Shanghai Bans Three Traditional Chinese Medicines, Shaking Up Prices of Chinese Patent Medicines: The Aim Is Not to Drive Pharmacies into Losses, but to Remove Excess Prices
Hello everyone, I'm your financial journalist. Today, we're talking about a significant event in the pharmaceutical industry that, although it may sound somewhat technical, is closely related to each of us when it comes to seeking medical treatment and taking medication.
On September 1st, the Shanghai Sunshine Medical Procurement Network issued a notice stating that three well-known traditional Chinese patent medicines (TCPMs) had been banned from being purchased by public hospitals in Shanghai due to their refusal to lower their prices. Starting from September 2nd, Jingfang Granules from Chongqing Dikang, Yiqing Granules from Fushoutang, and Chaihu Injection from Henan Lixin are no longer available in Shanghai's public hospitals until their prices are adjusted downward.
This is no small matter. It marks a significant step in the national effort to regulate drug prices, which has previously focused on chemical drugs and high-value medical supplies (such as stents and heart valves) and has now extended to the long-standing challenge of TCMs.
To help you understand the implications of this, I've broken down the news into five key points in plain language.
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What Just Happened? Why These Three Medicines?
First, let's understand the characteristics of these three medicines:
1. They Are Commonly Used: Jingfang Granules, Yiqing Granules, and Chaihu Injection are all regular components in many households' medicine cabinets or frequently prescribed by hospitals.
2. Multiple Manufacturers, Diverse Specifications: Chaihu Injection, in particular, is the first TCM injection in China, with over 70 manufacturers producing it nationwide. Such a widespread product is more prone to price discrepancies.
3. Exorbitant Prices: The National Medical Insurance Administration found that prices for these medicines varied by up to five to ten times across different provinces. For example, the same medication might cost 10 yuan in one province and 50 yuan in another.
Why the Ban?
The government had previously issued warnings to these manufacturers, stating that their prices were too high compared to other regions and urging them to lower them. However, the companies were complacent, thinking, "I'm doing well in Shanghai; what can you do about it?" Shanghai responded by saying, "If you don't lower your prices, you won't be allowed to sell in our public hospitals."
This is similar to how supermarkets remove products with prices significantly higher than market rates. In this case, the "supermarket" represents Shanghai's public healthcare institutions, and the "products" are the medicines.
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Why Is Regulating TCM Prices So Difficult? (Much More Difficult Than Chemical Drugs)
Many people wonder why TCM prices are harder to control when the ingredients of chemical drugs are clear and their costs are easier to calculate. There are three main challenges:
1. Costs Are Unclear: TCMs use herbal ingredients, which are affected by weather, climate, and farming practices. For example, if there's a drought this year, the cost of herbs increases; if there's a good harvest next year, it decreases. Additionally, many herbs are grown by small, decentralized farmers without standardized production methods. This makes it difficult for regulators to determine the true costs.
2. Lack of Uniform Standards: Chemical drugs have clear targets and clinical data for efficacy evaluation, but TCMs are often mixtures of multiple herbs, making it hard to measure their effectiveness with a single metric. Currently, there are no unified standards for evaluating TCMs, leading to pricing based on cost plus a profit margin or market forces.
3. Information Asymmetry: Manufacturers know their costs and the prices of their ingredients, but regulators and hospitals often don't have full access to this information. Moreover, some TCMs are produced by sole manufacturers, giving them more power to set high prices.
In Summary: The difficulty in regulating TCM prices stems from unclear costs, lack of standardization, and information asymmetry. Shanghai's action is a direct attempt to address this by suspending purchases.
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What Is the National Strategy? (From Investigation to Enforcement)
This incident is part of a systematic effort by the National Medical Insurance Administration over the past two years:
1. Step One: Investigation (early 2024): The government started checking the prices of drugs with identical generic names, brands, forms, and specifications to identify those with large price differences across provinces.
2. Step Two: Notification and Warnings (July 2025): The Administration published a list of medicines with excessively high prices and issued warnings. Provinces were then asked to implement a red-yellow labeling system:
- Yellow Label: Prices three times the lowest price.
- Red Label: Prices five times the lowest price; these products were to be closely monitored.
- Suspension: Prices ten times the lowest price; these products were to be immediately removed from the market. Several provinces have already followed this approach.
3. Step Three: Enforcement (Currently): Shanghai's action is an example of this enforcement. If manufacturers ignore warnings, they will be excluded from the market.
The Significance of This Move:
It signifies a shift from establishing rules to enforcing them strictly. The era of high prices maintained through information asymmetry and market inertia is coming to an end.
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What Should We Expect After the Ban? (No One-Size-Fits-All Approach)
While the suspension of purchases is necessary, as an economist, I want to emphasize that regulation should not stop there. We need to avoid three common pitfalls:
1. Avoiding Quality Degradation Due to Low Prices: Rising costs of herbal ingredients could lead to lower-quality medicines if manufacturers cut corners to maintain profits.
2. Avoiding a One-Size-Fits-All Approach: Not all TCMs are equally important or affordable. Some are essential and produced by sole manufacturers, so a more tailored approach is needed.
3. Balancing Penalties and Support: Regulators should provide guidance and assistance to help companies comply with the new rules, avoiding unnecessary penalties that could harm their operations.
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The Future Path: Collaborating for Price Alignment with Value
Regulating TCM prices requires the joint effort of the government, hospitals, manufacturers, and patients:
1. Government: Establish a fair pricing system with third-party evaluations, considering both cost and value. Set a reasonable base price based on costs and additional factors for innovative medicines. Also, stabilize herb prices through strategic reserves.
2. Hospitals: Provide accurate data on medication use to help regulate prices.
3. Manufacturers: Be transparent about costs and conduct economic evaluations to justify their prices. Innovate to reduce costs and improve quality.
4. Patients: Be informed and make informed choices. Ask about alternative medicines and report any pricing issues to help drive down prices through market pressure.
Shanghai's ban on these three TCMs is a landmark event indicating that stricter price controls for TCMs are in place. It shows that companies that rely on opaque information and monopolistic practices will no longer be able to set high prices unilaterally. The future direction is clear: prices must reflect the true value of medicines. Good, effective, and transparent medicines should have a fair market, while those that rely on monopolies will be eliminated.
For us consumers, this means we can expect more affordable and reliable TCMs in public hospitals, and the medical insurance fund can be used more effectively to cover essential treatments.