"We have decided from June 1 to cancel government-set prices on most drugs to improve purchasing mechanisms for drugs, control costs for medical insurance and allow the trade price of medicines to be set by market competition," the National Development and Reform Commission said, as reported by Reuters.
The move will cover all drugs except anaesthetics and "Category 1" psychiatric medicines, said Beijing-based Ai Ping Bao of Pinsent Masons, the law firm behind Out-Law.com.
The Chinese state and the market will "jointly establish a scientific pricing system", according to a statement from the NDRC, which also urged the strengthened supervision of medical costs and prices to ensure fair competition, China News said.
The NDRC seems confident that prices will remain relatively stable after the cap is removed, Bao said.
China has a centralised drug procurement bidding system run by local authorities, which controls who can supply drugs in each area, and "in practice, the competitive bidding system normally means that price of most drugs is already lower than the cap prices set by the NDRC," Bao said.
"It's also important to note that, in China, the medical insurance system plays an important role in the price of drugs, because hospitals are unlikely to buy drugs at a higher price if they won't be 100% covered by medical insurance."