1. China’s pharmaceutical consumption market is dominated by prescription drugs
2. 92% of prescription drug sales are made through hospitals
3. The income and spending for Basic Medical Insurances (BMIs) is becoming imbalanced
4. Spending is rising at a faster rate than income for Urban Basic Medical Insurances (UBMIs)

Beijing, July 21, 2015

According to Roland Berger's analysis, the "separation of drug sales from hospitals" and cancellation of "subsidization of medical services with drug sales" policies will be substantially and widely implemented during the 13th Five Year Plan, creating a major, long-term impact on the pharmaceuticals market and industry.

This report analyzes sales within China's pharmaceutical market, which is based heavily on prescription drug sales, predicting both policy trends and the extent to which the "cancellation of drug sale subsidization for medical services" and "separation of drug sales from hospitals" policies will be implemented following the 18th CPC National Congress. The report also examines how the existing models adopted by health care institutions and private companies can be integrated, analyzing the effects the "separation of drugs from hospitals" will have on industry institutions and enterprises.

Roland Berger Greater China Partner Joe Jin advises pharmaceutical industry players to take action early. "The government has clearly signaled its readiness to cancel 'drug sale subsidization for medical services,' and there have been numerous signs of the changes to come," said Mr. Jin. "We believe this policy will be implemented forcefully and at an unprecedented speed and scale. Under these conditions, the only way for companies and institutions across the industry to ensure future success is to proactively make preparations and position themselves in advance of the coming changes."

Roland Berger recommends that health care institutions and enterprises take the following actions to ensure business model sustainability and succeed in the future pharmaceuticals market:

• With mounting threats to their prevailing business model, international drug manufacturers should transform their sales model and re-examine their pricing strategy.
• Local drug manufacturers can make the most of their uncertain prospects by further consolidating traditional advantages in the retail pharmacy channel, focusing on fostering cooperation with pharmacies in third- and fourth-tier cities.
• Medical equipment and device manufacturers can maximize opportunities for rapid growth and sustainably by targeting academic marketing activities at hospitals and physicians, and by continuing to educate patients and consumers.
• Drug distributers face a serious threat to survival and will have to transition from a model based on "controlling resources and relationship-based sales" to "creating commercial value."
• Retail pharmacies will see significant growth opportunities which they can maximize by rapidly expanding scale and market coverage, and by actively pursuing online business models.