopped production of water and dried herbs.

For several months, Shen Wei, Purchasing Department Manager Zhou Lin has no courage to report to Li Zhenjiang, because she can only bring bad news - raw material prices. Zhang Teli, who is in charge of the company's market affairs, is even more worried. In the just-concluded bid, the winning bid price was significantly lower than last year.

North China Pharmaceuticals, which is with Shenwei Pharmaceutical in Shijiazhuang, is a major manufacturer of penicillin injection. Sales manager Zhang Linfei quickly presses the calculator in his hands. Last month, only penicillin delivered in Sichuan lost more than RMB 1 million.

The basic drugs such as Shuanghuanglian Injection and penicillin, even if Shenwei Pharmaceutical and Huabei Pharmaceutical are discontinued, are produced by other manufacturers and are still available in hospitals and pharmacies. However, some drugs may disappear forever due to low prices.

Wang Lizhen, a doctor in the Tongzhou District of Beijing, said in a near-pleading tone to the clerk: “Can you help me get some of the carbazole? I would buy some more.” For the case of armpit, the 100 tablets are priced at 1.9 yuan. She has been eating for many years, but now she travels around more than 60 pharmacies. The answer is: "I'm sorry, it's out of stock. The factory is not producing."

Fei Nagen, Hui Su Ling, Yin Ai Chong, Wei Nao Lu Tong, Al-Mimizole, Qi Zhen Dan these ordinary people almost blurted out cheap drugs have been difficult to find in pharmacies. A sample survey of clinical drug use in 42 hospitals in 12 cities across the country revealed that there are more than 500 basic medicines supplemented by the state and local governments, with a total of 342 shortages.

In mid-February, the Ministry of Industry and Information Technology put forward six major tasks for 2014 in the National Consumer Goods Industry Working Conference. One of them was to strengthen the construction of food credit system and the construction of quality and safety testing capabilities, and to organize the trials of fixed-point production of essential drugs. Guarantee the production and supply of low-priced drugs, and stressed that the object is to name “low-priced and low-drink varieties of drugs such as methimazole”. The issue of production and supply of low-priced drugs has been mentioned at the national level, and the lack of market for low-priced drugs has become a common problem.

Crazy ginseng

The 50% component of Shenmai Injection is ginseng. This injection is used clinically to treat shock and coronary heart disease. Of the seven drug companies approved by the State Food and Drug Administration to produce the drug, Shenwei entered the list and has been producing for 10 years.

Zhou Mingxia is the Director of Purchasing Chinese Herbal Medicine for Shenwei Pharmaceutical. In September last year, she came to Fusong County again to purchase ginseng, and the one-time-sufficient group produced it for the whole year.

Fusong County is located in the foothills of the Changbai Mountains in the Baishan area of ​​Jilin, and is known as the “hometown of ginseng” because of the wealth of ginseng. According to an official statistics of the county, in addition to the four state-run reference sites, there are 18 townships and villages, and the planting area of ​​ginseng is 1133 hectares, accounting for 7% of the cultivated area of ​​the county, and the output of ginseng is 1,107 tons, accounting for the total amount of the country. 70% of production.

The growth cycle of ginseng is 6 years and the price changes wave-like. In 2012, fresh ginseng cost 40 yuan per kilogram; this price rose to 70 yuan by 2013; red ginseng produced from fresh ginseng as raw materials was 340 yuan per kilogram in 2012, and rose to 700 yuan in 2013, a record high . These changes made Zhou Mingxia unprepared.

Bad news came one by one.

Zhou Mingxia originally made a price increase response. In May 2012, she paid a preliminary deposit of RMB 100,000 to the farmers and signed a ginseng supply agreement. As a result, she violated the contract in the face of rapidly rising prices. More importantly, the market price completely exceeds the purchase budget set by the group at the beginning of the year.

Xuan Shufang, president of Fusong Changbai Mountain Ginseng Market Investment Development Co., Ltd., told reporters that since 2009, the price of ginseng has risen. It has already quadrupled by the end of 2013.

Zhou Mingxia had to return to the headquarters of the group located in Luancheng, Hebei Province, 1400 kilometers away. After consulting and confirming the final procurement plan, Zhou Mingxia returned to the city.

September is the time when fresh ginseng is listed. This famous ginseng trading market has also changed to an alternative mode of night out. The transaction takes place at night and ends at dawn. The reason is very simple. During the day, the participating peasants must dig ginseng into the mountains and sell the ginseng only during the night. The ginseng sold on the same day has a high moisture content and can sell more money.

At five in the afternoon, the sky gradually darkened. Zhou Mingxia put on a thick sweater that she had only used in Shijiazhuang two months later and called a flashlight to start a new round of purchasing ginseng.

Everyone lapped the market and the farmers took up their sleeves and started the most important trade in the year. The markets that have been formed for many years, such as weighing rakes, burlap sacks, throwing mud, holding bags, and making money, have long since taken shape.

“75!” Zhou Mingxia’s aspirations would have shouted out a price she was confident of, which was 5 yuan more than the average price she had previously learned. A thin young man next to "76!" shouted louder. It is also "Five Cents".

"Five cents" is the nickname that everyone has given to a wide drug purchaser in private. He is best at raising money when someone else is talking about a good price and is about to trade. It is customary to add 0.5 yuan to 1 yuan to the base. With the price of ginseng soaring, more and more "Five Cents", and Zhou Mingxia has been surprised.

In desperation, Zhou Mingxia had to raise prices again and trade at a price of 76.5 yuan per kilogram.

The newly excavated ginseng has attached a large amount of mud. In order to reduce the damage, Zhou Mingxia invited people to dump the mud and pay 5 yuan for the bag. The bagging of ginseng with good mud is also 5 yuan, which seems to be a unique phenomenon in the ginseng market. The market that has been formed for many years has already begun to move toward a professional division of labor, and the convenience brought by each division’s position is behind rising costs.

After one month of intense work, Zhou Mingxia completed the procurement task. After careful accounting, she found that the purchase expenditure was one-fifth higher than the original plan.

More than ginseng. In Sichuan, the price of Ophiopogon japonicus (the other major raw material for the production of Shenmai Injection) also rose sharply. Prior to this, Zhou Mingxia had purchased at a price of RMB 17 per kilogram. At that time, he had risen to RMB 60.

This kind of annual medicine is guaranteed in Shenwei Pharmaceutical's supply. It has built a production base in Santai County, Sichuan Province, which can guarantee supply but cannot change the fact that the cost is rising. Since the establishment of the factory, the daily wages of workers who processed medicinal herbs have tripled. The current situation is that the daily wage is less than 100 yuan, and no young labor force has been found in rural areas. Even if it is left behind by an incomplete labor force, it will also need 70 yuan a day for wages. And this raw material concentrates on planting bases. Shenwei has built several branches in Gansu and Zhangjiakou.

In stark contrast to the rising raw material prices, 10ml of Shenmai Injection began to implement a ceiling price of 2.75 yuan per stick in Guizhou in June 2013, which is one-third of the same level in 2010.

"Raw materials have been rising, drug prices can not rise, Shen Mai injection may also stop production." Zhou Mingxia a bit worried.

This is not alarmist. In 2009, after the price of Isatis roots rose sharply, even if there were no supplementary materials and all added value, the raw material price for the production of Banlangen Granules by Shenwei was higher than that of Banlangen produced in Sichuan. Zhou Mingxia suggested reducing production to the group, because as long as the raw material of Banlangen was only 9 yuan a pound, Shenwei could no longer compete with Sichuan Suizhong Banlangen.

Immediately afterwards, Shenwei Banlangen granules were completely lost in bidding for medicines in various provinces throughout the country, and the Group's Banlangen granules continued to reduce production until the output was only kept to a small amount by pharmacies.

In May 2011, the Sichuan Provincial Food and Drug Administration carried out daily inspections of the Suizhong Pharmaceutical Guanghan Production Base and found that there were violations of the GMP regulations in the production. Two production lines of Banlangen and Compound Danshen Tablets were involved, of which Banlangen was included in the drug. The most important Banlangen has been replaced by apple skin. Subsequently, Suizhong was ordered to suspend production for rectification, and the GMP certificate of the Chinese medicine production line was withdrawn. In the sales volume of 2 billion yuan in the previous year of Suizhong Pharmaceutical, traditional Chinese medicine accounted for more than 70%.

Banlangen granules are not the most saddened species in Shenwei. The compound Danshen tablets that received the national approval did not produce at all because of the rising cost; Xiangdan injection, which has risen in price due to the scarcity of raw materials Huanghua pear, may also be eliminated; Liuwei Dihuang Wan, Gancao tablets and other drugs are now reduced in production by Shenwei. .

In the past few months, Shen Wei, Purchasing Manager Zhou Lin did not have the courage to report to the leadership, because she can bring all the bad news - price increases. Equally embarrassing is Zhang Teli, who is responsible for market affairs. The news he brings is even more devastating. In a new bid, drug prices have been reduced on the basis of last year's price.

Abandon penicillin

In the office building of the sales department of North China Pharmaceuticals, which was 40 miles away from the office of Zhou Mingxia, Zhang Lin quickly pressed the calculator in her hand. She was engaged in drug sales work in North China Pharmaceuticals. Although Zhou Mingxia was in the pharmaceutical industry, However, they belong to both ends of the industry chain. At the moment, they are friends in the same city.

Looking at a batch of drugs being loaded, Zhang Lin even wanted to go downstairs to intercept the trucks that were about to leave. This is by no means a normal salesperson should have the idea. Only Zhang Lin and her colleagues know what medicines transported by a car will mean to North China Pharmaceuticals.

The pharmaceutical factory known throughout the country for producing the first Chinese penicillin, 80% of its products are on the National Essential Drug List. What this embarrassing product structure brings is unbearable pain.

In the memory of Zhang Lin, she was quite honored to sell essential medicines such as penicillin to save the sick in front of her classmates in the food industry.

After 2010, everything changed. In August of this year, Anhui Province promulgated the “Implementation Plan for the Centralized Public Bidding of Essential Medicines in Anhui Province (2010 Version)”, which proposed a double envelope bidding model. This approach requires bidders to individually seal bid quotes, bill of quantities, and contract expense estimates in a quote envelope. In this model, low prices have almost become the only criterion.

For the first time, North China Pharmaceuticals, which participated in this model bidding, was cautious because it worried that the low price bid would not bring profits. As a result, in the bidding of Anhui Province in the same year, only dozens of products of North China Pharmaceutical Co., Ltd. participated in bidding were only successful, and other products were completely destroyed.

After the successful implementation of the Anhui model, Sichuan followed, and other provinces followed suit. Failure to win the bid means that companies cannot sell in this regional market. Seeing that the Anhui market has been lost, North China Pharmaceuticals has become anxious. In order not to continue to lose market, North China Pharmaceutical decided to report the lowest price in the tender in Sichuan and win the bid at all costs.

In October of the same year, Zhang Lin received a notice from the Sichuan Province Bidding Office. After that, she and her colleagues began to select the type of bid. After more than a month of careful selection, the bid catalogue was determined.

It has been proved afterwards that this is a savagery at all costs.

After the New Year, the tender for Sichuan Province was officially launched. Zhang Lin clearly remembered that when she saw the bid price of 800,000 units of penicillin in the system at only 0.27 yuan, she subconsciously felt a bit nervous and thought it was wrong. But soon she understood it. That's right, it's the price.

The cost price of 0.35 yuan has been almost transparent in the industry, with a bid of 0.27 yuan equivalent to suicide, but they have no choice.

After preparing all the tender materials, North China Pharmaceuticals did not expect to win the bid at the lowest price. After the loss of the Anhui market, Huapeng held the Sichuan market in its hands, but Zhang Lin did not have the excitement of expanding the soil in the past.

According to the bid price, there is only one kind of penicillin. If the monthly delivery of 1,000 medicines for Sichuan, North China Pharmaceuticals will lose more than 1 million yuan, this amount is the total salary of 40 employees in North China Pharmaceuticals for one year.

North China Pharmaceuticals has no other choice. If it does not participate in low-cost bids, and no matter how many years of market share will be lost, only the maintenance of the production line and the wages of the workers will make the company unsustainable.

It has been nearly 3 years since the last round of tenders. In the three years, the cost of producing drugs has continued to rise, and drug prices cannot be adjusted. Zhang Lin can only see more and more losses. More than 50 years ago, the production of penicillin by North China Pharmaceuticals ended the history of penicillin-dependent imports in China. Now penicillin has become a burden on companies.

In three years, Zhang Lin not only thought that a patient with a cold used only 0.3 yuan per penicillin, while the price of drinking a bottle of mineral water rose from 1 yuan to 2 yuan. "The medicine is cheaper than water. Can you imagine it?"

Even so, North China Pharmaceutical still cannot arbitrarily increase the price.

Zhang Lin began to look forward to the new round of bidding, because it would not be able to continue to supply drugs at a loss, but she was afraid of the tender, because she did not know whether the new round of bidding will not allow companies to lose more.

North China Pharmaceutical is just a microcosm of the fate of many drug companies. "If you don't win the bid, you will die. The target is to find a death." Zhang Lin said. Huabei Pharmaceutical, which started with penicillin, now has to think about a problem. Do you really want to give up penicillin? "We can't give up."

A new round of drug tendering in various provinces began gradually. In the tendering for essential drugs that was initiated earlier in some provinces, North China Pharmaceuticals abandoned the use of penicillin in Shandong.

This news shocked the industry - as the country's largest penicillin production base, North China Pharmaceutical actually chose to fade out of the stage.

What should companies do if they face the vicious price competition in tendering? How long can cheap drugs be produced? As the last area in the first round of tenders, Beijing’s tender regulations gave the company hope.

Beijing's basic drug bidding adopts three major bid indicators, and the lowest two companies with the lowest score and comprehensive score are eligible to win the bid and get sales opportunities in the Beijing market. Prior to this, the principle of low prices in all regions had made drug companies breathless. Liu Wei Di Huang Wan, compound Danshen tablets, chloramphenicol eye drops, erythromycin, these low-cost essential drugs have gradually disappeared in the market due to too many losses.

Drug addition

In the face of serious losses, North China Pharmaceutical and Shenwei Pharmaceutical have made the same move, no longer investing in cheap drugs, and gradually reduce production and even shut down some production lines.

A more brutal fact is that the sales of cheap drugs that North China Pharmaceuticals and other companies are struggling to support production are gradually declining. Since 2010, the use of penicillin is decreasing at a rate of more than 5% per year.

Who rejected penicillin? It is well known that hospitals account for more than 70% of pharmaceutical sales in the pharmaceutical circulation market. Another notion that is no longer secret is that in the 1950s, the state formulated a medical system of "remedy for medicine" in order to make up for the lack of funding for medical and health services, allowing hospitals to increase sales of medicines to patients.

Over the past decades, under the system of “the use of medicine to support medicine”, the increase in price increases has caused a serious problem of expensive medical treatment. In order to solve the problem of unregulated hospital price hikes, in 2006 the National Development and Reform Commission issued the "Opinions on Further Improving the Order of Prices of Drugs and Medical Services Market" to implement the management of the highest retail price of drug prices and stipulates that "the medical institutions at or above the county level shall sell The medicines are based on the actual purchase price, and the price increases are not exceeded by 15%."

When the markup rate was clearly defined, new problems emerged. Hospitals tend to purchase high-priced drugs. The base price of medicines is large, and the absolute value of the increase is large. Hospitals earn more profits. In order to obtain more bonuses, hospitals with prescribing rights use high-priced drugs instead.

The most obvious contrast is that for the same disease, the hospital sells a penicillin of less than 1 yuan and a cephalosporin of more than 20 yuan. The profit margin is several-tenths of a factor. According to statistics, drug revenues in Grade III A hospitals account for about 50% of total hospital revenues, and the proportion of secondary hospitals is even higher. This has become the main source of income for hospitals. Under the obvious profit difference, cheap drugs have entered the hospital, and the road to the patient's final arrival has become even more tortuous.

"Whoever is the dean can't help. People always have to eat." In a quiet office, Wang Faqiang's voice was a bit loud. The former president of the Armed Police General Hospital firmly believed that it was profitability that forced the hospital to open up a high-priced drug. He talked about a logic that is popular enough that "primary school students can understand": the state only administers less than 30% of the operating expenses of hospitals, and the hospital's medical services such as examination, surgery, and diagnosis are insufficient to support itself, and the rest can only rely on market measures. To earn, drug addition is the only alternative.

Wang Faqiang's former Armed Police General Hospital was given a basic military guarantee because of the army's sequence. It made him a bit fortunate, at least because he had no worries.

However, the directors of other hospitals are not as lucky as Wang Faqiang. In the conference room on the first floor of the Beijing International Hotel, Shi Yaozhong, a member of the National Committee of the Chinese People's Political Consultative Conference, told reporters that 80% of public hospitals’ income comes from the hospital’s own operations, and that the financial allocation to hospitals is so low that even basic livelihoods cannot be maintained.

Senior medical people may well understand that cheap drugs do not mean that they are cheap, and there may not be much difference in efficacy compared with the high-priced drugs prescribed by doctors.

"If my grandson catches a cold, I must first give him penicillin first." Wang Faqiang said with certainty, "More than 10 years of centralized bidding and procurement of drugs has caused a series of serious problems. The high and low drug prices coexist, and many Drug prices are several times or even dozens of times too high, and the “low price only” drug tendering has caused many drug companies to lose their bid prices seriously, affecting supply and quality; the medical supply system in public medical institutions is chaotic and commercial bribery Prevalence, over-prescription, and abuse of drugs are very serious."

In April 2012, the General Office of the State Council issued a notice to “Strengthen the Major Work Arrangements for the Reform of the Medical and Health Care System in 2012”, proposing that public hospital reforms will eliminate drug additions. More than two years have passed, and Beijing has only tried to cancel drug additions in five of the top three hospitals including Friendship Hospital and Children's Hospital. This is less than one-tenth of the total number of hospitals in Beijing's top three hospitals.

"Low-cost drug directory" pilot

On the 4th of March, the representatives of the medical community were represented at the 5th “Native and Responsible” pharmaceutical industry NPC and CPPCC members' conference organized by the Chinese Pharmaceutical Industry Management Association and 24 Chinese associations of the Chinese pharmaceutical industry. The commissioners and industrial associations jointly called for the elimination of government-led centralized tendering and procurement of medicines and the return of pharmaceutical procurement rights and pricing rights for public medical institutions.

The joint proposal states: "Tendering is originally a relatively well-established market-based procurement method used internationally. However, at present, the government's policy on bidding for medicines is severely alienated, and it becomes the 'secondary administrative control' for drugs entering the market. In essence, the normal market behavior of using drugs to enter medical institutions has been changed into administrative examination and approval, and different regions (provinces, districts, and cities) of the same product have been reviewed and approved once every year. The competent tendering department has become the largest authority in the pharmaceutical sector. The result of this counterproductive result is that there are many problems that cannot be overcome because of government-led centralized procurement of drugs."

The joint proposal believes that the elimination of government-led centralized bidding and procurement of drugs and the restitution of the right to purchase and pricing medicines in public medical institutions have the following main benefits: First, it is conducive to establishing and improving the governance structure of hospital legal persons; second, pharmaceutical companies do not need to carry out "high pricing, "Big rebate" illegal competition, only need to carry out normal market competition with quality, brand, scale, innovation and price; Third, it is conducive to improving the concentration of the pharmaceutical industry, standardize the order of pharmaceutical purchase and sale; Fourth, it is conducive to the concentration of energy and pharmaceutical companies. Financial resources for drug development and innovation.

At the beginning of the year, four ministries and commissions, including the Ministry of Industry and Information Technology, jointly announced the organization and implementation of the “National Basic Drugs Targeted Production Pilot Project”. Through tendering, enterprises were selected to use small amounts of fixed-point production, but essential clinical drugs, and stipulated a unified medical institution purchase price, guarantees. Fixed-point manufacturing companies make a reasonable profit. On March 10th, the Anhui Provincial Price Bureau ran the province's first list of cheap medicines on the official website, of which 327 were all basic medicines. The standard was that the daily average cost of western medicine was no more than 1 yuan, and that of proprietary Chinese medicines was no more than 1.5 yuan. Some people think that this is a pilot of the national version of the "low-cost medicine list." Many pharmaceutical companies have also placed high hopes on this, with a view to changing the status quo of the disappearance of cheap drugs. However, behind the disappearance of cheap drugs, in the special industry of medicine, the invisible hand of the market and the tangible hand of the government are mutually exclusive and mutually exclusive. The interests of the industry and the professional standards of you are advancing and we must truly change the fate of cheap drugs. Paper regulations are far from enough.