The real cost of healthcare

Responding to the probe into GSK, Shen Danyang, spokesman for China's Ministry of Commerce, said in mid-July that China has not changed and will not change its active policies on the introduction of foreign capital. Investigations in line with the law are further witness to the Chinese government's determination to improve and optimize the investment environment and create fair and equal competition opportunities for investors from various countries and regions.

By the end of last year, China had become the world's No 1 foreign direct investment destination for 20 consecutive years, said the ministry.

The anti-corruption probe in the medical sector might be regarded as one of several examples indicating the Chinese government will regulate and standardize multinational companies' business practices.

Other cases include an antitrust probe into Sweden's food processing and packaging giant Tetra Pak International SA and a monopoly pricing investigation over infant formula by Switzerland-based Nestle SA's Wyeth, Mead Johnson Nutrition Co and Abbott Laboratories, which were all launched in July.

China also fined six overseas liquid crystal display makers, including Samsung Group, a record $56 million for price fixing.

"The moves sent a signal to multinational companies that China is regulating its business environment to provide fair competition and cracking down on all kinds of malpractices," said Liu.

Further reform

The nation is undergoing a huge medical reform to provide universal care for its 1.3 billion population. Both President Xi Jinping and Premier Li Keqiang reiterated during government conferences and meetings that affordable healthcare is a key part of the Party's and the government's agenda. To achieve overall medical care coverage, cutting medicine prices to reduce medical costs is a core issue.

China's graft-to-collusion crackdown and pricing investigation in the medical sector cover not only foreign companies but also Chinese businesses, Guo said.

In early July, the National Development and Reform Commission asked 60 drugmakers, including 27 foreign multinationals - among them Boehringer-Ingelheim Pharmaceuticals Inc, GSK, Baxter Inc and MSD - as well as domestic companies, including more than 10 listed drugmakers, to submit their cost and pricing files for review.

The commission said it was a routine cost and price data collection task and has been practiced on a random basis for many years.

"But this year it's different. The commission is taking real action," said the vice-president of a Shanghai-listed Chinese biopharmaceutical company, speaking anonymously. He is responsible for the daily operations of a Jiangsu-based drugmaker.

The commission, China's economic planner and price supervisor, has urged and forced drugmakers to cut prices of prescribed medicines several times, without noticeable results.

"The government is putting pressure on drugmakers to lower prices. Foreign companies should be the first to bear the brunt because many of their medicines are self-developed and have higher prices compared with Chinese companies," said Li.

Many multinational drugmakers claim research and development costs - usually taking 10 years and costing $1 billion for the development of a new medicine - should be taken into account when setting prices. Appropriate returns enable them to continue investing in their current portfolio of medicines and the next generation of breakthrough innovations, they said.

"However, many medicines have or are about to lose their patents, so the excuse is not strong enough to support higher prices," said the vice-president of the Shanghai-listed Chinese company.

Anti-corruption efforts and pressure to cut prices cannot solve fundamental problems unless China deepens its medical reforms and changes the way its medical industry operates, said Guo.

The sales manager at Roche said bribing people who are responsible for bidding for products on China's essential drug list and national reimbursement drug list, drug pricing and hospital purchasing and offering kickbacks to doctors to prescribe a particular drug have increased medical costs.