Guangdong Province to Strictly Enforce New Drug Procurement Rules Starting September 2, Aiming for Real Price Reductions

By / Southern Daily

Recently, the Guangdong Provincial Health and Family Planning Commission, the Guangdong Provincial Commission Office for Public Sector Reform, the Guangdong Provincial Development and Reform Commission, the Guangdong Provincial Department of Finance, the Guangdong Provincial Department of Human Resources and Social Security, the Guangdong Provincial State-owned Assets Supervision and Administration Commission, the Guangdong Provincial Administration for Industry and Commerce, the Guangdong Provincial Food and Drug Administration, and the Guangdong Provincial Administration of Traditional Chinese Medicine jointly issued five normative documents, including the Interim Measures for Drug Transactions in Medical Institutions in Guangdong Province (hereinafter referred to as the “Transaction Measures”).

On August 11, reporters learned at a press conference hosted by the Provincial Health and Family Planning Commission that Guangdong Province will strictly enforce the “Trading Measures” starting September 2. Nearly 40,000 drug specifications and packages will be listed for online trading, and substantive measures to reduce drug prices will be implemented through strategies such as leveraging volume to drive down prices and fostering direct competition between domestically produced generic drugs and off-patent branded drugs.

[Overall Situation] All products, except for traditional Chinese medicine decoction pieces and active pharmaceutical ingredients (APIs), are traded on the provincial trading platform.

Previously, Guangdong Province selected a third-party investor to establish the Provincial Third-Party Drug Trading Platform (hereinafter referred to as the “Provincial Trading Platform”). According to Yang Yuanfeng, Section Chief of the Provincial Medical and Pharmaceutical Procurement Center, all drugs—excluding traditional Chinese medicine decoction pieces and active pharmaceutical ingredients—are currently listed for trading on the Provincial Trading Platform. The drug procurement system is gradually transitioning from a “government-led” centralized procurement model to a “government-led, market-operated” trading model.

“Since 2015, the state has successively issued policies and reform documents related to centralized drug procurement. The ‘Transaction Measures’ we are about to implement have been adjusted and innovated on this basis, taking into account actual conditions,” said Wu Jingzeng, Director of the Pharmaceutical Administration Division of the Provincial Health and Family Planning Commission. These adjustments mainly include: revising the bidding cycle, adopting a double-envelope review method, specifying time limits for drug payment settlements, refining classified drug procurement methods, and redefining drug tier classifications; additionally, new mechanisms have been introduced, such as price negotiation procedures, distribution models, and new rules for comparative pricing transactions.

[Key Adjustment] Hospitals Can "Band Together for Price Negotiations"

It is worth noting that Guangdong has adjusted its drug procurement process from “monthly bidding” to “quarterly bidding.” “This change was primarily made because monthly bidding was too frequent, preventing the full consolidation of procurement volumes. Moreover, it made companies more prone to engaging in irregular practices such as bid rigging. The new approach embodies the principle of leveraging volume to influence pricing, with the aim of promoting competition and reducing bid rigging,” said Yang Zhe, Director of the Provincial Medical Drug Procurement Center.

In terms of price negotiation methods, two new approaches—“autonomous joint negotiation” and “entrusted negotiation”—have been added to the existing practice of independent negotiation by medical institutions. According to Wu Jingzeng, this can enhance the bargaining power of medical institutions while reducing negotiation costs. In the past, hospitals operated in isolation; now, by banding together, they can leverage increased volume to drive down prices.

In addition, Guangdong will implement a “dual-envelope evaluation” system for drugs other than those excluded from the National Reimbursement Drug List, non-patented drugs for women’s and children’s specialties, emergency (and urgently needed) medicines, basic intravenous infusions, low-priced drugs, clinically essential but difficult-to-procure drugs, controlled substances, and negotiated products. Under this system, quality thresholds are established first; only drugs that meet these quality criteria then compete on price, with the lowest bidder winning, thereby ensuring that selected drugs offer favorable cost-effectiveness.

Adjustment to Drug Payment Settlement Timelines with Significant Impact on Hospitals. According to the "Transaction Measures," the drug payment settlement period for medical institutions will be adjusted from "60 days" to "30 days." Reporters have learned that this change poses a considerable challenge for some hospitals.

【Targeting “Artificially Inflated Prices”】Let Them Compete Side by Side with High-Quality Domestically Produced Drugs

“In fact, the inflated prices of some off-patent drugs are a widespread issue. On one hand, these drugs are of high quality and popular; on the other, they were previously procured through separate channels without competition,” said Wu Jingzeng.

Reporters learned that Guangdong will take the lead in allowing high-quality domestically produced drugs, such as “off-patent drugs,” “drugs with stable exports to mainstream international markets,” “generic drugs that have passed the quality consistency evaluation,” and “varieties with the highest comprehensive scores in technical bidding,” to compete on the same platform.

“In short, even generic or private-label products can compete with imported off-patent drugs on the same platform, provided they meet quality standards, by applying a certain price-comparison coefficient. This prevents off-patent drugs from monopolizing the market and drives down their prices as manufacturers strive to capture greater market share,” said Wu Jingzeng.

[Protecting Low Prices] Joint Negotiation and Composite Distribution to Address the Issue

In Guangdong, low-priced drugs must be listed on a unified platform, with buyers and sellers negotiating prices independently and conducting transactions online. In early 2015, Guangdong further stipulated that varieties included in the new version of the Low-Priced Drug Catalog for drug procurement must adhere to the daily cost standard of “≤3 yuan for Western medicines and ≤5 yuan for Chinese proprietary medicines.”

Under such low-price drug reform policies, as of last December, statistics from the Provincial Health and Family Planning Commission showed that although the average price increase for low-price drugs within the province was approximately 23%, data from tertiary hospitals indicated that 30% of low-price drugs experienced price hikes. Meanwhile, pharmaceutical manufacturers in Guangzhou reported price increases ranging from 10% to 20%, though some low-price drugs actually saw price reductions.

However, hospitals and patients have found that the shortage of low-priced drugs persists. Industry insiders analyze that the supply-demand imbalance for certain low-priced drugs is largely due to their limited usage volume and low profit margins, which discourage manufacturers from producing them or result in minimal production output. Some manufacturing or distribution companies fail to sign contracts, do not supply goods, or provide insufficient quantities. For certain scarce medications, such as glycerin borate ear drops, no pharmaceutical companies have even registered interest or submitted bids.

Following the implementation of the new drug procurement regulations, Wu Jingzeng indicated that two major changes would occur. First, low-priced drugs will be listed on the provincial procurement platform. Pharmaceutical companies may submit bids within the daily cost standards defined for “low-price drugs” (≤3 RMB for Western medicines and ≤5 RMB for Chinese patent medicines), thereby ensuring reasonable profit margins for manufacturers. Second, the negotiation mechanism has been adjusted from the previous model, in which hospitals conducted independent price negotiations and separate procurements, to a new approach that encourages hospitals to engage in joint centralized negotiations or to delegate negotiations to third parties. “Grouped” procurement leverages substantial demand volumes; although the total annual contract volume for the entire province is reported once a year, purchases can be made in installments, offering flexibility and acceptability to both pharmaceutical producers and end-users.

On the other hand, the distribution of low-priced drugs has been adjusted to limit the number of distributors to no more than five per drug variety in each county or district, which will effectively ensure supply and delivery and address the shortage of low-priced drugs. “Previously, individual procurement orders from each medical institution amounted to only a few thousand yuan, making pharmaceutical companies unwilling to deliver,” said Wu Jingzeng. By limiting the number of distributors to fewer than five and consolidating drug distribution channels, delivery reliability can be better ensured.

What if price negotiations still fail? Wu Jingzeng stated that the “Transaction Measures” still have a “backup plan,” namely filing-based procurement, which allows individual hospitals to negotiate prices and purchase drugs after filing them in the drug catalog. This essentially grants clinically essential low-priced drugs the “same treatment” as rare disease drugs with procurement difficulties, designated production drugs, and negotiated drug varieties.