China issued eight guidelines yesterday to further regulate drug prices and to crack down on malfeasance as part of a national campaign to promote more affordable medical services for the people.

The guidelines, drafted by the National Development and Reform Commission and seven other government departments, stipulated a profit cap of 15 percent for non-profitable medical service providers such as public hospitals on the drugs they buy from distributors.

At present, although hospitals are allowed to raise prices of drugs they purchase from the distributors by 15 percent, doctors will further hike the retail prices by another 20 to 40 percent as their kickback.

The guidelines also call for setting drug prices by checking and ratifying factory prices. A pilot program will be launched on selected drugs, it said.

The government is now mostly involved in setting retail prices.

In addition, pharmaceutical makers will be required to display the suggested retail prices on drug packages based on reasonable profit margins.

"The guidelines will help reduce the drug prices and eliminate popular practices among drug distributors and some doctors who make quick and huge profit and hurt the interests of the patients," said Wang Youhong, an analyst with Haitong Securities.

For some new drugs, the makers get 20 percent of the profit, the distributors 40 percent and the hospital and doctors take 40 percent.

Wang said the guidelines aim to slash excessive profit in drug distribution and also help protect the makers which face rising costs of raw materials.

"The guidelines are good news as it helps squeeze unreasonable costs in the distribution process," said Helen Bao, an official with Pfizer Investment Co Ltd. "However the key is to fill the loopholes in the medical system and expand medical insurance."

The guidelines also said the government will intervene over the high costs of medical equipment and reasonably adjust medical services pricing.

(Shanghai Daily June 1, 2006)