Administrative Measures of Shanghai Municipality on Pharmaceutical Prices (Trial Implementation, the “Measures”) were issued by Shanghai Development and Reform Commission on July 29, 2011. The Measures will be effective as of September 1, 2011.

The main contents of the Measures are as follows:

1.- Scope of Applicaiton

All the pharmaceutical manufacturers, distributors, retailers (including pharmacies) and medical institutions in Shanghai

2.- Forms of Pharmaceutical Price-Fixing

a. Government Fixed-price
Shanghai price administration authorities fix the price of pharmaceuticals which are included in the list of pharmaceuticals selected by National Development and Reform Commission (“NDRC”) and Shanghai price administration authorities. The selling price of pharmaceuticals in this List should be the same as the price fixed by the authorities.

b. Government Guidance Price

NDRC fixes the government guidance price of pharmaceuticals in the range of:

i. Prescription pharmaceuticals which are included in the List of National Basic Medical Insurance;
ii. Pharmaceuticals which are included in the List of National Basic Pharmaceuticals;
iii. Some special pharmaceuticals (including pharmaceuticals of psychotropic, narcotic, immune, fertility, etc.).

Except the pharmaceuticals mentioned above, Shanghai price administration authorities fix the government guidance price (the highest price of retailing price in Shanghai) of pharmaceuticals in the range of:

i. Non-prescription pharmaceuticals (“OTC” - Over The Counter) which is included in the List of National Basic Medical Insurance;
ii. Pharmaceuticals which are included in the List of Shanghai Basic Medical Insurance;
iii. Chinese traditional pharmaceuticals which enjoy the benefit of medical insurance reimbursement;
iiii. Pharmaceuticals made by the hospitals, etc.

The selling price of pharmaceuticals mentioned in this section shall not be more than the maximum price of retailing price in Shanghai.

c. Market Adjustment Price

The price of other pharmaceuticals which are excluded from the part a) and b) is fixed by pharmaceutical companies autonomously according to market conditions. Then the price shall be submitted to the relevant industry association for assessment. The industry association will publish the highest retailing price to adjust the retailing price of pharmaceutical companies.

3.- Methods of Price-fixing

a. Price of Similar Pharmaceutical Products

The price of pharmaceuticals entering into Shanghai’s market for the first time shall be fixed in light of the highest retailing price of the same kind of pharmaceuticals being sold in Shanghai’s market according to relevant regulations. This price should be the highest retailing price of new pharmaceuticals to be sold in Shanghai.

b. Centralized Bidding

Firstly, the reasonable bidding price is fixed through normative price evaluation by way of public bidding and internet purchase. Secondly, based on the bidding price, Shanghai price administration authorities publish the hospital supply price and highest retailing price according to the Rules of Increase of Pharmaceutical Price.

c. Information of Market Price and Pharmaceutical Bidding Price.

Shanghai price administration authorities adjusts pharmaceutical highest retailing price dynamically based on the information of market pharmaceutical price in Shanghai & surrounding provinces and the bidding price fixed during the centralized purchase by medical institutions.

Conclusions
Pharmaceutical price-fixing mechanism is one of the crucial parts of health care reform of China. However, national measures on management of pharmaceutical prices have been informed for public comments but the formal measures have not been issued. The Measures were issued according to the principle of pharmaceutical price-fixing and management. Although the Measures were issued as a trial implementation, they are regarded as an important guidance to regulate the pharmaceutical prices in Shanghai.

The Measures just indicate the framework of the pharmaceutical price-fixing and management. However, the Measures don’t regulate the specific operational rules regarding the fixing of pharmaceutical prices. Moreover, the Measure shall be subject to national measures on pharmaceutical prices to be issued by NDRC. Therefore, the Measures shall be improved and adjusted in the following months after its implementation.