China Announces National Pilot Program for Volume-Based Drug Procurement, Covering 60%-70% of Public Hospitals' Annual Drug Usage in Selected Cities

VCBeat (WeChat: vcbeat) has learned that on the afternoon of January 17, the General Office of the State Council released information announcing that the “Pilot Program for National Centralized Drug Procurement and Use” (hereinafter referred to as the “Program”) had been approved by the State Council and the document was publicly released.

The document states that, in accordance with the arrangements made by the Central Committee of the Communist Party of China and the State Council, pilot programs for national centralized volume-based procurement and use of medicines are being launched to deepen the reform of the pharmaceutical and healthcare system and improve the mechanism for drug price formation.

A Pilot Work Group for the National Centralized Drug Procurement and Use, composed of the General Office of the State Council, the National Healthcare Security Administration, the National Health Commission, and the National Medical Products Administration (hereinafter referred to as the “Pilot Work Group”), shall provide leadership for the pilot work.

The overarching framework for the national centralized drug procurement is characterized by state organization, alliance-based procurement, and platform-led implementation. Specifically, the state formulates fundamental policies, scope, and requirements, organizes pilot regions to form a procurement alliance, and designates public medical institutions within the allied regions as the primary entities for centralized procurement, thereby exploring cross-regional alliance-based centralized volume-based procurement. Building on the evaluation of pilot initiatives, the coverage of centralized procurement will be gradually expanded to foster long-term and stable societal expectations.

“The Plan” specifies requirements for the scope and forms of centralized procurement, specific measures, policy coordination, organizational structure, and work arrangements.

Below is the full text of the notice.

Notice of the General Office of the State Council on Issuing the National Organization of Drugs

Notice on the Pilot Program for Centralized Procurement and Use

General Office of the State Council Document [2019] No. 2

To the People's Governments of all provinces, autonomous regions, and municipalities directly under the Central Government, and to all ministries and commissions of the State Council and all institutions directly under the State Council:

“Pilot Program for the Centralized Procurement and Use of Drugs Organized by the State” (hereinafter referred to as the “Program”) has been approved by the State Council and is hereby issued to you. Please implement it earnestly.

All pilot cities shall, in accordance with the requirements of the Plan, formulate implementation plans and supporting policies tailored to local conditions, strengthen organizational leadership, consolidate responsibilities at all levels, conduct effective publicity and guidance, manage risk prevention, and ensure the full implementation of all pilot tasks. Relevant provinces shall closely monitor the progress of pilot implementation, actively create favorable conditions, provide support to pilot cities, and enhance guidance, supervision, and performance evaluation.

All relevant departments and units shall, in accordance with the division of responsibilities, further break down and refine the tasks pertaining to their respective jurisdictions, promptly formulate specific measures, clarify implementation schedules, and advance the execution item by item. For tasks involving multiple departments, the lead department shall strengthen coordination, and the related departments shall cooperate closely. A holistic perspective shall be enhanced, communication and collaboration strengthened, ensuring that tasks are assigned, supervised, and delivered with tangible results. The Office of the Working Group on the Pilot Program for State-Organized Centralized Procurement and Use of Pharmaceuticals shall, in conjunction with relevant departments, carry out monitoring and analysis, regular reporting, supervision and inspection, as well as summary and evaluation. Key inspections shall be conducted in pilot regions with slow progress or insignificant outcomes, and major issues shall be reported to the State Council in a timely manner.

General Office of the State Council

January 1, 2019

(This document is publicly released)

Pilot Program for the Centralized Procurement and Use of Drugs Organized by the State

In accordance with the arrangements of the Central Committee of the Communist Party of China and the State Council, this Plan is formulated to deepen the reform of the medical and healthcare system, improve the drug price formation mechanism, and carry out pilot programs for state-organized centralized procurement and use of drugs.

I. General Requirements

(I) Objectives and Tasks. Eleven cities—Beijing, Tianjin, Shanghai, Chongqing, Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu, and Xi’an—were selected to pilot a national program for the centralized procurement and use of drugs. Pilot drug varieties were chosen from generic drugs corresponding to those that have passed the Quality and Efficacy Consistency Evaluation (including those approved for market launch under the new registration classification for chemical drugs; hereinafter referred to as “Consistency Evaluation”). The initiative aims to significantly reduce drug prices and alleviate patients’ financial burden; lower transaction costs for enterprises, purify the distribution environment, and improve the industry ecosystem; guide medical institutions toward standardized medication practices and support public hospital reform; and explore and refine mechanisms for centralized drug procurement and market-driven drug price formation.

(II) Overall Approach. In accordance with the overall approach of state-led organization, alliance-based procurement, and platform-based operation, the state formulates basic policies, scope, and requirements, organizes pilot regions to form alliances, designates public medical institutions in these alliance regions as the main entities for centralized procurement, and explores cross-regional alliance-based centralized volume-based procurement. Building on the summary and evaluation of pilot initiatives, the coverage of centralized procurement will be gradually expanded to guide society toward forming long-term, stable expectations.

(III) Basic Principles. First, adhere to a people-centered approach, safeguard clinical medication needs, effectively reduce the burden on patients, and ensure drug quality and supply. Second, adhere to legal and regulatory compliance, strictly implement relevant policies and regulations, ensure that the specialized procurement process is standardized, open, and transparent, and accept supervision from all parties throughout the entire process. Third, adhere to the combination of market mechanisms and government intervention, respecting the market-led drug price formation mechanism while better leveraging the government’s role in building platforms, facilitating matchmaking, ensuring supply, and strengthening oversight. Fourth, adhere to a smooth transition and proper alignment, appropriately managing the relationship between pilot initiatives and existing procurement policies.

II. Scope and Form of Centralized Procurement

(1) Participating Enterprises. Manufacturing enterprises of drugs within the scope of centralized procurement that have been approved for marketing in mainland China by the National Medical Products Administration (the national general agent for imported drugs shall be regarded as the manufacturing enterprise) are eligible to participate.

(II) Scope of Medications. Pilot varieties shall be selected from generic drugs listed under the same generic names as those that have passed the consistency evaluation.

(III) Shortlisting Criteria. These include quality shortlisting criteria and supply shortlisting criteria. The quality shortlisting criteria primarily consider the clinical efficacy, adverse reactions, and batch-to-batch stability of pharmaceutical products, with consistency evaluation approval serving as the basis in principle. The supply shortlisting criteria primarily consider manufacturers’ production capacity and supply stability; enterprises capable of ensuring the procurement volumes required by the pilot regions may be shortlisted. The specific indicators for the shortlisting criteria shall be formulated by the Joint Procurement Office.

(4) Forms of Centralized Procurement. Corresponding centralized procurement methods shall be adopted based on the number of shortlisted manufacturers for each drug: where there are three or more shortlisted manufacturers, procurement through tendering and bidding shall be implemented; where there are two shortlisted manufacturers, procurement through price negotiation shall be implemented; where there is only one shortlisted manufacturer, procurement through direct negotiation shall be implemented.

III. Specific Measures

(1) Volume-based procurement: exchanging volume for price. Based on the procurement volumes reported by public medical institutions in pilot regions, the total estimated procurement volume is calculated at 60%–70% of the annual total drug consumption of all public medical institutions in these pilot areas. Volume-based procurement is then conducted, linking volume with price and exchanging volume for lower prices to establish centralized procurement prices for drugs. Public medical institutions in pilot cities, or their representatives, shall sign volume-based purchase and sales contracts with manufacturers based on the aforementioned procurement prices. For the remaining demand, public medical institutions may still procure other listed varieties with appropriate prices through provincial-level centralized drug procurement platforms.

(II) Integration of Procurement and Usage to Ensure Utilization. For varieties selected through centralized procurement via bidding, price negotiation, or other methods, public medical institutions in pilot regions shall prioritize their use and ensure that the contracted volume is fulfilled within one year.

(III) Ensure quality and guarantee supply. Strictly enforce quality and supply eligibility criteria to effectively prevent the awarding of bids solely based on the lowest price at the expense of quality, and strengthen whole-chain quality supervision over the production, distribution, and use of selected medicines. On this basis, establish a system for investigating, evaluating, assessing, and monitoring the product quality and supply capacity of shortlisted enterprises. Manufacturing enterprises shall independently select distributors with adequate distribution capabilities and good reputations to distribute centrally procured products, and establish systems for emergency reserves, inventory management, and reporting of production suspensions in accordance with purchase and sales contracts. In cases of failure to supply according to contract, or inability to guarantee quality and supply, corresponding measures such as compensation, penalties, market exit, activation of alternative suppliers, and emergency safeguards shall be implemented to ensure medicine quality and supply.

(4) Ensure payment collection and reduce transaction costs. As the primary party responsible for drug payment settlement, medical institutions shall settle payments with enterprises in a timely manner in accordance with contractual provisions, thereby reducing transaction costs for enterprises. Strict investigations shall be conducted into issues of delayed drug payment settlements by medical institutions. Based on the global budget framework, the basic medical insurance fund shall provide advance payments to medical institutions at no less than 30% of the procurement amount. Cities with appropriate conditions may pilot direct settlement by medical insurance.

IV. Policy Coordination and the Tripartite Linkage of Healthcare, Medical Insurance, and Pharmaceuticals

(1) Explore the alignment between medical insurance payment standards and procurement prices in pilot cities. For drugs included in centralized procurement, the centralized procurement price shall serve as the medical insurance payment standard for those within the scope of the National Reimbursement Drug List. In principle, for original drugs, reference listed drugs, and generic drugs that have passed the consistency evaluation under the same common name, the medical insurance fund shall settle payments based on the same payment standard. If patients use drugs priced higher than the payment standard, the excess amount shall be borne by the patients themselves. If there is a significant difference between the price of the drug used by the patient and the centralized procurement price of the selected drug, the payment standard may be adjusted gradually over a period of 2–3 years, with supporting policy measures formulated accordingly. If patients use drugs priced lower than the payment standard, reimbursement shall be based on the actual price. On the basis of ensuring quality and supply, guide medical institutions and patients to develop rational medication habits.

(II) Promoting Reform in Medical Institutions Through Mechanism Transformation. Gradually eliminate inflated drug prices through pilot programs, optimize medication structures, and reduce the proportion of pharmaceutical expenditures in medical institutions, thereby creating space for public hospital reform. Deepen reforms in healthcare insurance payment methods by establishing incentive and risk-sharing mechanisms between healthcare insurance agencies and medical institutions, characterized by “retention of surpluses and shared responsibility for reasonable deficits.” This will encourage medical institutions to adopt price-appropriate drugs selected through centralized procurement and lower operational costs for public medical institutions. Where public medical institutions generate surpluses from their medical service revenues and expenditures, these funds may be pooled for personnel compensation in accordance with the “Two Permissibles” policy (i.e., permitting healthcare institutions to exceed current salary control levels applicable to public institutions, and allowing revenue from medical services, after deducting costs and setting aside required funds, to be primarily used for personnel rewards).

(3) Consolidate the responsibilities of medical institutions to ensure drug utilization. Encourage the use of drugs selected through centralized procurement, and incorporate the utilization of these selected drugs into the performance evaluations of medical institutions and healthcare professionals. Relevant departments and medical institutions shall not impede the rational use and supply guarantee of selected drugs on grounds such as cost control, drug proportion ratios, or requirements regarding the variety, specifications, and quantity of drugs used by medical institutions. Medical institutions that fail to procure and use drugs in accordance with regulations shall be subject to disciplinary measures in areas including global medical insurance budget allocations, reward and subsidy funds for public hospital reform, accreditation of medical institution levels, designated medical insurance provider status, and target responsibility assessments of institution heads. Healthcare professionals who fail to use drugs in accordance with regulations shall be dealt with strictly in accordance with the relevant provisions of the Prescription Management Measures and the Hospital Prescription Review Management Standards (Trial). Further improve clinical application guidelines for drugs, strengthen monitoring of drug use in medical institutions, rigorously implement prescription auditing and review, enhance publicity and training for physicians and pharmacists, organize comprehensive clinical evaluations of drugs, promote rational and scientific drug use, and safeguard patient medication safety.

(4) Clarify departmental responsibilities and ensure effective policy coordination. To ensure that the national pilot program for centralized volume-based procurement and use of pharmaceuticals achieves its objectives of reducing drug prices and promoting reform, the healthcare security, healthcare delivery, and pharmaceutical regulatory authorities must fulfill their respective duties and coordinate closely. The National Healthcare Security Administration is responsible for formulating the pilot program, related policies, and overseeing implementation, while guiding local healthcare security departments in managing healthcare insurance payments, settlements, and global budget management. Health commissions at all levels are responsible for guiding and supervising medical institutions in the utilization of selected drugs, monitoring and issuing early warnings on drug shortages, and guiding the reform of public hospitals. The National Medical Products Administration is responsible for certifying varieties that have passed the consistency evaluation and verifying the relevant qualifications of pharmaceutical manufacturers. Provincial-level medical products administrations shall strengthen supervision and inspection of the quality of selected drugs and urge manufacturers to implement measures for reporting production suspensions.

V. Organizational Structure

(I) Establishment of the Pilot Work Group and its Office. The National Pilot Work Group for Centralized Drug Procurement and Use (hereinafter referred to as the “Pilot Work Group”), composed of the General Office of the State Council, the National Healthcare Security Administration, the National Health Commission, and the National Medical Products Administration, shall provide leadership for the pilot work, deliberate on major issues, and deploy and implement key tasks. The Office of the Pilot Work Group shall be housed within the National Healthcare Security Administration, with personnel seconded from the National Healthcare Security Administration, the National Health Commission, the National Medical Products Administration, and the Joint Procurement Office. It shall be specifically responsible for organizing and carrying out the pilot program, coordinating related work among departments as well as between departments and local governments, and strengthening public communication, guidance, and policy interpretation.

(II) Establishment of a Joint Procurement Office. Under the leadership of the Pilot Work Group and its office, a Joint Procurement Office shall be established to conduct centralized procurement on behalf of the alliance regions. The Joint Procurement Office shall consist of one representative from each pilot city. The director shall be nominated and appointed by the pilot regions, while representatives from each pilot region shall serve as deputy directors. They are responsible for implementing centralized procurement on behalf of public medical institutions in the pilot regions, and for organizing and supervising the execution of centralized procurement results. The Shanghai Medical Pharmaceutical Centralized Bidding and Procurement Management Office shall undertake the daily operations of the Joint Procurement Office and be responsible for specific implementation. The Joint Procurement Office shall establish a Supervision Group, an Expert Group, and a Centralized Procurement Group.

1. Supervision Team. Responsible for overseeing the centralized procurement of pharmaceuticals, and for promptly accepting and handling related reports and complaints.

2. Expert Panel. An expert panel shall be established, comprising experts from various fields (including experts recommended by national academic organizations, experts from the Hospital Authority of Hong Kong, and relevant experts recommended by pilot regions), to provide technical consultation on related policies, clinical application, procurement operations, and other matters.

3. Centralized Procurement Team. Responsible for the specific implementation of centralized procurement. The Joint Procurement Office shall conduct training for team members and require them to sign commitments on integrity and confidentiality, as well as statements of conflict-of-interest recusal.

VI. Work Arrangements

The Joint Procurement Office consolidates drug usage data from public medical institutions in the pilot regions, further refines the implementation plan based on the pilot scheme and actual conditions, drafts and releases announcements for centralized procurement, carries out specific tasks related to the centralized drug procurement, announces procurement results, oversees the execution of these results in the pilot regions, and strengthens supervision and inspection. The pilot regions list drugs on provincial procurement platforms at the centrally procured prices. Centralized procurement entities sign volume-based purchase and sales contracts with enterprises at these prices and implement the procurement. The results of the centralized procurement are implemented starting early 2019, with a cycle of one year. The Office of the Pilot Work Leading Group provides guidance and supervision throughout the entire process of centralized procurement and use. The Joint Procurement Office and the pilot regions shall promptly report any major issues to the Office of the Pilot Work Leading Group.