Beijing, August 16, 2021
According to the strategic requirements for “sticking to the innovation-driven development” in the 14th Five-year Plan period, the China Pharmaceutical Innovation and Research Development Association (PhIRDA) and the R&D-based Pharmaceutical Association Committee (RDPAC) have jointly published Fostering China Pharmaceutical Innovation System Report 1: 2015-2020 Review and Future Outlook and Report 2: Boost Basic Research to Activate Industry Innovation since the beginning of this year. With an aim to put forward multi-dimensional constructive suggestions to the long-term development of China’s pharmaceutical innovation ecosystem, the series reports, focusing on three main aspects, namely “competitiveness of the pharmaceutical innovation industry”, “accessibility of innovative drugs”, and “sustainable development of innovative pharmaceutical industry”, to achieve high quality development of China’s pharmaceutical innovation ecosystem.
On 16th August, the 3rd sub-report of Fostering China Pharmaceutical Innovation System: Multi-layered Healthcare Security System to Improve People's Health and Drive High-quality Industrial Development was released through joint efforts by PhIRDA and RDPAC, which casts a glance at the current situation and challenges faced by China's healthcare security system and innovative drug payment system, and with reference to the well-established multi-layered healthcare security systems in countries such as Germany, the USA, France, and Australia, make an improvement to China’s multi-layered healthcare security system and protect people’s health. Along with the goal of achieving high-quality and coordinated development of innovative pharmaceutical industry, specific recommendations are put forward from the perspectives of optimizing overarching design of multi-layered healthcare security system, promoting sustainable development of commercial health insurance, advancing efficient use of medical insurance funds, and enabling integration & linkage between medical insurance and commercial health insurance (as shown below).
It is pointed out by Song Ruilin, the Executive President of PhIRDA, that “Under the guidance of national 'innovation-driven' development strategy, China has made remarkable improvement to its pharmaceutical innovation capabilities in recent years through conduct of National Important Innovator Drug Research & Development Program of Major New Drug Development and driven particularly by the reform of China's drug regulatory system. The accessibility of drugs for patients suffering from serious and critical illnesses has been greatly enhanced. As stated clearly in the “14th Five-Year Plan”, China adheres to innovation-driven development targeted at improving people's life and health, which is an important reflection of the priority that China has placed on people's health since pharmaceutical innovation is of great significance to safeguarding people's life and health. Drug demonstrates social attribute and commodity attribute when it is purchased and taken to improve people's livelihood and health. In view of this, we should strive to find solutions on how to take the market as the guide and give full play to the government's guiding and promoting role to meet the growing health needs of the people while realizing the comprehensive social value of innovative drugs and the sustainable development of the innovation industry under the principle of freeing our mind and seeking truth from facts. This is the original intention that this research is convened. We hope that this report can arouse more attention and provoke more thinking about how to establish a multi-layered healthcare security system that is compatible with the increasingly diversified health needs, so that domestic innovative drugs are to be developed with full consideration given to people's life and health and thereby effectively improve the level of healthcare security for the people.
Kang Wei, Managing Director of RDPAC commented, “Thanks to the reform of review and approval system and the improvement of China's pharmaceutical innovation ecosystem, more and more innovative drugs are benefiting Chinese patients, however, innovative drugs currently account for only 9 percent of the entire Chinese market. There is still much room for improvement in the access to innovative drugs in China compared to other countries dependent mainly on social security systems. Therefore, it is particularly necessary to strengthen multi-layered healthcare security system by developing commercial health insurance, and to further improve the accessibility of innovative drugs and reduce the financial burden on patients by giving full play to the advantage of commercial health insurance. Commercial health insurance has seen rapid growth in funding in recent years, as well as positive progress in policy reform and model innovation, though there are still imperfections such as uneven coverage of insurance and insufficient liability coverage. For the purpose of this report, we expect to further address the existing challenges confronting China’s multi-layered healthcare security system, accelerate the implementation of measures related to the construction of the multi-layered healthcare security system, so that commercial health insurance can truly play a supplementary role to medical insurance and patients in need have access to innovative drugs and high-quality healthcare services as early as possible.”
We are in urgent need of supplementary medical insurance. Nevertheless, there is still a long way to go before the need is met.
The reform and development of the basic medical insurance system over the past few years have made outstanding contribution to the improvement of national health. By 2020, the basic medical insurance system has covered a population of 1.361 billion, achieving near-universal coverage, and it is transforming from single inpatient care to pooled outpatient and inpatient care, with healthcare and assistance mechanism for serious and critical illnesses in place and the scope of medication further expanded. However, according to the statistics, the healthcare expenditure, the largest component of total health expenditure, accounted for only 56 percent of the total health expenditure in 2019, specifically 50 percent or so being medical insurance fund expenditures, approximately 5 percent being medical health insurance benefits and about 1 percent being medical assistance, while out-of-pocket expenditure accounted for 44% of the total health expenditure. These figures show that, compared to developed countries, China’s per capita medical insurance fund spending is relatively low, thereby a multi-layered healthcare security system is needed to better meet medical and health needs.
It is projected in this report that commercial health insurance will become the main growth driver of the multi-layered healthcare security system against the background of building a multi-layered healthcare security system. The commercial health insurance market is gaining tremendous growth: Over the past five years, commercial health insurance premiums (including enterprise supplementary medical insurance) has soared from RMB 241.1 billion in 2015 to RMB 706.6 billion in 2019, with an annual growth rate reaching 31 percent. The government also attaches great importance to the development of commercial health insurance. At the beginning of 2020, China Banking and Insurance Regulatory Commission and other 12 government agencies jointly issued the Opinions on Promoting the Development of Commercial Medical Insurance in Social Services which set a goal of striving to exceed RMB 2 trillion in commercial health insurance premiums by 2025. It’s tentatively estimated in the report on "Building a multi-layered healthcare security system” that as the willingness to purchase commercial health insurance increases, the commercial health insurance products are becoming increasingly diversified and of large scale. It is expected that commercial health insurance could provide 18 percent of total health expenditures in the near future, becoming a major contributor to healthcare security.
The report shows that although commercial health insurance is developing at a fast pace and will play a key supplementary role in the multi-layered healthcare security system, the overall quality of coverage by commercial health insurance in China is far from satisfactory level, the liability is poorly delimited, and it is difficult for people at high risk and with diseases to purchase the insurance, and the sustainability of universal-covered urban insurance that attracts widespread attention still needs to be further examined. In terms of actual insurance coverage, only roughly 40 percent of individual insurance premiums (including enterprise supplementary medical insurance) are restricted to healthy individuals, with restrictions on standard populations and low incurred settlement ratio of about 33 percent, making a limited contribution to the overall healthcare security system. It’s also pinpointed in the report that the boundary between commercial health insurance and medical insurance is blurred, especially the enterprise supplementary medical insurance which has already provided the coverage of outpatient expenses, and that about 75 percent of commercial health insurance does not cover services or drugs not covered by medical insurance, and that there is a lack of long-term medical insurance. From the perspective of ensuring accessibility of innovative drugs, broad access to innovative drugs can reduce social costs brought about by diseases. Under the current situation where medical insurance is the main payer of innovative drugs, developing payment channels (e.g., commercial health insurance) other than medical insurance is crucial to the sustainable and sound development of innovative drugs. However, the current contribution of commercial health insurance to drug expenditure is relatively low and it covers mainly drugs within NDRL.
International experience, implications and suggestions in healthcare security
The development history of commercial health insurance in developed countries provides reference meanings for the construction of a "multi-layered healthcare security system" in China. Analysis of international experience shows that the function positioning, system design, product coverage and developmental maturity of commercial health insurance are closely related to a country's political (legislative) system, the level of healthcare development, the level of social welfare and people's cognitive level of commercial health insurance. Any country needs to plan for the sustainable development of commercial health insurance through long-term policy guidance and market cultivation, drawing on international experience and closely integrating national conditions. From the perspective of the demand level, the level of population coverage and government involvement, China can explore and practice the following paths.
First, in terms of the demand level, the security levels of commercial health insurance all cover the function of "supplement" although they also reflect the characteristics of "diversification". The report shows that there are three main types of demand for commercial insurance among the masses in China, including out-of-pocket supplements (reimbursement of out-of-pocket portion for services or products covered by medical insurance), out-of-medical insurance supplements (supplements for products or services not covered by health insurance) and complementary commercial insurance (patients may choose to seek care from non-designated healthcare services institutions despite being covered by medical insurance). Among them, the supplementary demand outside of medical insurance is the basic unmet healthcare needs of people at this stage, and it's also a layer that commercial insurance needs to focus on constructing and covering in the short term.
Second, in terms of population level, the major commercial health insurance in major countries have basically achieved the coverage of high-risk groups and participants with medical conditions. In a free market, commercial health insurance is prone to "market mechanism failure", with insurance companies subjectively selecting healthy people as insured while ignoring the non-healthy and elderly/vulnerable groups who are most in need of medical insurance. This will undermine the development of an effective and sustainable social security system that provides "protection for the elderly and medicine for the sickness". Taking an overview of the international experience, governments usually regulate the conditions of participation, indemnity requirements and preferential policies of commercial health insurance through a combination of measures to ensure wide coverage of the population and sustainable development of commercial health insurance institutions.
Third, the coverage of high-risk groups and insured populations with some diseases requires the active participation of the government and top-level legislative guarantees and close cooperation among several administrative departments.
International experience shows that governments (or strong mutual-aid organizations) can draw more healthy people into health insurance pool with policymaking, which contributes to dilute the risk of settlement, reduce the probability of market failures and adverse selection, and finally achieve "more incentives, more insured, more settlement". And in the specific policy implementation stage, Europe and the United States generally reflect the characteristics of "separation of management from handling", that is, the principles and standards are completed by legislation, while the specific implementation and supervision by the executive branch, which aims to improve the administrative effectiveness.
In summary, the report recommends that China needs to further clarify the responsibilities of different national administrative departments in the commercial health insurance market, such as the National Healthcare Security Administration, China Banking and Insurance Regulatory Commission, the Ministry of Finance and local governments. And each local government should play a role in promoting the implementation of universal-covered insurance in local cities. At the same time, the government can draw the boundaries for different levels of health insurance products, define the coverage of products of different levels, and enhance the standardization of products and the readability of coverage.
About Report Series on Fostering China Pharmaceutical Innovation System
The report series Fostering China Pharmaceutical Innovation System is co-led by the China Pharmaceutical Innovation and Research Development Association (PhIRDA), and R&D-Based Pharmaceutical Association Committee (RDPAC) in 2021. Starting from the overarching design, this report series aims to analyze in depth the impact of key elements such as basic research, policies, markets (e.g. access, payment and procurement) and funds on improving China's pharmaceutical innovation ability. This report series also aims to identify the weak links and facing challenges in the whole industrial chain at the present stage, put forward constructive suggestions of substantial significance from multiple dimensions, and promote the high-quality development of China 's pharmaceutical innovation, so as to build an international-oriented ecological environment that is suitable for the sustainable development of China's biopharmaceutical innovation, which all make positive contributions to the successful transformation of China into a global leader in pharmaceutical innovation.Please stay tuned for the release of the Global Simultaneous R&D sub-report and the full version of the report to follow.
Click on the following link for the full report:
Click on the following link for the published series reports:
Fostering China Pharmaceutical Innovation System Report 1: 2015-2020 Review and Future Outlook
Fostering China Pharmaceutical Innovation System Report 2: Boost Basic Research to Activate Industry Innovation