Summary of Key Points
The promotion of medical communities (which integrate hospitals, health centers, and village clinics into a single “medical group” within a county) has resulted in fewer prescriptions for pharmacies in the local market, increasing their competitive pressure. However, pharmacies are not without opportunities: due to policy restrictions such as the proportion of drug costs and out-of-pocket expenses, hospitals often divert high-priced, innovative drugs (specialized medications) and those that do not win bids in centralized procurement to external pharmacies. There will be two main types of pharmacies in the future: “hospital-affiliated stores” that focus on handling prescriptions from hospitals, and “community/retail center stores” that primarily sell health products.
Why Can Medical Communities Compete with Pharmacies?
Medical communities are not just simple cooperations; they use administrative power to consolidate healthcare resources within a county:
- Financial control and drug distribution: For example, in Jiangxi, health centers and village clinics within the community are required to purchase drugs through the leading hospital, which also distributes medical insurance funds. As a result, prescriptions issued at the grassroots level are primarily fulfilled within the community’s own pharmacy system, rather than flowing to external pharmacies.
- Internal prescription circulation: Online prescription review platforms like those in Rugao allow real-time transmission of prescriptions from 14 health centers and 352 village clinics. Although it is not explicitly stated that all prescriptions are used internally, it is likely that most remain within the community, as the leading hospital can control drug purchases and prefers to generate more revenue from these sales.
- Grassroots facilities as entry points for higher-level hospitals: Medical communities turn village clinics and health centers into sources of patients for higher-level hospitals, ensuring that prescriptions stay within the system and making it difficult for pharmacies to gain a share of the market.
The Role of Dual-Channel Pharmacies
Dual-channel pharmacies serve as a channel through which both hospitals and pharmacies can sell drugs that have been negotiated at lower prices through government negotiations (national price agreements), as well as those covered by medical insurance. The data from Huangshan shows that each pharmacy receives only 48.7 prescriptions for such drugs per 15 months, but:
- Actual number of prescriptions may be higher: The statement “limited to nationally negotiated drugs” implies that other types of prescriptions are not included in this figure.
- Hospitals are forced to divert prescriptions: To comply with regulations on the proportion of drug costs (which cannot exceed 30% of total revenue), hospitals often have to direct patients to dual-channel pharmacies for high-priced, nationally negotiated drugs.
- Regulatory support: Guangdong requires at least one dual-channel pharmacy in each county, indicating that this model is part of the medical insurance system and will continue to exist. For instance, Rugao has 27 such pharmacies with participation from 7 hospitals, demonstrating a real demand for these services.
The Future of High-Price Specialized Drugs
Specialized drugs, such as those used for treating cancer and chronic diseases, are expected to become more common:
- Hospitals are reluctant to retain them: These drugs are expensive and contribute significantly to the proportion of drug costs and out-of-pocket expenses. To meet regulatory requirements, hospitals often encourage patients to purchase them from pharmacies.
- Market trend: In the United States, specialized drugs account for 60% of drug sales; although prices in China are lower, the shift towards chronic diseases and cancers means that their proportion is likely to increase.
- Dual-channel pharmacies as a key distribution channel: As long as hospital regulations on drug costs and out-of-pocket expenses remain unchanged, the demand for these drugs will continue, providing opportunities for pharmacies.
Non-Selected Drugs in Centralized Procurement
Centralized procurement involves bulk purchases by the state at lower prices, with hospitals required to use the selected drugs. Non-selected drugs have no place within hospital systems and must be purchased externally:
- Hospitals are constrained: Policies restrict the use of non-selected drugs, so hospitals may opt to reduce or avoid them to meet procurement targets.
- Pharmacies can still sell them: Although these drugs do not win bids, there is still demand from patients (e.g., due to brand preferences), allowing pharmacies to fill this market gap.
Future Directions for Pharmacies
Pharmacies can no longer rely on selling a variety of products; they need to focus on specific areas:
- Hospital-affiliated stores: Located near hospitals, these stores handle prescriptions diverted from hospitals and earn revenue from medically insured drugs.
- Community/retail center stores: Positioned in communities or shopping malls, these stores specialize in high-profit health products (e.g., supplements, medical devices, wellness items), with drugs playing a supporting role.
These two models can help pharmacies avoid the pressure posed by medical communities and find their own niche in the market.
Conclusion
While medical communities certainly increase competition for pharmacies, it is not a dead end. By focusing on high-price specialized drugs and non-selected drugs from centralized procurement, and by transforming into hospital-affiliated or community-based stores, pharmacies can still find opportunities for success. The key is to adapt to changing policies and market conditions.