Shanghai Enhances Payment Mechanisms to Drive Pharma and Medical Innovation
Shortly after the National Healthcare Security Administration (NHSA) introduced its more industry-friendly renewal rules for older NRDL-negotiated drugs, the Shanghai Municipal Medical Security Bureau and seven other departments jointly released the 'Several Measures for Further Improving Diversified Payment Mechanisms to Support the Development of Innovative Pharmaceuticals and Devices in Shanghai.'
The notice comprises 29 tasks and represents a key step forward to position Shanghai as a global hub for the biopharmaceutical industry. The primary focus of the directive is to unleash the potential of commercial health insurance in covering novel drugs, therapies, and out-of-pocket expenses that fall beyond the scope of basic medical insurance (BMI) coverage.
Additionally, it addresses challenges related to hospital formulary inclusion and the implementation of DRG/DIP payments, particularly affecting NRDL-negotiated drugs and advanced devices.
Key measures include:
- Basic Medical Insurance and Commercial Health Insurance Data Sharing
- Explore the Third-Party Administrator Model and Encourage Stakeholder Collaboration
- Adjust Hospital Performance Metrics to Accelerate Local Access to Innovative Therapies
- Strengthen Policy Support to Incentivize Commercial Health Insurance Purchase
Basic Medical Insurance and Commercial Health Insurance Data Sharing
Provisions:
“Relying on the municipal big data center platform in a secure, legal, and standardized manner, we are exploring the sharing of information between the medical security information platform and the commercial health insurance platform in accordance with regulations. Commercial insurance companies that meet the criteria can, on a compliant and secure basis, legally utilize medical and medical insurance big data for analysis, develop well-targeted products, achieve scientifically precise pricing, and effectively reduce risk management costs and product prices.”
“Enhancing regulatory cooperation between basic medical insurance and commercial health insurance involves utilizing data from basic medical insurance and regulatory methods to support commercial insurance institutions in collaborating with relevant regulatory authorities to strengthen the management of medical service behaviors, prevent excessive medical treatment, and reduce the payout risks of commercial health insurance products.”
Implication:
China's pre-NHSA era was marked by a highly fragmented fee-for-service (FFS) setup that lacked standardized systems and coherent medical records. Additionally, under the FFS model, China’s class 3 hospitals had little incentive to collaborate with commercial insurers due to a substantial portion of their revenue being derived from margins on prescribed medications and procedures. Consequently, many Chinese commercial insurers lacked access to quality data, struggled to create differentiated offerings, and confined their coverage to the "healthy population" exclusively.
Now NHSA owns a powerful “information highway” linked to all its local branches and BMI-designated hospitals.” The ongoing DRG/DIP reform is set to further standardize this data ecosystem. Gaining access to this robust data network will enable commercial insurers to offer tailored insurance, manage risk in underwriting, conduct an informed claims and reimbursement process, and take on a more prominent role in monitoring and influencing provider behaviors. These, in turn, will contribute to lowering the overall cost of care.
Notably, the data-sharing initiative between BMI and commercial health insurance extends beyond Shanghai.
In late June, the China Banking and Insurance Regulatory Commission (CBIRC) and NHSA jointly drafted the "Agreement on Promoting Information Sharing Between the Commercial Health Insurance Information Platform and the National Medical Security Information Platform (Draft for Comments)." The draft proposal was widely seen as a signal from the central government to accelerate commercial health insurance development in China.
Explore the Third-Party Administrator Model and Encourage Stakeholder Collaboration
Provision: "Supporting collaboration among commercial insurance companies, medical institutions, and pharmaceutical enterprises to explore the introduction of specialized third-party administrators, accelerating the development of commercial health insurance products. These products are intended to cover new drugs, effective drugs, high-quality medical services, and out-of-pocket medical expenses not covered by the basic medical insurance scheme. The focus is on including innovative drugs and medical devices with strong efficacy and clinical urgency in the scope of commercial health insurance payments."
Implication:
China's primary commercial health insurance offering currently revolves around a fixed benefit plan that merely extends financial protection for "dreaded diseases" without granting access to care.
To effectively address chronic illnesses and bridge the gap left by basic medical insurance, commercial health insurers must evolve from solely providing financial coverage (the product) to offering a combined package of financial protection and personalized healthcare access (product + services). Commercial insurers must also shift away from the traditional approach of only catering to the "healthy population" and begin providing coverage for individuals with pre-existing conditions.
The use of specialized Third-Party Administrators (TPAs) (akin to Pharmacy Benefit Managers in the US) will introduce essential expertise in "care services" into the design of commercial health insurance products. These services encompass various aspects, such as formulary design, claims processing, and specialty drug-related services. Engaging TPAs will also empower these intermediaries to attain economies of scale, enabling them to negotiate more favorable pricing terms with pharmaceutical companies.
Deeper collaboration with healthcare providers and manufacturers also plays a crucial role in designing tailored health insurance products. This collaboration will not only enhance commercial insurers' medical knowledge and understanding of patient journeys but also become indispensable when existing data falls short in guiding product design – a scenario often encountered during the development of new insurance offerings.
Adjust Hospital Performance Metrics to Accelerate Local Access to Innovative Therapies
Provisions:
“Adjust and optimize the assessment mechanism for public hospitals, prohibiting hospitals from restricting the admission of innovative pharmaceuticals based on factors such as the number of medications in the drug list or drug/consumable proportion controls.”
“For NRDL-negotiated drugs, a separate budget will be allocated for the first three years. This budget will not be included in the hospital's total medical insurance budget for the current year. In the fourth year, the budget for these drugs will be calculated based on the highest usage during the preceding three years and included in the total budget estimation.”
“Special consideration will be given to innovative pharmaceuticals and medical devices regarding DRG/DIP payment. Raise payment standards for cases involving innovative technologies. Cases involving new technologies on a substantial scale can be grouped independently.”
“Promote the use of [Dual-Channel] designated Direct-to-Patient (DTP) pharmacies and electronic prescription circulation platforms to accelerate local access of NRDL-negotiated drugs.”
Implication:
Aside from clinical considerations, the underlying factors that explain the reluctance of public hospitals in China to adopt high-value innovative treatments fully are primarily rooted in how public hospitals are financed and managed.
Shanghai's directive is designed to exclude payments for innovative therapies from the calculation of hospitals' financial and administrative performance metrics, effectively addressing hospitals’ concerns about incorporating innovative drugs and treatments into their formularies.
The Dual-Channel policy is a main initiative to further separate medicine from medical care. Issued in May 2021, the policy extends the same reimbursement coverage for drugs dispensed within hospitals to selected negotiated drugs dispensed at BMI-designated DTP pharmacies. Before implementing the Dual-Channel policy, patients in many regions of China may not be reimbursed by basic medical insurance for drugs purchased outside of hospitals, even if those drugs were included in the National Reimbursement Drug List.
It's important to note that drugs featured in commercial formularies currently have no access to China's most significant distribution channel, public hospitals. Thus, compared to NRDL-negotiated drugs, resolving the “last kilometer” problem and separating medicine and medical services hold even greater significance for commercial health insurers.
Strengthen Policy Support to Incentivize Commercial Health Insurance Purchase
The Shanghai directive also aims to bolster incentives for both employers and individuals to opt for commercial health insurance. This includes leveraging existing payroll and individual income tax reductions more effectively and enabling the purchase of eligible commercial health insurance products using personal BMI account balance. It also aims to expand the specialty drug formulary of Shanghai City Commercial Health Insurance (“沪惠保”).
References:
- 关于印发《上海市进一步完善多元支付机制支持创新药械发展的若干措施》的通知沪医保发〔2023〕2 号 , Shanghai Municipal Medical Security Bureau, http://ybj.sh.gov.cn/zxzc/20230731/6f30a84882fa4fac982feabd31121a56.html
- 国家金融监管总局出手！医保与商业健康险信息共享细则拟定, Beijing Daily, 2023-6-22
