Book proposal and book review

119 The China Business Model. Copyright © Z. Guoqin, S. Dzever and T. Renwu. Published by Elsevier Ltd. All rights reserved.2017

http://dx.doi.org/10.1016/B978-0-08-100750-1.00006-1DOI:

CHAPTER 6

Assessing the Impact of the New Medical Reform on China’s Pharmaceutical Supply Chain: The Case of Essential Medicines Distribution in Yuping, Luochan, and Minhang Regions Zhao Guoqin1, Sam Dzever2 and Tang Renwu3 1Central University of Finance and Economics, Beijing, China 2Telecom Ecole de Management, Evry, France 3Beijing Normal University, Beijing, China; Zhejiang Normal University, Zhejiang, China

6.1 INTRODUCTION

Essential medicines are those that, according to the World Health Organization (WHO), satisfy priority healthcare needs of a popula- tion. Experience has shown that the strict selection of a limited number of essential medicines can improve healthcare quality and help to bet- ter administer medicines, including improvement of prescription drug quality and the application of health resources with comparative cost- effectiveness (WHO, 2009a, 2009b). Because essential medicines possess the most important, essential, and indispensable peculiarity to the health- care needs of a population and, due to the significant role they play in developing countries, the availability and affordability of essential medi- cines have already been regarded as part of basic human rights (as well as health rights) of citizens. Extending the availability and affordability of essential medicines is one of the health-related Millennium Development Goals (MDG) that the international community has promised to achieve. In “Target 17” of the MDG, the United Nations (UN) has proposed that a collaborative effort between governments and pharmaceutical compa- nies be put in place so as to make essential medicines more easily available to the population in developing countries (UN, 2000). The WHO and other leading international organizations have all actively advanced the

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importance of implementing an essential medicines policy in developing countries and the need to track the resulting effects of such policy (WHO, 2005a, 2006a, 2006b, 2007).

China has made great strides in the formulation of essential medicine list and the standard treatment guidelines of some diseases. There still exist relatively significant problems, however, in the accessibility of essential medicines for the low-income group (WHO, 2005b), especially in rural areas. Some scholars have investigated the availability of essential medicines in Shandong Province: the availability median of 39 investigated generic medicines in medical institutions and retail pharmacies is 0% and 5.0%, respectively, and only 54.0% of generic medicines can be found in the pharmacies of medical institutions (Sun, 2005). Some scholars have also carried out research on the availability of essential medicines in Shanghai City, and the results indicate that the availability median of 41 investigated generic medicines in medical institutions and retail pharmacies is 33.3% and 15.0%, respectively (Lu, 2006). The research on the availability of essential medicines in the rural regions of Xiaogan City, Hubei Province also indicates that in rural areas the availability of essential medicines needs further improvement and there still exists room for medicine price reduc- tion (Yang et al., 2008).

WHO has proposed an eight-point procedure on how to improve the accessibility of essential medicines to developing countries in the Western Pacific region (WHO, 2005b). In addition some scholars (Shao et al., 2009; Wu, 2009) have proposed a procedure for improving the accessibility of essential medicines in China, through the establishment of a national insti- tution under the framework of new medical reform in the country. These, and other scholars (Yang et  al., 2009; Ye et  al., 2008) have also indicated the reasons why the availability of essential medicines in China is kept low, thereafter putting forward countermeasures on improvement.

The Chinese government has already invested a great deal of finan- cial resources and provided supporting policies to ensure the availability of essential medicines. Since 1982 the government has revised the list of essential medicines six times and devised a great number of practical mea- sures related to this, including: insurance coverage, supervision of the sup- ply chain, and so on—in order to explore measures which can be used to better promote the availability and affordability of these medicines in rural areas. The 17th National Congress of China’s Communist Party put forward the goal of establishing a security system for the supply of medi- cines, which can cover both urban and rural areas as well as the creation of a national essential medicines institution in order to ensure the basic

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needs of essential medicines and food security in the country. In order to ensure the supply and quality of rural medicines and guarantee that people in rural areas can have ready access to convenient medicines at affordable prices the, Chinese government has simultaneously implemented a “Two Networks” solution, namely: the network of rural medicine supply and the network of rural medicine supervision. The “Two Networks” approach has significantly improved rural medicine supply and, at the same time, greatly improved the quality of these medicines. Research in 2007 related to the “Two Networks” solution—covering over 80% of the adminis- trative villages in China as well as rural regions, found that the prices of common medicines had generally reduced to more than 20% (details on this is provided in “The Research and Evaluation Team of Constructing “Two networks” of Rural Medicines: The Exploration and Innovation of Constructing “Two networks” of Rural Medicines [R], 2008 (6)”).

In April, 2009, the State Council of China issued the plan of the new healthcare system reform, which proposed that the construction of the “Two Networks” should aim at achieving a wide coverage of the con- cerned areas as well as demonstrating clear benefits to the citizens. At the same time, the plan suggested the establishment of a national supply chain for essential medicines The Chinese government will invite bids and then designate manufacturers to produce these medicines locally, or purchase them through a centralized system in the country. Grass-roots medical institutions, such as township hospitals and village clinics are all required to use essential medicines in order to ensure that people in the rural areas can have access to safe and effective medicines at reasonable prices. On August 18, 2009, the Chinese government issued the National Essential Drug List comprising some 307 medicines and started the construction of the National Institute for Essential Medicines.

Despite the positive effects of the above indicated measures, it should be added that both the medical reform and the ensuing National Institute for Essential Medicines are perhaps too directive. The promotion of easy access to essential medicines in rural China through the constructing of a new supply and security system for these still needs a lot of research for the simple reason that there are still a number of important questions to be clarified by the government.

6.2 PROBLEM DEFINITION

In terms of promoting the accessibility of essential medicines, WHO has proposed a “four action plan” identified as: reasonable choice and use of

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essential medicines, affordable price, sustainable financing system, and a reliable supply system (WHO, 2004). In rural areas of China it seems, however, that the target of policy designed for the constructing of a sup- ply security system should focus on the availability and affordability of essential medicines. In light of this, whether the above-mentioned four action plan can be reasonably used is far from clear. Therefore, assess- ing the impact of the national medicines policy (NMP) in rural China’s pharmaceutical supply chain should be carried out primarily through an investigation of the accessibility as seen from three perspectives: availability, affordability, and the rational use of medicines. This will provide a basis for better evaluating the impact of NMP on the elements and units of the whole pharmaceutical supply chain.

6.3 HYPOTHESIS

In accordance with calls directed at research and improvement of the pharmaceutical supply chain in rural China (Dong et al., 1999; Jiang et al., 2009; Tong et al., 2010) it is clear that the impact of the NMP needs to be focused specifically on the supply chain of essential medicines.

In this regard, it is expected that NMP can enhance the supply security of essential medicines through the contribution of distribution channels in rural areas, which will significantly stimulate the increased availability of these essential medicines. As a result the following hypotheses have been proposed for our research:

H1: The input brought by NMP will increase the availability of essential medi- cines in rural China. H1a: NMP will enhance the contribution of supply channel of essential medi- cines in rural China which, in turn, would result to a higher level of availability of these medicines in rural areas. H1b: NMP confirms the state as the main supplier of essential medicines thereby ensuring the high level of their availability in the rural areas. Furthermore, a number of research findings (Li, 2010; Zhou & Yan,

2007; Zhou et  al., 2006) indicate that public–private partnerships (PPP) would bring about an enhanced improvement in the existing public sec- tor supply system which is also one of NMP’s strategic orientations. It was therefore expected that NMP would bring about an enhanced compet- itive atmosphere, but also cooperation in the essential medicines supply chain in rural China thus leading to a significant reduction in price which,

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in turn, would lead to an increase in the affordability of these medicines. This leads us to Hypothesis 2, formulated as follows:

H2a: NMP contributes to enhanced competition between the private and the public sectors in the supply system for essential medicines in rural China. This, in turn, results to a significant reduction in the price of these medicines and a marked increase in their affordability among consumers. H2b: As a result, it is expected that NMP would make a significant contribu- tion to improving the prescription behavior of rural physicians which, in turn, would lead to a more rational consumption pattern for these medicines in the rural areas of China.

6.4 METHODOLOGY

6.4.1 Research Design Based on the standard survey methodology developed by WHO and Health Action International (HAI) (WHO & HAI, 2003a, 2003b), and according to the requirements of the sample selection handbook of public medical institutions and retail pharmacies, the research team has taken, at random, a certain amount of materials about public medical insti- tutions and retail pharmacies in Guizhou Province, Shaanxi Province, and Shanghai City in China. Random sampling method includes data on the level of availability of essential medicines in the indicated areas, dosage form, specification, as well as the wholesale and retail prices. The sampling method also included data on the influence of the NMP on rural pharma- ceutical supply chain integrating qualitative and quantitative data.

6.4.2 Samples This research selected three representative regions in China identified as: Yuping county from Guizhou Province (Southwest China), Luochuan County from Shaanxi province (Northwest China), and Minhang District from Shanghai (Eastern China).

Yuping County, with a population of 143,000 inhabitants, has jurisdic- tion over four towns and two townships. The average annual income in Yuping in 2008 was 2816 Yuan. Luochuan County has a population of 20 million inhabitants and jurisdiction over seven towns and nine townships. The average income of residents was 4500 Yuan in 2008. Minhang District has a population of 1,804,700 inhabitants and an average annual income in 2008 of 14,496 Yuan.

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In each region, a certain number of public medical institutions and retail pharmacies were chosen to be surveyed, as detailed in Table 6.1.

6.5 MEDICINES SURVEYED

Regarding the specific medicines to be included in the survey, the research team chose 30 essential medicines (see Table 6.2) recommended by WHO and HAI as the core list (Kirsten, 2008). According to the principle of rational drug use and the clinical diagnosis and treatment standards (WHO, 2009b; WHO Model Formulary (WMF), 2008), the complementary list is made up of 10 medicines which are used to treat a certain number of diseases that have relatively high morbidity in China’s rural regions (according to the fourth National Health Survey),1 as well as a certain number of diseases which have relatively high mortality rate at the county level, according to the health statistics summary (see Table 6.3). Most of the medicines chosen are contained in the reimbursement lists of the local new rural Cooperative Medical System (CMS) and all the medicines chosen are contained in the National Essential Drug List (2009 Edition).2

6.5.1 Method of Data Collection Due to the multiplicity of the research objectives, two sets of question- naires were designed for the survey. The first concerned quantitative data related to variables such as the availability and price of essential medicines in the public medical institutions and retail pharmacies, while the focus of the second was primarily the collection of qualitative information related to a number of variables at different levels of the distribution channels, including obstacles related to easy availability of the medicines.

Through field research, we collected data pertaining to how essen- tial medicines were received at the central depots and further distributed

Table 6.1 The sources and composition of sample institutions Yuping County Luochuan County Minhang District

Public medical institutions 8 8 4 Retail pharmacies 4 8 6

1 Main results of this survey can be found at: http://www.moh.gov.cn/publicfiles/business/ htmlfiles/mohbgt/s6690/200902/39201.htm.

2 National Essential Medicines List (Part of healthy organization in grass-roots): http://www.gov.cn/gzdt/2009-08/18/content_1395524.htm.

Table 6.2 Core list Drug name Specification Dosage form Drug name Specification Dosage form

Aciclovir 200 mg C/T Fluconazole 200 mg C/T Amitriptyline 25 mg C/T Artesunate 100 mg C/T Amoxicillin 250 mg C/T Glibenclamide 5 mg C/T Atenolol 50 mg C/T Hydrochlorothiazide 25 mg C/T Captopril 25 mg C/T Metformin 500 mg C/T Carbamazepine 200 mg C/T Nifedipine retard 20 mg C/T Ceftriaxona 1 g Inj Omeprazole 20 mg C/T Ciprofloxacin 500 mg C/T Phenytoin 100 mg C/T Compound sulfamethoxazole (8 + 40) mg mL–1−1 PS Ranitidine 150 mg C/T Diazepam 5 mg C/T Salbutamol 0.1 mg mL−1 Inh Diclofenac 25 mg C/T Beclomethasone 50 ìg dose Inh Fluoxetine 200 mg C/T Fluphenazine decanoate 25 mg mL−1 Inj Indinavir 400 mg C/T Lovastatin 20 mg C/T Pyrimethamine with sulfadoxine (500 + 25) mg C/T Zidovudine 100 mg C/T Lovastan 50 mg C/T Nevirapine 200 mg C/T

Source: Kirsten, M. (2008). The measurement of the availability and price of medicines. China Licensed Pharmacist, 9, 47–49.

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downstream to the retail outlets, the operating conditions at different lev- els of the distribution network, and so on.

6.5.2 Method of Data Analysis The availability of each medicine is summarized as the percentage of stock availability of the required medicines in the facilities, on the day of data collection (WHO & HAI, 2003a, 2003b). The following criteria were used to describe the availability of essential medicines: ● Low, < 30% of facilities; ● Relatively low, < 50% of facilities; ● Relatively high, > 50% of facilities.

6.5.2.1 Assessment of Affordability The research team has adopted the WMF recommended by both WHO and HAI. The therapeutic process is based on the WHO Model List of Essential Medicines and British National Formulary (BNF). This is as presented in Table 6.4. The treatment period of acute infection is 7 days; the treatment period of adult chronic diseases is 30 days; the purchasing standards of medicines are represented by the minimum wage of the non- technicians working in the government. The survey targets are distributed in the Southwest, Northwest, and Eastern part of the country. So, on a 30-day month, the average daily wage of the three regions is 20, 16, and 32 Yuan, respectively.3 The survey item of rational drug use will focus on the drug consumption as well as the abuse of injection and antibiotics.

Table 6.3 Complementary list Drug name Specification Dosage

form Drug name Specification Dosage

form

Azithromycin 200 mg C/T Dexamethasone 5 mg mL−1 Inj Ofloxacin 200 mg C/T Ibuprofen 200 mg C/T Simvastatin 20 mg C/T Metronidazole 200 mg C/T Aminophylline 100 mg C/T Albendazole 200 mg C/T Chloramphenicol 250 mg C/T Clindamycin 300 mg C/T

Source: World Health Organization. (2009b). The model list of essential medicines. Geneva; World Health Organization. (2008). WHO Model Formulary. Geneva.

3 Since it is hard to define the minimum wage standard of the nontechnicians working in the government, the minimum wage of the investigated regions is defined according to the official minimum wage standards and their application scope. For instance, the mini- mum wage standard of Yuping County, Guizhou Province is 600 Yuan (Sources: http:// gz.lss.gov.cn/gzldt/72345683297828864/20080107/4522.html), so according to the calculation of 30 days a month, the minimum daily wage of Yuping County is 20 Yuan.

Table 6.4 Examples of standard treatment guidelines Disease Drug name Specification Dosage

form Daily dose

Treatment period (day)

Total dose

References

Diabetes Metformin 500 mg C/T 2 tablets 30 60 BNF 43 (March 2002) Section 6.1.2.1

Hypertension Hydrochlorothiazide 25 mg C/T 1 tablet 30 30 BNF 43 (September 2001) Section 2.2.1

Adult respiratory infection

Amoxicillin 250 mg C/T 3 tablets 7 21 BNF 43 (March 2002) Section 5.1.1.3

Depression Amitriptyline 25 mg C/T 3 tablets 30 90 BNF 43(March 2002) Section 4.3.1

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According to the methodology recommended by WHO and HAI (2008), taking the pricing in International drug price indicator guide (2008 Edition) by Management Sciences for Health (MSH) as the international reference price, and determining the exchange rate on the basis of the Yuan central parity of 6.823 against the US dollar on July 31, 2009,4 we can compare the prices of essential medicines in the rural areas of China with the international prices of the same medicines. Also, data for patient prices in the public and private sectors was included in the analysis where the medicines can be found in at least four facilities.

As the last, and perhaps one of the most important, circles in essential medicines supply chain, WHO has proposed a relatively feasible approach to measuring rationality in the prescription of drugs. Due to time con- straints, however, we were not able to collect a sufficient amount of sam- ples. Therefore, only an intuitive evaluation of the usage of antibiotics and injections in essential medicines prescription, the amount of the prescrip- tion, and prices will be attempted here.

6.6 REVIEW OF THE LITERATURE

Research into the accessibility of essential medicines in rural China has generated considerable interest in scholarly research during the past ten years. Some works have been concerned with a measurement of the affordability and availability of different parts of China based on the method given by WHO/HAI (Hao et al., 2010; Lu, 2006; Sun, 2005; Yang et al., 2008), while others are more concerned with an international com- parative analysis, based on a number of secondary data sources (Camero et  al., 2009; Shanthi et  al., 2007). These measurements and comparison bring a very important reference to the present research, although, strictly speaking, rural and townships medicines distribution in China belong to a different medical security system. This is particularly the case due to the differences that exist in income levels in the rural and township regions, compared to urban areas in China. Furthermore, differences exist in the reimbursement mechanism between rural residents and township residents on the one hand, and between rural residents/township residents, and urban areas on the other. This fact has an important bearing on the selec- tion of the reviewed literature in the present research.

4 Data sources: http://www.pbc.gov.cn/huobizhengce/huobizhengcegongju/huilvzhengce/ renminbihuilvjiaoyishoupanjia.asp?page=3&col=&fromyear=&frommonth=&fromday=& toyear=&tomonth=&today=.

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As far as the supply chain of essential medicines in rural areas is con- cerned, a number of scholars have carried out research addressing these issues from different perspectives. Others (Chen, 2005; Li, 2010) have advocated the establishment of an integrated supply chain, and improving supply efficiency to reduce macro-level modern distribution systems’ essential medicines expenditure. Still others have opined that institutional construction should be strengthened, and that the government should suf- ficiently improve the existing rural medical security system in order to better facilitate the reimbursement needs of rural residents (Tong, 2010). Previous research has also pointed out the problem of public service sup- ply system for essential medicines in the rural areas of China (Tang et al., 2010). Through the analysis of policy reform of the distribution network, scholars (Sun et al., 2008) have proposed a new system for improving the supply chain of essential medicines in China’s rural areas. The indicated literature provides some interesting methodological guidelines for future research concerned with this issue.

Based on the reviewed literature, the present assessment of the impact of the NMP on the country’s pharmaceutical supply chain is expected to make a contribution as a useful complement to what is already available in terms of scholarly research. It is our hope that it can also provide possible future research threads for others.

6.7 EMPIRICAL DATA ANALYSIS

Regarding the availability of essential medicines in the indicated three regions, it is important to note that the position of public medical insti- tutions is rather modest compared to the numerous private retail phar- macies. Furthermore, only a small number of medicines e.g., Amoxicillin and Omeprazole, can be easily found in the rural regions. Additionally, the availability of some essential medicines like Ranitidine and Fluoxetine hydrochloride is rather low, which, to some extent, reflects the deficiency of medicines used to treat mental illnesses in rural regions and the fact that grass-roots medical services attach only modest importance to the treat- ment of mental illnesses (see Table 6.5).

The reason for the low availability of these medicines can be explained from different perspectives. Research, however, indicates that the dif- ferences in dosage form and specification lead to the low availability of essential medicines in China’s rural regions. Although certain essential medicines have been adopted by medical institutions, dosage forms for

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Table 6.5 The availability of essential medicines in different rural medical institutions of the three regions

Luochuan County Yuping County Minhang District

Public medical institution

Retail pharmacy

Public medical institution

Retail pharmacy

Public medical institution

Retail pharmacy

Availability median

37.5% 50% 25% 37.5% 25% 33.3%

these medicines are all administered by way of injection. Notable exam- ples include medicines such as Acyclovir and Ciprofloxacin. On the other hand, Chinese patent medicines as well as traditional Chinese medicines are not included in the drug list of the present survey. In rural areas of many regions, quite a large number of rural doctors and peasants are more inclined to the consumption of Chinese patent medicines which, to some extent, contributes to the relatively low availability of essential medicines.

The underlying reason is, however, that the pursuit of profits in the supply chain of essential medicines has reduced the availability of medi- cines. The differences in dosage form and specification is directly attrib- utable to the country’s regulatory mechanism for the price of medicines. When a certain type of specific dosage form is under price regulation, unless the manufacturer and distribution company sees the potential for high profit margins it may not be interested in participating in the bidding process for new medicines. The result in cases like this would obviously be a continuation of the same medicines produced in different dosage forms.

Hypertension treatment can be used as an explanatory example for the low level of availability of some of the lower-priced essential medicines. The relatively cheap Hydrochlorothiazide has relatively high cost–benefit but, due to its low profit, manufacturers are unwilling to produce it and dealers are unwilling to sell it—contributing to a significant reduction in its availability on the market. A corresponding drug called Amlodipine is, on the other hand, readily available. It appears, however, that if the treating physicians suddenly exhibit a clear preference for this latter drug, which currently is readily available, it will result in a disproportionate increase in its price, thereby significantly reducing the level of its affordability. This reasoning can also be used to explain the availability gap between the drugs Amitriptyline and Fluoxetine hydrochloride, both of which are used in the treatment of depression.

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In terms of the medicines’ affordability, generally speaking, this still needs to be improved in the rural areas of China. The average medical expense for drugs used to treat Diabetes, Hypertension and Depression is 2.09–5.54 times higher than the minimum daily wage. Judging from the affordability of medicines used to treat diseases in Luochuan and Yuping Counties, the performance of public medical institutions can be said to be significantly lower in standard compared to private retail pharmacies. This is because retail pharmacies generally tend to be more market-oriented, choosing only the most cost-effective supply channels, whereas public medical institutions prefer drugs with high price due to various reasons, such as concern over Drug Addition Rate (DAR).

Following a detailed comparison of the survey data, our research dis- covered that, although the average minimum daily wage of Minhang District, Shanghai City was twice that of Luochuan County in Shanxi Province, the affordability of medicines used to treat certain diseases in Minhang District was lower than that in Luochuan County. This is because in both public medical institutions and retail pharmacies of Minhang District, innovator drugs and import drugs have a relatively high proportion of the medicines on sale, leading to a reduction in the relative degree of affordability of medicines.

As far as affordability is concerned, the relatively high setting of mini- mum wage standard has led to some misconception that the affordability of essential medicines in rural China is without a question. Our research chooses the official minimum wage standard for urban workers as the standard, but in there still exists a significant gap between the per capita income of peasants and the minimum wage standard for urban work- ers. On the other hand, if the present research were to choose per capita income of peasants as the standard then it is clear that the affordability problem of essential medicines will become much more serious (Table 6.6).

In comparing the international reference price, it can be easily dis- cerned that among several essential medicines selected (with the exception of Captopril), the prices of the other four medicines are generally higher than the international reference prices and the comparative prices of certain medicines greatly exceed the bearable level of price differences (Table 6.7).

Through a careful check of prescription bills in outpatient clinics of a selected number of hospitals in the three regions surveyed, our research found that the number of drug variety is overwhelmingly related to pre- scriptions made by township hospitals (above 4). Through the method of Expert Argumentation, WHO has formulated the standard for rational drug

Table 6.6 Affordability (expressed in US$) of medicines used to treat certain types of diseases in rural areas of chosen three regions in China Disease Drug name Luochuan County Yuping County Minhang District

Public medical institution

Retail pharmacies

Public medical institution

Retail pharmacies

Public medical institution

Retail pharmacies

Diabetes Metformin 5.54 4.95 5.13 4.8 3.51 3.51 Hypertension Hydrochlorothiazide 0.45 0.15 0.02 0.02 0.04 0.04

Amlodipine 3.08 2.09 2.94 2.6 5.67 5.67 Adult respiratory infection Amoxicillin 0.18 0.16 0.21 0.16 0.71 0.71 Depression Amitriptyline 0.76 0.66 0.44 0.42 0.53 0.53

Fluoxetine hydrochloride

4.32 3.96 3.67 3.53 2.21 2.21

Gastric ulcer Ranitidine 0.6 0.48 0.3 0.25 0.35 0.35

Table 6.7 A comparison of international and local prices (expressed in Yuan) of certain types of medicines in rural areas of the three regions in China Drug name Luochuan County Yuping County Minhang District International

reference price Public medical institution

Retail pharmacy Public medical institution

Retail pharmacy Public medical institution/retail pharmacy

Amoxicillin 0.1371 0.1219 0.2014 0.1523 1.0819 0.1651 Captopril 0.0376 0.0349 0.0274 0.0243 0.0734 0.0962 Nifedipine 0.5917 0.5573 0.6161 0.575 0.6521 0.1432 Omeprazole 0.6013 0.5786 0.5857 0.5429 3.4571 0.2231 Metformin 1.4473 1.32 1.7114 1.602 1.8721 0.1194

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use in medical institutions’ outpatient clinics in developing countries. According to WHO, the average number of prescription drug variety in a prescription bill should be 1.6–2.8. WHO further notes that in 11 Asian and African communities, the average number of prescription drugs used in a prescription bill is less than 2.2 (the smallest number being 1.6 and the largest 3.2). These findings seem to support the hypothesis that town- ship doctors generally have a preference for excessive prescription of drugs (i.e., the so-called “Big Prescription” syndrome).

Generally speaking, it can be said that the excessive administra- tion of prescriptive drugs by means of intravenous devices (i.e., “injec- tion”) is taken by WHO as the great hidden danger of irrational drug use. Although, to some extent, the effect of injection is said to be better com- pared to, e.g., oral administration, the level of safety of the former is much lower compared to the latter method. This is particularly the case in rural areas, where basic medical conditions are relatively poor, in addition to the fact that up-to-date information and proper guidance on these matters is not always easily available to the populace. Regarding treatment costs, administration by way of injection was found to be relatively higher, com- pared to oral method.

Besides injection, our research found the phenomenon of antibiotics consumption to be significant in the surveyed regions. By making a com- parison of prescriptions collected through the use of Standard Formulary, our research found that the use of antibiotics is much higher in the tar- get regions. This phenomenon appears to be an on-going problem across rural China.

6.8 DISCUSSION OF THE FINDINGS

Beside the above-mentioned factors, the impact of the supply security sys- tem of essential medicines on the availability and affordability of essential medicines in rural China is reflected in the following factors:

Firstly, it is clear that the NMP has not successfully accomplished the task of restructuring the essential medicines distribution network in a way that would enable a significant reduction of costs in the rural areas of China. High distribution costs for these medicines have led to a sig- nificant reduction in their availability in the rural areas of the country. China is a large, agricultural country with a large number of rural resi- dents who are widely distributed in dispersed regions. As such, township hospitals, village clinics, and retail pharmacies—which should normally

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be able to satisfy the essential medicine needs of peasants, are dispersed in the vast rural areas. This, in turn, has led to a reduction in the availability of these medicines in such areas, as the distribution system is not able to cope with such geographic disparity. A good example of this problem is Bengshan County, which is located in a mountainous area with a narrow and long crescent-like landscape. There are 27 township hospitals and over 30 retail pharmacies, as well as 564 government village clinics, and a num- ber of private ones found in Bengshan County. Numerous medical institu- tions are distributed in the extensive rural areas, but their average distance to the county seat is between 50 and 100 km away. The peculiarities of rural China combined with the dispersed geographical distribution of its medical institutions are important factors in the high costs associated with the distribution of essential medicines in these areas. Furthermore, the medicine needs of township hospitals and village clinics are relatively small, so, under the condition of restricting DAR, drug distribution com- panies cannot achieve higher price levels through scale operation, to make up for the relatively high distribution cost. There is little profit to be made in distributing medicines to remote regions of China. This, in turn, often means that drug distribution companies often have to absorb certain costs without any form of return on their investment (see Table 6.8). All this has led to a situation whereby wholesale drug companies are often forced to distribute medicines solely to township hospitals. The effect of this is the general shortage of such medicines right across the rural areas of the country.

Secondly, as the main body of essential medicines supply, the NMP has not ameliorated the basic distribution channels to a satisfactory level in the regions of our empirical research. The investment in constructing grass- roots township hospitals and village clinics is seriously inadequate and the construction plan is irrational, which, in turn, has reduced the availability of essential medicines in these areas. Nationally, China has a large popula- tion in the rural regions, accounting for approximately 70% of the coun- try’s total population. Yet, sales of medicines in the rural regions account for a mere 15% of the total output in the country. Concerning the putting in place of necessary infrastructure for an efficient distribution network for medicines in the rural areas, it has been found that in 2008 there were a total of 39,080 township hospitals in the country. This accounted for an average of 1.14 township hospitals per town. Accordingly, up to 10.8% of the administrative villages in China have not yet set up village clinics. The number of drug sales outlets in the rural regions of the country is

Table 6.8 Medicine distribution cost (expressed in Yuan) of some villages in Yuping County of Guizhou Province Road condition Location Drug value Distribution cost and times Distribution

profit (4–8%)

Clinic of Munong Village, Zhujia Chang

1/4 is country road

18 km from the county seat

800 Yuan Once a month. Gas fee: 20 Yuan at a time; the cost of vehicle wear and labor are not included

32–64 Yuan

Drug chain store in Xiang Cha Village, Dalong Town

Mainly country road

12 km from the county seat

700 Yuan Once a month. Gas fee: 20 Yuan at a time; the cost of vehicle wear and labor is not included

28–56 Yuan

Drug chain stores in Tianping Village, Tianping Town

Mainly high grade highway

40 km from the county seat

1500 Yuan Once a month. Gas fee and highway toll: 66 Yuan at a time; the cost of vehicle wear and labor is not included

60–120 Yuan

Clinic of Guo Jia Wan, Yayu Town

High grade highway and country road

50 km from the county seat

600 Yuan Once a month, Gas fee and highway toll: 86 Yuan at a time; the cost of vehicle wear and labor is not included

24–48 Yuan

Clinic of Zhangping Village, Tianping Town

High grade highway and country road

45 km from county seat

600 Yuan Once a month, Gas fee and highway toll: 76 Yuan at a time; the cost of vehicle wear and labor is not included

24–48 Yuan

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seriously insufficient. For example, approximately 7% of the administrative villages in Luochuan County do not have their own clinics, while ~8% of the administrative villages in Yuping County do not have their own. In the markets of the towns with relatively dense population and a relatively convenient transportation system, the distribution of drug sales outlets is relatively concentrated, while in the remote areas of rural regions the dis- tribution of drug sales outlets is relatively dispersed so that it is extremely inconvenient for peasants to buy drugs.

The medicine variety of rural medical institutions and retail pharmacies is insufficient, which cannot satisfy the medicine needs in treating seasonal diseases, common diseases, and frequently occurring diseases for which people in rural regions are often afflicted—due to the specific nature of the environment and climatic conditions. With respect to the types of drug sales outlets, township hospitals and village clinics are still the main chan- nel through which peasants can procure medicines they need. Our research indicates that 28% of the medicines used by the peasants of Luochuan County in the treatment of various diseases are from village clinics, 22% from township hospitals and only 12% and 7% are from rural retail phar- macies and county pharmacies, respectively. There are many reasons for this phenomenon and there is no doubt that the relatively insufficient medica- tion knowledge of peasants accounts for this. A more important reason lies, however, in the inadequate number of retail pharmacies at the county level. Even though there are a few retail pharmacies in some villages, these retail pharmacies will be at a natural disadvantage in the competition with public medical institutions, unable to be absorbed into the reimbursement system of the new rural CMS.

Thirdly, under the weight of government intervention, the private sector has not played enough of an active role in the rural pharmaceuti- cal supply chain. The benefit game of multiagents within the distribution system has led to the low levels of affordability of medicines today in rural China.

From the perspective of the purchasing power of the average consumer in rural China, it is very easy to see that the price of medicines (including essential medicines) is high. Using Luochuan County in Shanxi Province as an example: per capita annual consumption expenditure of rural resi- dents in Shanxi Province was 2979.4 Yuan in 2008, while the result of our research in the region indicates that drug expenditure alone accounted for 28% of the peasants’ total annual spend of between 400 and 800 Yuan and 10% above 800 Yuan.

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The high price of medicines is another factor which accounts for this phenomenon. Since 1996, the National Development and Reform Commission of China (NDRC) has adjusted the drug price 24 times. Since May 2004 the price index of Chinese and Western medicines, and healthcare products has been sustainably increasing on the whole. This means that, for peasants, the burden of drug expense is far from being relieved. The main reason behind this phenomenon is that the fiscal expenditure that the government earmarks for rural healthcare is inade- quate, which leads to the deviation of rural medical institutions’ own posi- tioning. Only by the measure of “healthcare supported by excessive drug sales” can they maintain the normal operational mode and the new rural CMS has further sharpened this problem.

The idea of “Pooling Funds for Serious Illnesses,” which pays close attention to treatment instead of prevention, has stimulated the increase of drug income proportion. According to data from our survey of Luochuan County, in 2005 and 2006 the drug income of village clinics was respec- tively 76.59% and 78.01% of the whole medical income, while the drug income of township hospital was respectively 77.48% and 77.89% of the whole medical income.

Lastly, the NPM has failed to standardize the prescription behav- ior of rural physicians. The defects inherent in the prescription pat- tern of some rural physicians tend to distort their true behavior. The new rural CMS has intensified the increase of peasants’ drug expendi- ture which is driven by “Physician-induced Demand,” and has substan- tially reduced the affordability of medicines. Some scholars (e.g., Wang et al., 2004) are of the opinion that the new rural CMS has led to an increase in the overall medical expenditure of peasants. Although the present research did not address the issue of a long term, possible causal relationship between the new rural CMS policy and prescriptive medi- cines consumption patterns in the rural areas of China, it appears from the limited data we received, that such a pattern may exist. Likewise, on the premise of reimbursement of drugs expenses according to the total amount spent, the phenomenon of patients asking for more pre- scription drugs, and more drugs with relatively high price is particu- larly noteworthy. This has generally been referred to as “excessive consumption induced by demander.” Meanwhile, alongside the phenom- enon of “Big Prescription” and “High Price Drug,” irrational drug use, such as the abuse of injection and antibiotics is still prevalent in rural regions (Wang et al., 2004).

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6.9 IMPLICATIONS OF FINDINGS ON GOVERNMENT POLICY

China has already formed the explicit idea of macroscopically con- structing the supply security system of essential medicines whereby the production of essential medicines adopts the method of procurement through inviting public bidding. Regarding price, the Chinese Central Government sets the retail reference price such that, within this reference price, provincial governments determine the centralized purchase price of their own province, according to tender bidding. Grass-roots health- care institutions of urban and rural areas are all asked to procure and use essential medicines, and sell them by cost price. Within this system, essen- tial medicines are all included in the drug reimbursement list of the basic healthcare security system and the reimbursement proportion of essen- tial medicines is generally higher than that of nonessential medicines. After the analysis and discussion of the accessibility of essential medicines in rural regions, from the microcosmic perspective, the starting point of improving supply security of essential medicines can be explored in the following manner:

Firstly, realizing that the regulatory mechanism that can combine mar- ket competition with the government-oriented system is in need of the enrichment and activation of the rural drug circulation market. When the traditional, and rigid, top-down administrative power is replaced with a more market-oriented one, the government should pay more attention to the formation of the favorable environment, beneficial to the exertion of market mechanism. This includes, among others, the cultivation of real market mechanisms in a significant way. The past rural drug circulation market, coupled with the terrible institutional environment and low profit levels, constituted the two central thresholds that kept many enterprises away from the rural prescription medicines market. The activation of the rural drug circulation market can be considered from both internal and external perspectives. On one hand, the government should stick to the practice of a unified national market and, with appropriate policy orienta- tion, encourage modernized logistics companies and other major actors in the distribution network to enter the rural prescription medicines mar- ket. Such an orientation should include the construction and maintenance of a fair and orderly competitive market environment. An orientation of this nature can also include fiscal measures, such as the reduction and exemption of taxes, and monetary approaches—credits and other forms of loan, to those operating in extremely remote areas of the country. The

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government can also consider offering governmental subsidies to enter- prises, compared with direct governmental subsidies, which could lead to a certain degree of reproach from certain quarters. The government can, furthermore, subcontract a modern system of distribution and sales of drugs to enterprises through the method of governments purchas- ing services. Based on the idea of essential medicines being public goods, the government can consider sharing some resource allocation power with private businesses in the remote areas of the country. Based on the requirement of bringing real parity between public services and private companies, the government should make it possible to offer such services according to the principle of “universal service.” Compared with direct governmental subsidies, these two methods are beneficial to restraining the propagation of power rent-seeking phenomenon.

Alternatively, the government should reduce the perennial nature of health departments, bringing in private capital and the prescription medicines distribution system in line with normal market mechanism. According to public choice theory, government departments often tend to utilize the maximum budgetary allocations. The resulting “internal- ity” behavior often leads to a low level of efficiency inside the govern- ment departments which, in turn, leads to significant transaction cost. In the traditional supply mode of the new rural CMS, health depart- ments are actually the policy makers, executors and supervisors of new CMS policy. As a result, health departments and public hospitals have become a benefit community, when there is a lack of restrictions from the outside—their objective being to maximize government subsidies, department scale and their own status. The state law relating to sale of prescription medicines and the distribution of same by private enter- prises is much stricter than those of medical institutions. Under these circumstances, private capital often cannot survive. As a result, the gov- ernment can consider offering the status of nonoperating and nonprofit public service organizations to private drug distribution companies, along the same principles as rural pharmacies, operated by peasants who have the necessary know-how and economic strength to lower the threshold for market entry, and to reduce (and be exempt from) certain related taxes. Further policy design can consider absorbing nonpub- lic drug distribution institutions, like rural retail pharmacies and private clinics, into the reimbursement list of the new rural CMS, in order to usher in competition mechanism and better activate the rural drug distribution market.

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Secondly, the government should explore how to connect the new rural CMS with the national essential medicine institution, in order to improve medication status of peasants. Absorbing all essential medicines into the reimbursement list of the new rural CMS is undoubtedly the foundation for ensuring proper medication for peasants. In China there is presently no single, universally implemented or consulted medicine list under the new rural CMS system. In a small number of places, the medicine list of the new rural CMS has been united with the medicine list of the urban medical insurance schemes. In many places, however, the medicine list of the new rural CMS is separately compiled. Many pro- vincial governments have compiled the unified medicine list of the new rural CMS for their own province and, in some places, the county govern- ments have also compiled their own lists. This pattern of drug list compila- tion, largely devoid of specific reference standards, may be detrimental to maintaining a more rigorous and up-to-date list of essential medicines in various regions under the new rural CMS system. Meanwhile, in some places the renewal rate of the medicine list under the new rural CMS is relatively slow. The continuous emergence of new drugs, the changes in the disease spectrum and the ever-increasing drug resistance have, how- ever, made the original drugs in the list unable to satisfy the drug needs of patients. So, absorbing the list of essential medicines into the medicine list of the new rural CMS is favorable for improving the medication status of peasants. Besides the connection of drug lists, the remarkable cost–benefit of essential medicines is also beneficial to reducing peasants’ burden of medication expenditure, through enlarging the security ranges of the new rural CMS. In the past, because of high medical expenditure and long treatment cycles, many chronic diseases could not be absorbed into the reimbursement range of the new rural CMS. Through the introduction of essential medicines, the medical expenditure can now be reduced on the whole, which perhaps makes the treatment cost come within the com- mitment range of the new rural CMS and, consequently, absorbed into its reimbursement range. In the end, the government should rationally determine the reimbursement proportion relationship between nonessen- tial medicines in the medicine list of the new rural CMS, and essential medicines. If there is little difference in the reimbursement proportion, it will perhaps be nothing else but the excessive restraint of demands. Once the reimbursement proportion of essential medicines is much larger than that of nonessential medicines, it will not be good for the consumption of nonessential medicines, which may even trace back upstream through the

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industry chain, having a negative influence on the R&D and innovation of the pharmaceutical industry.

Lastly, according to National Essential Drugs Clinical Guide, the gov- ernment should set standards for rural doctors’ use of drugs and consider guiding the rational use of essential medicines through the coordination of the multisupervisory mechanism design. At present in China, 78% of drug expenditure is made through doctors’ prescription (Hu, 2009). As a result, the question of whether doctors can sufficiently use medicines is a key part of the success of an essential medicine institution. When the nonmarket financing, such as government input and social insurance, is inadequate and medical institutions need to charge patients in order to compensate for the inadequate financing, the strong position of doctors as professional agents will not be changed short term. The government can, however, standardize and guide the behavior of rural doctors through the related mechanism.

Other irrational drug use behaviors such as “Big Prescription” are likely caused by lack of professional quality and vocational morality, besides the share drive of the distorted institution. This kind of defect can be corrected in the training of front-end behavior and the supervi- sion of back-end behavior. Pertaining to supervision and administration, in the past, health departments in rural areas universally adopted the man- agement and control methods like prescription structure control and pre- scription cost control, but there was generally a lack of universal, rational, and specific operational standards and methods. Alongside the penetrat- ing implementation of the national essential medicine institution policy the issue and implementation of National Essential Drugs Clinical Guide and Chinese National Formulary can provide supervisory methods, with strong manipulability for the use of essential medicines. In terms of exer- cising supervisory rights, aside from Central Government departments and other appropriate authorities, the government can include trade asso- ciations—professional physician associations, and organize the supervisory force among villages, in order to provide guidance on rational drug use behavior of rural doctors through multisupervisory mechanism.

6.10 AVENUES FOR FUTURE RESEARCH

The result of our research suggests that the effects of policy will become easily discernible only with the passage of time. The procedure of policy- making is also the procedure of a constant improvement of policy. The fact that the short-term effects of policy are not always visible does not mean

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there is policy failure. So, future research can be based on this point and proceed with long-term observations and measurement, in order to find the necessary amendments to the basic rural medicines supply chain.

Other than the above, it is also worth noting here that most of the research addressing specifically the issue of PPP in the Chinese health sector has not been incorporated into the present paper. A modern distribu- tion system built on PPP is the core principle and key approach to solving the problem of essential medicines supply in rural China. Future research could explore more ways to optimize the pharmaceutical supply chain in China and on the improvement of efficiency under the framework of PPP.

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