Health Ministry Hatches Takeover of China's Drug Regulator

As reported earlier by Global Insight, China's State Council has agreed that the national Ministry of Health will assume direct control of the State Food and Drug Administration (SFDA), in a move that could usher in profound changes to the way the healthcare system is managed.

Under the changes, the Ministry of Health will be responsible for drawing up food safety standards, and will compile the national list of known approved drugs and another list of "essential", state-funded medicines, due for publication in June. The SFDA will continue to grant drug approvals, but it will also oversee the safety of the entire pharmaceutical supply chain from development to distribution.

The changes accompany major bureaucratic upheavals in several important areas of economic life in China, such as energy and telecommunications, which have seen new "super-ministries" created. In effect, the Ministry of Health's takeover of the SFDA is just one building block for a much larger, comprehensive state-backed healthcare system. In fact, there are many more pieces of the puzzle that must fall into place if China is to create a universal health system by its self-imposed deadline of 2020 (see China: 5 March 2008: Public Service Ethic Pledged as China Continues to Await Healthcare Reform). China has outlined substantial funding increases for rural healthcare (see China: 8 January 2008: Subsidies for Rural Insurance to Double in China), and a number of experimental policy reforms aim to change the current healthcare model, in which nominally public hospitals predominate, funded principally from high pharmaceutical spending.

Scandal and Poor Regulation Haunt SFDA

With hindsight, the move was all but inevitable. The SFDA was granted formal independence from the Ministry of Health in 1998 and made directly answerable to China's cabinet, the State Council. In 2003, the SFDA took over the Ministry's food supervision remit, but a major corruption scandal in 2007 highlighted just how problematic drug regulation had become in China. Disgraced SFDA chief Zheng Xiaoyu was executed in July 2007 following a bribery scandal related to drug approvals. Poor definitions of novelty and lax safety regulation created chaos in the drug regulatory system, and led to a severe slowdown in approvals as panicked officials reviewed the entire scope of the SFDA's activities (see China: 11 September 2008: SFDA Announces New Checks for Recently Reviewed Drugs in China). Indeed, a full-scale purge of drug registrations will strain resources for quite some time (see China: 29 February 2008: SFDA Launches New Purge of Drug Registrations in China).

Moreover, the SFDA's problems were partly due to its remit. Although drug approval is now much less centralised—thus reducing opportunities for graft—official pronouncements on the latest reforms do not clarify whether other important loopholes in the regulatory environment will be closed. Under current arrangements, the SFDA only has formal authority over the safety and effectiveness of drugs as chemicals, but the agency does not have the power it needs to assess their safe or efficient usage. Product quality is also a key problem area. The agency has been in the spotlight recently over another loophole that exempts it from having to inspect manufacturing facilities that only produce drugs for export—a flaw partly blamed for reports of deaths in the United States and elsewhere from sub-standard heparin (see China: 27 February 2008: SFDA Says Foreign Firms Import Chinese Drugs At Their Own Risk).

Outlook and Implications

The consensus among local observers is that the Ministry of Health's absorption of the SFDA will not have an immediate impact on healthcare reforms that are due for publication this year and implemented over the course of the next decade. In fact, the key decision on the future of the state-run health system—namely, whether one ministry will control the health sector and the reimbursement system—is yet to be made; this is an area of considerable tension among the higher echelons of China's bureaucracy (see China: 6 March 2008: Hopes Rise that Unified Regulation Will Bring Order to Chinese Healthcare).

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