Some Chinese cities piloting the medicine-pricing reform are giving State-run hospitals the right to negotiate their own medicine prices, says an article in 21st Century Business Herald. Excerpts:

Under the collective medicine purchasing system in China, which has been used for years, medicines are purchased by provincial medical authorities, and all local public hospitals in the province can sell medicine to patients at only 15 percent over the collective purchasing price when they sell the medicine to patients.

Although China has lowered medicine prices in the collective purchasing system more than 20 times in the past 10 years, medicine prices in some public hospitals are still high.

The collective purchasing system should have given more bargaining rights to buyers. But most of the provincial buyers are representatives from big hospitals in the provinces, even if the purchasing process is organized by governments.

Because the hospitals profit from the 15 percent medicine-price increases over the base prices, the purchasing representatives have reasons to keep the collective purchasing prices comfortably high. The representatives may pocket huge sales commissions from the pharmaceutical enterprises as well. Their hospitals' 15 percent shares rise accordingly.

All parties benefit from the deal, except the patients.

Giving hospitals the power to bargain actually makes the 15 percent price-hike practice obsolete. The intermediary section of the medicine business will be simplified and become more orderly after the factors of personal interests are eliminated.

In fact, another, faster solution is to reform the collective purchasing process and remove the hospital representatives from the deals. But the resistance is evident. That is probably why the reform starts with the hospitals.

This reform will promote price competition in the medicine market and benefit the patients. The change in the sales market will cut the costs of deals and stimulate competition among pharmaceutical enterprises to produce the best drugs at the lowest costs.

The hospitals' motives to overprescribe medicines will also be curbed as the medicine prices drop.

Therefore, this pilot reform in some cities is of vital importance to the whole medicine industry and the medical care field of China, and it should be carried out step by step in wider areas to lower medicine prices.