Four fair-price drugstores recently accepted as designated outlets under Shanghai's health insurance system pose a threat to the profits of larger drugstore chains, with the result that they are considering price cuts in their stores.

Leiyunshang, Fuxing and Guoda, three of the five big chain drugstores in Shanghai, have started lowering their prices by from 5 to 10 per cent.

The other two chains are Huashi and Shanghai.

Ever since the first fair-price drugstores appeared in the city in May claiming their drug prices were 40 per cent cheaper on average than those in hospitals and larger stores, there has been a lot of debate over whether or not to push for the spread of these economy drugstores.

So far, the city has 110 designated fair-price drugstores under the health insurance system and 200 million yuan (US$24 million) of their annual retail revenues have come from people's medical insurance policies.

Medicine sales in Shanghai were and still are mainly concentrated in hospitals, with retail drugs outlets getting only about 15 to 20 per cent of the business.

Zhang Yaogang, vice-general manager of Kaixinren, the first fair-price drugstore in the city, said they keep their drug prices low by cutting out the middlemen and buying drugs from first-level wholesale enterprises or directly from pharmaceutical manufacturers.

This transparent and direct supply channel avoids multiple price mark-ups along the way to the consumer, the main reason why drugs are normally so expensive when sold to customers.

A cold remedy selling for 6.8 yuan (80 US cents) in fair-price drugstores, sells for almost four times the price in traditional outlets.

But usually the cheap drugstores sell mainly OTC drugs (over-the-counter drugs) and medicines for the elderly and patients with chronic diseases.

Some people travelled long distances to get to fair-price drugstores after getting doctors' prescriptions because there were only a few of the stores, which meant that they were often far away.

Lu Jun, general manager of Guoda Drugstore, said the fair-price drugstores are necessary and will benefit patients with chronic diseases and elderly people, who need medicine continuously, and those with minor diseases.

Faced with the market change, hospitals are also planning to lower their drug prices.

"The price differential between drugs sold in hospitals and those sold in drugstores is going to decrease to 10 to 15 per cent from its current 30 per cent,'' said Yue Wei, an official with Shanghai Municipal Drug Administration. "Hospitals will remain the main source of drugs for peoples.''

However, the hospitals believed the drugs they prescribe and recommend are always the best available.

(China Daily November 20, 2003)