After nearly two decades of explosive growth, there’s almost nothing you can’t buy online in China. But there is still at least one major market the country’s e-commerce giants have yet to monopolize: prescription drugs.
That may be about to change. This month, the State Council — China’s Cabinet — took another step toward greenlighting the sale of prescription drugs online. For e-commerce platforms, the announcement could mean huge profits; for public hospitals, it’s a warning shot for a medical system that has long overprescribed medication to leverage its near monopoly on drug sales and pad its bottom line.
For years, drug overprescription has been rampant in China, symbolized by the overuse of IV drips and antibiotics. Severe crackdowns have improved the situation somewhat in recent years, but doctors around the country continue to prescribe unnecessary or off-label drugs. This isn’t a victimless crime: In addition to underlying dangers like antibiotic resistance, patients pay the price for all these unneeded prescriptions. In one recent case, a 50-year-old cancer patient died deep in debt after his doctor prescribed him drugs that were not clinically proven to treat his condition, sparking a social media firestorm.
The incentives for doctors and hospitals to overprescribe drugs are well known. The marketization reforms of the 1980s saw China’s medical system partially deregulated in ways that distorted the caregiver-patient relationship. As medical costs spiraled upward and hospitals were freed to experiment with new revenue sources, doctor fees and compensation remained capped at artificially low levels. One popular means of making up the difference was to sell drugs to patients directly through hospital-owned pharmacies.
This helped public hospitals survive, but it also hooked them on drug sales and medical test fees. Further complicating matters, hospitals, doctors, and pharmaceutical companies developed increasingly close ties, with the latter offering rebates, subsidies, and other benefits for prescribing more of their medications.
The Chinese government has made efforts to solve these problems in recent years. In 2017, it even mandated drugs be sold at cost, in the hopes of reducing their appeal as a revenue source for doctors and hospitals. But while hospital prescription drug sales dipped slightly in 2018, they more or less returned to normal the following year. And despite eliminating prescription drug markups, doctors and hospitals have still found room for profit by manipulating manufacturing costs and sales prices or the use of rebates.
In response to the failure of state-led initiatives, pro-market advocates like Zhu Hengping, a researcher at the Chinese Academy of Sciences, have argued that government policies alone will not be enough to dismantle the close relationship between hospitals and drug sales. Instead, they believe that market competition is the only way to break up the current cartel. And one of the easiest ways of stimulating this competition would be to finally allow e-commerce platforms — already widely used and convenient — to get in on the act.
Currently, it’s extremely difficult for patients to comparison shop. Once online sales are permitted, however, patients will at least theoretically be able to compare the price of drugs from different sellers all over the country and choose the cheapest ones. And with doctors and hospitals less certain that patients will leave the consultation room and buy whatever drugs they’ve been prescribed at the hospital pharmacy, their prescription decisions will be less motivated by profit.
At least, that’s the idea. But there is still a lot to do before China can consider its overprescription problem cured.
To begin with, hospitals won’t go down without a fight. China lacks a universal, effective, and neutral digital prescription database. Asking public hospitals to voluntarily make their e-prescriptions — generally only usable at their in-house pharmacies — universally accessible is a bit like asking them to take the juiciest slices of meat from their plate and put them on someone else’s.
Furthermore, even if it becomes legal to sell drugs online, there are still no provisions for ensuring that medicines sold on the internet are safe and effective. How the country will ensure the authenticity of prescriptions, monitor the safety of drug transportation and storage, and build a safe electronic medical record system — all while guaranteeing patient privacy — remains an open question.
Hospitals and doctors have reason to be skeptical of the market reformers’ plans. Although more recent medical market reforms have led to an increase in the fees doctors are allowed to charge, they remain far from able to replace the revenues earned from drug sales. As long as hospitals rely on drug sales for their income, they have no incentive to voluntarily embrace online pharmacies.
It’s still too early to tell what the effects of the recent State Council announcement will be. Still, it looks likely that market advocates like Zhu will get their wish granted for increased competition. Introducing e-commerce to pharmaceutical sales has the potential to radically alter the medical landscape — but it will only succeed if all the stakeholders can be convinced to work together.
Translator: Lewis Wright; editor: Kilian O’Donnell.
(Header image: Moment/People Visual)