U.S.-China Economic and Security Review Commission, "Hearing: China's Healthcare Sector, Drug Safety, and the U.S.-China Trade in Medical Products," April 4, 2014

Thursday, April 03, 2014
328A Russell Senate Office Building
2 Constitution Ave NE
Washington, DC 20002

Hearing Co-Chairs: Chairman Dennis C. Shea and Vice-Chairman William Reinsch

OPENING STATEMENT OF CHAIRMAN DENNIS SHEA

Good morning everyone, and welcome to the fourth hearing of the U.S.-China Economic and Security Review Commission’s 2014 Annual Report cycle. I want to thank our witnesses for being here today, and for the time they have put into their excellent written testimony. We owe special thanks to Dr. Christopher J. Hickey from the Food and Drug Administration, who has made the long trip from Beijing. Before we begin, let me take a moment to thank the Senate Agriculture Committee, Chairman Debbie Stabenow, and her staff for securing this room for us today.

Today’s hearing addresses three important topics: How is China’s healthcare sector impacting China’s economy and stability, and U.S.-China economic relations? Are U.S. companies able to compete fairly in China’s expanding market for drugs, medical devices, and healthcare services? And finally, what is being done to mitigate the safety risks associated with medical product shipments from China to the United States?

We will begin today’s proceedings with an administration panel. Dr. Hickey will inform us about the FDA’s latest efforts to improve the regulation of medical products manufactured in China. We will explore this issue in more detail this afternoon in Panel III. Product safety is a pressing issue for the United States. While our country believes in maintaining open borders, our reliance on imports has exposed consumers to considerable risks. In a globalized economy, U.S. companies are continually outsourcing production, frequently to places that have inadequate safety practices. Medical products are a case in point. Foreign imports now account for 40 percent of our finished drugs and 50 percent of our medical devices. Approximately 80 percent of manufacturers of active pharmaceutical ingredients are located outside the United States. Scores of U.S. patients fell ill in 2007-2008 from tainted Heparin sourced from China. Since then, FDA-regulated shipments from China have grown more than threefold, to 4.5 million in 2012 –about two-thirds of those shipments are drugs and medical devices.

Today’s hearing will also take a broader look at China’s healthcare sector. China’s population is aging. Chronic and non-communicable diseases are proliferating. An emerging middle class is demanding better-quality care. Keeping China’s population healthy has important implications not only for China’s internal stability, but also for its transition from the “world’s factory” to a consumer-driven, service-oriented economy. The Chinese government is investing to expand insurance coverage and improve care, but the country’s healthcare provision remains inadequate. For major U.S. companies that market drugs, medical devices, and healthcare services, China represents an important opportunity. Market access barriers, though, are tilting the playing field against U.S. companies –a losing proposition for both the U.S. economy and Chinese patients.

I will now cede the floor to my co-chair, Vice-Chairman Bill Reinsch, for his opening remarks.

OPENING STATEMENT OF VICE CHAIRMAN WILLIAM REINSCH

Thank you, Chairman Shea. This is our Commission’s first hearing devoted to healthcare and pharmaceuticals in China. Historically, this issue has played a less prominent role in U.S.-China economic relations, but that is changing. China’s citizens are contracting illnesses like Alzheimer’s, diabetes, and lung cancer at an alarming rate. Given that China’s ratio of retirees to workers is increasing, and its per capita income is still low, healthcare needs to improve without escalating costs.

The Chinese government has responded by allocating more of its fiscal budget to healthcare –some $371 billion was spent between 2009 and 2013, and the latest annual budget proposal, unveiled in March, shows spending on healthcare (roughly $50 billion) exceeding that on science and technology. Spending alone, though, won’t do the job. China needs to reform its public hospitals, remove distorted incentives, and allot a bigger role to foreign companies and the private sector. Our excellent witnesses on Panel I will tell us more about these trends.

Panel II today will look at market access for U.S. medical goods and services. For U.S. drug and device companies, establishing a presence in the world’s most populous and fastest-growing economy is becoming a necessity. Healthcare spending in China amounted to about $500 billion last year; large compared to other emerging markets, but small compared to U.S. spending of nearly $3 trillion. The growth potential is enormous, but for U.S. companies, entering China entails significant risks, because the state intervenes in a heavy-handed way in the healthcare market. Local authorities often determine which drugs are eligible for reimbursement from government-run insurers. Government efforts to control the price of drugs and devices have hurt company margins and exacerbated corruption in China’s hospitals, which rely heavily on drug sales. Companies also face delays in marketing patented drugs and the threat of IP theft by drug regulators and generic drug makers. A crackdown on British drug-maker GlaxoSmithKline last year, on bribery allegations, added to regulatory uncertainty.

So, let’s begin. I’d like to remind our witnesses to keep remarks to 7 minutes so that we have time for our question-and-answer session. Each of their written statements will be submitted for the record and will be available online at the Commission’s website. Note also that we will break for lunch after Panel II at 1 pm and return for Panel III at 2 pm.

Administration Panel
Dr. Christopher J. Hickey, Country Director, U.S. Food and Drug Administration, People's Republic of China (Testimony)

Panel I: Policy Challenges in China’s Healthcare Sector
Dr. Karen Eggleston, Faculty Director, Asia Health Policy Program, Stanford University, Stanford, CA
Dr. Yanzhong Huang, Senior Fellow for Global Health Policy, Council on Foreign Relations, New York, NY
Xiaoqing Lu Boynton, Director, Albright Stonebridge Group, Washington, DC

Panel II: Market Access for U.S. Medical Goods and Services in China
Benjamin Shobert, Managing Director, Rubicon Strategy Group, Seattle, WA; Senior Associate, National Bureau of Asian Research, Washington, DC
Rod Hunter, Senior Vice President, International Affairs, PhRMA, Washington, DC       
Ralph Ives, Executive Vice President, Global Strategy and Analysis, AdvaMed, Washington, DC

Panel III: The Safety of Medical Product Imports from China into the United States
Allan Coukell, Senior Director, Drugs and Medical Devices, The Pew Charitable Trusts, Washington, DC
Charles Bell, Programs Director, Consumers Union, Yonkers, NY
Dr. Ginger Zhe Jin, Professor of Economics, University of Maryland, College Park, MD
Dr. Roger Bate, Visiting Fellow, American Enterprise Institute, Washington, DC

You can see a video of the hearing at: http://www.uscc.gov/Hearings/hearing-china%E2%80%99s-healthcare-sector-drug-safety-and-us-china-trade-medical-products-webcast