Chongqing Implements 'Two-Invoice System' with Transition Period Ending May 31

“The Two-Invoice System” is being fully implemented, which will reshape the pharmaceutical distribution landscape and effectively curb issues such as artificially inflated drug prices, invoice trading, ticket reselling, and pharmaceutical bribery. However, given that the legacy pharmaceutical distribution system cannot be transformed overnight, a transition period was granted to pharmaceutical manufacturers, distributors, and hospitals when the policy was introduced.

On January 3, the website of the Chongqing Municipal Health and Family Planning Commission released the “Notice on Issuing the

Notice on the Implementation Plan for the “Two-Invoice System” in Drug Procurement (Trial). The Notice states that the “Implementation Plan for the ‘Two-Invoice System’ in Drug Procurement by Public Medical Institutions in Chongqing Municipality (Trial)” (hereinafter referred to as the “Trial Plan”) has been approved by the Chongqing Municipal People’s Government, shall take effect from December 31, 2016, with a transition period lasting until May 31, 2017.

It is understood that the pilot program was jointly drafted by the Chongqing Municipal Health and Family Planning Commission, the Development and Reform Commission, the Finance Bureau, the Commission of Economy and Information Technology, the Commerce Commission, the Administration for Industry and Commerce, the Food and Drug Administration, the State Taxation Bureau, and the Price Bureau, incorporating opinions from various departments involved in pharmaceutical circulation, bidding, and pricing.

In terms of implementation, the Trial Plan also outlines a “roadmap” for relevant enterprises and medical institutions. During the transition period, manufacturing enterprises shall fully consider factors such as the original distribution channels of medical institutions to determine their primary commercial agency relationships in Chongqing, update this information on the Chongqing Pharmaceutical Exchange Platform by April 1, and sign and publicly disclose letters of commitment. Enterprises deemed to be operating entities of manufacturing enterprises and large-scale pharmaceutical circulation groups shall provide relevant supporting documents, sign and publicly disclose letters of commitment. Operating enterprises must properly handle inventory medicines that do not comply with the “Two-Invoice System” regulations. Before the primary commercial agency relationships of manufacturing enterprises are determined, medical institutions may temporarily continue to procure medicines through their original channels; after April 1, they shall timely adjust and optimize distribution channels based on medicine procurement and usage. Each district and county shall thoroughly assess the status of medicine distribution guarantees for grassroots medical institutions in their respective areas; if an additional invoice is genuinely necessary, operating enterprises shall be selected through open bidding and filed for record. Starting from June 1, 2017, all public medical institutions throughout Chongqing will formally and comprehensively implement the “Two-Invoice System.”

The Trial Scheme stipulates that when purchasing drugs, drug distribution enterprises shall proactively request invoices from the manufacturing enterprises. Upon receipt and acceptance, they shall verify the invoices and the supplier’s sales dispatch notes against the varieties and quantities of the drugs actually purchased, ensure consistency, and establish acceptance records for purchased drugs, so as to achieve congruence among invoices, accounts, and goods. Drugs shall not be accepted into inventory if the invoices fail to comply with relevant national regulations and the requirements of the Scheme, or if there is any discrepancy between the content of the invoices and the goods.

As a regional pharmaceutical exchange, the Chongqing Pharmaceutical Exchange has played a significant role in the implementation of the Two-Invoice System.The plan stipulates that the Chongqing Pharmaceutical Exchange shall complete the system construction of a full-process traceability system for pharmaceutical and medical device transaction information, as well as a public information service platform for intelligent pharmaceutical logistics, by the end of May 2017. All levels of public medical institutions and their pharmaceutical distribution enterprises in the city shall achieve phased interconnectivity with this system by the end of December 2017, enabling the tracking of pharmaceutical flow information between manufacturers and distributors, among distributors, and between distributors and medical institutions through batch number queries. Meanwhile, the plan encourages and promotes the conduct of pharmaceutical transactions and payment settlements between manufacturers and distributors via the Pharmaceutical Exchange platform.

Since a “timeline” has been established, it necessarily implies that enterprises failing to comply with the relevant provisions of the “Two-Invoice System” after the deadline will be subject to penalties.

The Trial Plan also delineates the scope of responsibilities for relevant supervisory authorities. Specifically, the health and family planning departments are responsible for coordinating with relevant departments to carry out supervision and management of the “Two-Invoice System,” actively promoting its implementation, strengthening the management of drug procurement, and enhancing supervision and inspection of public medical institutions’ compliance with the “Two-Invoice System.” The food and drug administration departments shall strengthen supervision and management of drug manufacturers and distributors, and severely crack down on all forms of illegal and irregular activities in accordance with the law. The tax authorities shall strengthen the management of tax invoices, intensify audits of tax evasion and avoidance, and verify invoice usage by drug manufacturers and distributors, ensuring timely investigation and handling of any issues identified. The commerce departments shall further strengthen the management of drug distribution enterprises and establish a tiered evaluation system for distribution capabilities. The finance departments shall provide financial support for the construction of an electronic information traceability and regulatory system for the “Two-Invoice System.” The price control and industry and commerce administration departments shall severely crack down on monopolistic practices, unfair competition, and infringements upon consumers’ legitimate rights and interests in drug purchasing and sales. All other relevant departments shall enhance collaboration, act proactively according to their respective responsibilities, demonstrate accountability, cooperate closely, ensure effective regulatory coordination, and form a synergistic effort to effectively promote the implementation of the “Two-Invoice System.”

Strengthen supervision and inspection of the implementation of the “Two-Invoice System.” Establish and improve cross-departmental and cross-regional regulatory coordination, response, and collaboration mechanisms; encourage mutual oversight and reporting among enterprises; and, based on identified clues, conduct targeted special inspections of the “Two-Invoice System” as appropriate. Fully leverage the comprehensive traceability system for pharmaceutical and medical device transactions on pharmaceutical exchanges to regulate the “Two-Invoice System,” identify potential violations by tracing drug distribution channels, and issue warnings to healthcare institutions and enterprises when anomalies are detected.

Strengthen penalties for violations of the “Two-Invoice System.” Relevant authorities shall impose strict penalties on entities that violate regulations concerning drug supervision and administration, tax management, and other related provisions; cases involving serious circumstances shall be referred to judicial authorities for legal handling. Pharmaceutical manufacturing and distribution enterprises that provide false materials or deliberately evade the city’s “Two-Invoice System” regulations shall be subject to stringent measures in accordance with the Drug Transaction Supervision and Evaluation Measures and other relevant provisions, including regulatory interviews, warnings, inclusion in the list of dishonest entities, suspension of trading activities, and revocation of membership in the Pharmaceutical Exchange. Medical institutions that fail to strictly request invoices or disregard directives shall be publicly criticized, and relevant personnel shall be held accountable as appropriate.

This means that Chongqing’s “Two-Invoice System” will directly hold individuals accountable for violations by pharmaceutical companies and medical institutions, and more severely, the entire entities involved will be immediately “disqualified.”

Original link to the notice:

http://www.cqwsjsw.gov.cn/Html/1/tzgg/tzgg/2017-01-03/20006.html#