The Future of Innovative Medicine Pricing and Reimbursement in China: Signals from the 2024 NRDL Negotiations
China is rapidly solidifying its position as a global hub for pharmaceutical innovation, with impressive growth over the past decade:
- China's share of the global drug development pipeline surged from 3% in 2013 to 28% in 2023, making it the second-largest region for clinical trials after the U.S.
- The proportion of drugs launched first in China rose from 9% in 2017 to 29% in 2023, placing it second only to the U.S. in first launches.
On the demand side, from 2019 to Q1 2023, the National Healthcare Security Administration (NHSA) directed 60% of savings from generic drug procurement toward innovative drugs on the NRDL. This shift mirrors trends in developed markets, where patented drugs dominate sales. By 2023, innovative drugs accounted for 15.1% of hospital drug expenditures in sample hospitals, a notable increase from less than 10% of the prescription drug market in 2018.
Yet, despite these strides, the affordability of innovative medicines remains a critical challenge, threatening to constrain further growth in the sector.
The recently concluded 2024 NRDL negotiations offer vital clues about how China plans to address these affordability challenges while ensuring continued access to groundbreaking therapies. In this post, we’ll explore three key signals from these negotiations and what they mean for the future of innovative medicine pricing and reimbursement in China.
Signal #1: Strong Support for First-in-Class Innovations
The 2024 NRDL negotiations, led by the NHSA, placed a clear emphasis on globally innovative drugs, including Class 1 chemical drugs, Class 1 therapeutic biologics, and Class 1 and Class 3 traditional Chinese medicines.
Among the 91 new drugs added this year, 90 were launched within the past five years, and 38 are "globally new," including several bispecific antibodies and antibody-drug conjugates (ADCs). This represents a significant increase in both the proportion and absolute number of "globally new" drugs compared to previous years. Notably, domestic companies contributed 65 of the 91 new drugs, accounting for over 70%—a steadily rising trend in recent years.
At a press briefing, the NHSA highlighted that the 'envelope prices' used in this year's negotiations allowed for higher economic thresholds for drugs demonstrating greater innovation and patient benefits.
To address challenges in pricing first-in-class and rare disease drugs—where head-to-head comparative evidence on efficacy is often unavailable—the NHSA encouraged the use of scientifically designed and rigorously conducted indirect comparison evidence submitted by companies. Qualifying evidence was incorporated into pricing calculations, strengthening the link between innovation ratings and price premiums.
These flexibilities likely contributed to the over 90% negotiation success rate for innovative drugs, a figure that exceeded the overall success rate by 16 percentage points.
Signal #2: Balancing BMI Fund Sustainability: The Growing Role of Budget Impact Assessments
The rules for budget impact analyses in this year’s NRDL negotiations were refined to include additional layers of evaluation.
The “2024 Work Plan for Adjusting the National Basic Medical Insurance, Work Injury Insurance, and Maternity Insurance Drug List,” issued on June 28, introduced more specific requirements for payment standard evaluations. Experts were tasked with assessing negotiated drugs using both employee and resident insurance fund analyses in combination with pharmacoeconomic methods. By contrast, the 2023 version of the work plan only referenced general fund evaluations without distinguishing between employee and resident insurance assessments.
Over the past five years, China’s Basic Medical Insurance (BMI) fund has undergone notable changes, driven by rising healthcare demands and structural adjustments:
- Rapid Growth in Medical Insurance Expenditures:
In 2023, BMI fund expenditures grew at their fastest pace in five years, outpacing fund income growth. This trend highlights a widening gap between healthcare spending and revenue.
- Tight Balances in Resident Insurance Funds:
The resident medical insurance fund balance fell to just 11.2 billion yuan in 2023, the lowest level in five years, signaling increasingly limited resources.
During the NHSA press briefing, officials emphasized that this year’s negotiations placed greater focus on assessing the budget impact of newly added drugs, reinforcing strict cost limits essential for fund sustainability.
This refined approach suggests that the implicit annual cost thresholds for NRDL negotiations—500,000 RMB for entry qualification and 300,000 RMB for successfully negotiated drugs—are unlikely to change. These thresholds may explain why some high-cost drugs, such as Trodelvy and Pfizer’s leukemia ADC, Besponsa, were among the 28 drugs that entered price negotiations but failed to secure agreements with the NRDL.
Signal #3: Improving Affordability: Accelerating Integration with Commercial Health Insurance
China’s slowing economy, aging population, and shifting disease burden are intensifying pressure on the Basic Medical Insurance fund. These challenges underscore the need for commercial health insurance to grow as a complementary pillar, crucial for ensuring the long-term sustainability of the healthcare system.
Despite a period of rapid expansion, growth in China’s commercial health insurance sector has recently slowed. This stagnation stems partly from outdated business models that focus on minimizing payouts by targeting low-risk, healthy individuals.
Innovative products like Huiminbao have shown the potential of expanding coverage to include individuals with pre-existing conditions. This inclusive approach is vital for scaling insurers’ payment capacity and enabling a more significant role in improving access to innovative therapies.
The "2024 National Healthcare Security Administration Drug Catalog Adjustment Notice" reinforced the need for deeper integration between BMI and commercial health insurance. It outlined specific actions for stakeholders to strengthen collaboration:
- Insurers: Design new products and update Huiminbao coverage based on the 2024 Drug Catalog to meet patient needs and reduce out-of-pocket expenses.
- Local Governments: Promote the development of supplementary commercial insurance to fill gaps in basic coverage.
- Collaborative Stakeholders: Innovate by integrating Huiminbao and other commercial insurance products with hospitals to enable one-stop settlement across BMI, critical illness insurance, and medical assistance programs.
More recently, at the National Healthcare Security Administration conference held in Beijing in December, the NHSA indicated that the Huiminbao specialty drug catalog could become a 'Category C' drug list, separate from the basic medical insurance Category A and B lists, allowing innovative drugs to be reimbursed. The coverage would gradually expand to other qualifying commercial health insurance plans, providing policy guidance for the timely inclusion of innovative drugs in commercial insurance reimbursement.
Since individual Huiminbao products have limited payment capacity, establishing a 'basic Huiminbao specialty drug list' can help improve the overall ability to cover innovative medicines, strengthening the role of commercial insurance in expanding access to new therapies.
This closer alignment between BMI and commercial health insurance reinforces a key direction in China's evolving reimbursement framework and plays an essential role in improving the affordability of innovative medicines.
Implications for Manufacturers
#1 Why the "Global New" Trend Demands a New Global Pricing Strategy
Being "globally new" will become increasingly critical for securing price premiums during NRDL negotiations, making China a priority as a "first-wave" country for product launches. This requires manufacturers to:
- Include China in early-stage clinical trials and global branding strategies.
- Account for China-specific pricing and reimbursement needs early in clinical development, ideally before finalizing pivotal study designs.
- Strike a balance between maintaining global pricing consistency and optimizing local China pricing—often a trade-off between short-term business goals and long-term strategy.
Another crucial aspect of being 'globally new' is capitalizing on the first-to-NRDL advantage. As competition intensifies, securing early inclusion in the NRDL becomes increasingly critical. This urgency is amplified by the growing strength of local players, for whom China often serves as the primary market.
For instance, despite repeated attempts, Gilead’s TROP2-directed ADC, Trodelvy, failed to secure an NRDL agreement this year. Meanwhile, local competitor Kelun-Biotech obtained NMPA approval for its rival drug, sacituzumab tirumotecan, for advanced triple-negative breast cancer. This positions Kelun-Biotech for potential NRDL inclusion next year, limiting Trodelvy’s opportunities to establish a stronger foothold in public channels. Moreover, as China advances the integration of its basic and commercial health insurance systems, this missed opportunity is likely to further hinder Trodelvy’s performance in private commercial channels if the company ultimately decides to forgo the NRDL listing.
#2 Optimizing Local China Pricing Requires Addressing Disparate Access Policies
Setting optimal pricing for the Chinese market requires a deep understanding of the country’s highly variable local access policies. Given the NRDL's "volume-for-price" trade-off model, any pricing concession must be carefully aligned with realistic sales volume projections.
China’s healthcare landscape differs from many developed markets in two key ways:
- Regional Variation in BMI Benefit Design: As a developing country, China’s Basic Medical Insurance coverage varies significantly across regions, creating disparities in product adoption.
- Hospital-Centric Drug Distribution Model: Approximately 90% of drugs are distributed through hospitals and village clinics, with 64% of licensed doctors employed by public hospitals. Strict policy mandates often limit prescribing flexibility within these institutions.
These factors mean that in addition to analyzing volume projections based on approved indications and sales capabilities, companies must assess how regional policy disparities impact product uptake to develop pricing strategies tailored to China’s unique environment.
For instance, under the dual-channel policy, some regions have established separate payment mechanisms for NRDL-negotiated drugs. However, the coverage scope and reimbursement rates vary widely. In Guangzhou, 403 drugs are included under the policy, while Jiangsu and Fujian list only 34 and 6 drugs, respectively.
Additionally, product uptake is heavily influenced by evolving policies such as new technology add-on payments under the DRG/DIP framework and the expanding outpatient payment reforms. These policies are critical for ensuring access to public hospitals, which play a central role in meeting volume targets tied to NRDL inclusion.
To make effective pricing decisions, global pricing teams must closely monitor these regional variations and tailor strategies to navigate the complexities of China’s healthcare system. This approach is key to achieving sustainable pricing and access outcomes.
#3 The Impact of Integrating Basic and Commercial Health Insurance
China’s ongoing integration of basic and commercial health insurance systems is reshaping both public and private market dynamics. A recent study underscores the interplay between these systems, particularly how NRDL updates influence the utilization of specialty drugs covered by Huiminbao. This relationship is often "substitutive":
- When alternative drugs are added to the NRDL, patients tend to switch to NRDL-covered drugs, reducing demand for specialty drugs under Huiminbao.
- For example, Ibrance, a widely prescribed breast cancer treatment, experienced reduced utilization in several Huiminbao programs after competitors like Verzenio and Dalpiciclib were included in the NRDL. This shift toward BMI-reimbursed alternatives decreased both physician and patient preference for Ibrance, even though it remained on Huiminbao formularies.
Manufacturers must carefully assess such "substitution" effects when evaluating NRDL listing decisions, especially for therapies in competitive drug classes targeting large unmet needs.
On the other hand, the NRDL’s strict annual cost thresholds often make it unsuitable for certain higher-cost, first-in-class medicines and other therapies with significant clinical value targeting smaller patient populations. In this context, the development of commercial health insurance products tailored to diverse populations, including individuals with pre-existing conditions, will be crucial for expanding access to innovative medicines in China.
By 2030, over 40% of China’s population is expected to reside in high-income cities, driving demand for premium products and services. As basic and commercial health insurance integration progresses, commercial health insurance will evolve from a secondary consideration for NRDL listing into a parallel reimbursement strategy. This shift will be particularly important for products that do not fit the NRDL’s "volume-for-price" trade-off model.
This evolving landscape underscores the importance of manufacturers adopting an integrated approach to pricing and reimbursement, one that accounts for China's increasingly interconnected public and private payer systems. Such strategies will be essential for optimizing product pricing, driving uptake, and effectively navigating the complexities of the country’s integrated health insurance framework.
References:
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