China to scrap drug retail price caps by start of 2015

China plans to scrap retail price caps on all drugs as early as the start of 2015, an official newspaper reported on Wednesday, giving the market a larger role in an industry where price controls have contributed to supply shortages.

The National Development and Reform Commission (NDRC), China's top economic planner, has prepared a draft law for review by the industry and could lift the caps as early as January 1, the official Securities Times reported on its website.

The draft rules, which were sent to eight industry bodies on Tuesday seeking feedback, propose to "cancel government-set prices on drugs, and through insurance price controls and the tendering process, allow the actual transaction price of drugs to be set by market competition," the newspaper said.

Prices would be set by a combination of health insurance departments, existing tendering processes and multi-stakeholder negotiations, it said.

Officials at the NDRC had no comment.

China has been slowly stepping back from caps on consumer prices for drugs but faces a difficult task balancing the need to ensure steady supplies of vital medicines with its desire to keep prices low.

The full removal of caps should ease price pressures on both domestic and international pharmaceutical firms hoping to tap a healthcare market that McKinsey & Co estimates will grow to $1 trillion by 2020, nearly triple its size in 2011.

The caps, however, play only a limited role in the government's price control regime, analysts said, with around two-thirds of drugs still sold in China's vast hospital network where prices are kept low through a tendering system.