China should cancel the government-led bidding system on medicine purchased by public hospitals to reduce drug costs, said a group of Chinese pharmaceutical business executives on Monday.

The executives, who are also deputies of the National People's Congress and members of the Chinese People's Political Consultative Conference, also suggested getting rid of the special treatment for foreign drug makers' pharmaceuticals whose patents had expired.

A proposal from more than 20 NPC deputies and CPPCC members urged the government to cancel the current bidding system, which is led by the provincial governments.

"It has resulted in many bribes and corrupt activities and caused problems of falsely higher prices or prices lower than costs in many places," it said.

China adopted a public bidding mechanism in 1999 for public hospitals to buy medicines and promoted it to the regional level in 2006, aiming to reduce drug prices via competition and group purchasing.

However, since a provincial government is not the real buyer and user of the drugs, it cannot fully understand the demands of various hospitals in the same region, assess values of diversified products from thousands of producers and adjust product supplies timely.

Moreover, different provincial governments adopted different tendering standards - for example, favoring the cheapest or companies of a certain size - so pharmaceutical companies often felt confused when bidding in various regions.

"That has led to dissatisfaction from both pharmaceutical companies and public hospitals, which may ultimately harm patients' interests," said Xu Jingren, chairman of Yangtze River Pharmaceutical Group and an NPC deputy

In addition, the government-led system, given its complicated procedures and the numerous departments involved, leaves holes for corruption.

A market-oriented mechanism, if carried out under strict and standardized government supervision, will not only let businesses compete on a fair platform, but also meet demands of public hospitals, said Zhu Wenchen, chairman of Henan Furen Pharmaceutical Group and an NPC deputy.

What the government should do is to formulate a legal framework and supervise, he added.

Premier Wen Jiabao delivered a government work report on Tuesday at the annual NPC session, saying that during the last five years, a basic medical care system is taking shape, benefiting more than 1.3 billion people.

He said the goal for the healthcare sector this year is to increase the per person payment standard for basic public health services from 25 yuan ($4) to 30 yuan.

Wen suggested the government deepen medical reform, which echoed the calls of deputies and members.

The business executives also urged the National Development and Reform Commission, China's economic planning agency, to get rid of preferential pricing policies on drugs developed by multinational pharmaceutical companies for which patents had already expired.

According to government regulation, prices of imported and patented medicines should be set much higher than generics, given research and development costs and intellectual property rights of the patented drugs.

However, the patents for many products from multinational companies have expired, but they are still sold for higher prices in China and that's unfair, said Liu Gexin, chairman of Sichuan Kelun Pharmaceutical Co and an NPC deputy.

Though the NDRC has announced a series of price-cutting policies on foreign drugs whose patents had expired, their prices are still much higher than domestic generic drugs, some even 10 times more than similar products from local companies.

"Though Chinese pharmaceutical companies are urging the government to reform its bidding and pricing policies, I don't think it can be done overnight," said Yao Jie, an analyst at Everbright Securities Co.

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