Medical Insurance and Drug Price Reform: Will Lead to Slower Growth and Lower Profit Margins in the Medical Industry

The sign of medical insurance cost control began after 2010. Starting from 2011, medical insurance authorities in some regions such as Shanghai shifted their focus from expanding revenue to cutting expenditure. In 2013, the growth rate of medical insurance fund revenue became lower than that of expenditure, and the fund faced a situation of narrowed balance and even "expenditure exceeding income". In 2015, the growth rates of medical insurance fund revenue and expenditure dropped to 15.55% and 14.48% respectively. At the same time, price reduction through bidding and medical insurance cost control have become the new normal of the industry.

"Medical insurance cost control will lead to slower revenue growth of the pharmaceutical industry." Zhao Bing explained that since 2009, the main achievement of medical reform is that the government has increased expenditure, driven the growth of the pharmaceutical industry, and established a system of comprehensive coverage and affordable medical expenses.

The new contradiction lies in that after the slowdown of GDP growth, the pressure of continuous investment in the pharmaceutical industry has increased. Zhao Bing believes that "Under the situation where the growth rate of medical insurance expenditure is higher than the growth rate of fundraising, to maintain the balance of revenue and expenditure of the medical insurance fund, cost control will become the core of medical insurance reform in the long run. At present, the pharmaceutical industry and medical insurance reform are essentially controlling the growth of medical expenses through demand-side structural adjustment."

"From 2011 to 2015, the revenue of the pharmaceutical industry achieved a compound annual growth of 15%. But we expect that the revenue growth rate of the pharmaceutical industry will slow down by 10 percentage points in the next three years."